Has your company ever missed a good opportunity because you could not respond fast enough? Have analysts been challenging your performance or cost structures? Do you know what your customers value and are you clear on how effectively you provide this? Ongoing fragmentation across the chemicals value chain, consolidation within segments and changing market demands is resulting in a number of companies needing to address their operating models to help them streamline decision-making, reduce overcapacity, improve performance, develop talented resources and increase their competitive posture in today’s global chemical industry.
As always, portfolio rationalization plays a key part in helping chemical companies to address change. In some cases, divestments have signalled a return to core businesses. The availability of low-cost US shale gas has been another key and well-discussed driver in changing footprints. The desire to capitalize on emerging markets is also an important factor. Finally, chemical companies are also, in some instances, taking the tough decisions and closing down assets that are underperforming.
As important as portfolio rationalizations can be, these recent trends do not tell the story about an important and growing challenge for the chemical industry — the need for companies to improve their overall operational effectiveness. Basically, this view of effectiveness takes into account standard business metrics such as cost and revenues but generally concentrates on people and how they work within a company’s organizational structures.
A company that operates in an effective manner creates clear lines of accountability and governance, reduces unnecessary complexity, duplication and waste, maintains the customer experience as a priority, responds quickly and appropriately to external change, and clearly aligns operating structures and processes with business strategies.
These actions to support operational effectiveness are appropriate steps to take for any company, but in our discussions with industry leaders around the world, we have often seen a reluctance — a kind of foot dragging, if you will — to actually take these steps. This reluctance to act has resulted in slow growth, missed market opportunities, and the erosion of a company’s competitive posture.
Slow decision making is often a symptom of much larger issues involving a company’s operating model. A number of external and internal factors can trigger the need to instigate a review of the operating model.
External challenges can include regulatory and fiscal policy changes, the ongoing slow pace of recovery and limited market growth, supply challenges and increases in the cost of goods, changes in customer expectations, and demographic changes. These in turn can trigger increased levels of competition compounded by industry consolidations, new market entries, price pressures and increased difficulties in attracting and retaining the best skills and talents.
Internal challenges for companies are equally critical. Business strategies can be impacted by new market entries, international expansion, changes in leadership or strategies, and the need to respond to opportunities with greater flexibility. Other issues can include cost constraints, the need to leverage scale or a desire to simplify unsustainable complexity. Transformation through mergers, acquisitions, divestments and new market opportunities can result in additional pressures on a company’s operating model.
As a final note, it should be emphasized that operating models should be adapted to the unique needs of each company, according to their market position, size, product portfolio, financial situation, business objectives and many other factors. However, a carefully designed and implemented operating model can help companies not only survive but thrive in today’s challenging global chemical industry.
“Operating models should be adapted to the unique needs of each company, according to their market position, size, product portfolio, financial situation, business objectives and many other factors.”
If you have any questions, please contact:
Barry van Bergen
+44 20 7694 8002