Operational Excellence:
Leadership Perspectives
“The key drivers—market-
driven growth and
innovation, increased
presence in emerging
economies and operational
excellence—remain at the
heart of DSM’s strategy.”
Feike Sijbesma, CEO, DSM
“Through perseverance,
resilience, and reorganization,
as well as the ongoing
commitment to operational
excellence, we have
positioned our businesses for
growth in the coming year.”
Jeff Quinn, CEO, Solutia Inc.
3
Major Discontinuities in the
Global Chemicals Market
As the global economy ebbs and increase differentiation. For companies
flows from one crisis (U.S.) to the next that prefer to focus on organic growth,
(European debt markets), chemical innovation will continue to be the main
companies are looking for new driver. But chemical companies are
opportunities to improve performance continually pressured to improve their
and recapture lost growth momentum. return on innovation by increasing both
But leadership teams are facing a series the effectiveness and efficiency of their
of challenges that will likely result R&D operations. In either case, cost
in a reshuffling of winners and losers reductions in operations within mature
across the industry’s distinct segments, market segments will be key to funding
from petrochemicals and polymers geographic expansion and innovation.
to inorganics and agrochemicals.
Emerging markets—and emerging
The challenges come in many forms: players in those markets—represent
another challenge as they put
In saturated Western markets, organic
increasing competitive pressure on
growth is difficult, leading large
mature markets. The future state of
players to look at acquisitions as the
the chemicals industry is likely to be
primary means for achieving above-
defined by access to feedstocks and
average growth and increasing market
growing consumer demand in emerging
share. Many segments in the chemicals
markets. As such, the industry will
industry remain highly fragmented,
increasingly be defined by players that
with the top five companies in
have access to the feedstocks, markets
categories such as adhesives and
and technology of the emerging
sealants, catalysts, plastic additives,
world. Already, we are seeing the rise
food additives and electronic chemicals
of emerging market multinationals
controlling less than 50% of the market.
(EMMs), with companies such as
This opens the door for consolidation
Sinopec (China), SABIC (Saudi Arabia),
through M&A, with the current
ChemChina (China), Reliance Industries
economic rebound raising the specter
(India), Braskem (Brazil), and Lukoil
of new takeover opportunities (recent
(Russia) capturing local market share
examples include CF Industries’ $4.7
from mature-market multinationals.
billion acquisition of Terra Industries
These EMMs are not constrained by
in the agrochemicals sector, Japanese
traditional operating models and have
chemicals leader Mitsubishi Chemical’s
demonstrated a willingness to take on
$2.52 billion purchase of Mitsubishi
more risk than more established players.
Rayon, and the 3.1 billion-euro takeover
For example, by investing in assets in
of Cognis by BASF). This is a particular
Africa, emerging companies reason that
focus of global providers seeking to
uncertain political situations in some
improve their presence in emerging
parts of the continent are an acceptable
markets along with their proximity to
trade-off to ensure better proximity to
critical feedstocks and their desire to
raw materials.
move further up the value chain to
Volatility is another disruptive force.
Raw materials costs are increasingly
unstable; the pace of business
cycles is increasing. The growing
interconnectedness of local and regional
markets increase complexity and risk,
as crises in one area can quickly impact
another market on the opposite side
of the globe due to the real-time
exchange of information enabled
by the global economy. Chemicals
companies must respond more quickly
to rapidly changing cycles across
geographies, which requires more
balanced customer bases and product
portfolios, sophisticated cost and price
management practices, and deep
insights into market developments.
As traditional business practices evolve,
companies will need to increase both
the flexibility and agility of their
operating models and processes.
A fourth challenge is sustainability,
spurred by growing environmental
and safety concerns (e.g. REACH). New
regulations aimed at product safety and
sustainable production are driving up
costs and forcing chemical companies
to refine processes and governance
structures to develop more sustainable
products and supply chains by reducing
error rates and increasing flexibility to
adapt to changing operating models.
As chemical companies address
these external trends, they also face
a significant internal challenge: a
shrinking workforce. The worldwide
chemical workforce is contracting,
as aging workers leave the industry
and younger engineers focus on
different disciplines. The gap has
created a need for as many as 15,000
fresh chemists or chemical engineers
globally each year. As chemical
companies seek to revamp their
operating models, they are hard-pressed
to capture and transfer the wisdom
of outgoing employees while attracting,
training and retaining employees
who possess the new skills required to
compete in the new global economy.
To be more responsive to these market
discontinuities, chemical companies
are finding an urgent need to become
more flexible in their operations. The
winners in this new landscape are
creating global operating models that
enable them to capture market share
and exploit global scale efficiencies
(assets, sourcing approaches) whilst
also building flexibility and customer
centricity close to demand points.
Accenture believes that a more
proactive approach to achieving
operational excellence is the most
important competitive differentiator
for these times.
The general principles around
operational excellence are not new.
But the volatility and uncertainty
of global markets for all segments
of the chemical industry makes
operational excellence a new
imperative for many CEOs.
4
Key impact of market discontinuities on
operational excellence, by chemical segment
Petrochemicals
For emerging companies:
• Managing large-scale operations including distribution
and logistics (e.g., port bottlenecks in the Middle East)
• Managing global governance, as large locals turn into
giant multinational companies
• Managing large-scale, rapid integration of acquired
(e.g., Western) companies
• Managing cultural differences in a global company
For mature companies:
• Managing cost competitiveness; e.g., reduce complexity,
error rates; increase process speed, decision making
• Increasing local presence in emerging markets
Polymers (Plastic Resins, Synthetic Rubber,
Film and Fibers)
• Building processes that allow for high flexibility
to follow customers
• Managing cost competitiveness to deal with cost
pressures from emerging regions
• Segmenting customers to serve cost-sensitive and
other customer needs
• Fostering large-scale facilities to produce cost-efficient
and state-of-the-art technologies (e.g., managing joint
ventures to reach scale)
• Integrating vertically (e.g., to counter tire manufacturers
producing their own synthetic resins)
Inorganics
• Continuing to focus on presence in local markets,
as some markets tend to be very regional
• Choosing capital investments that coincide with the
company’s production cost model as well as market
growth considerations
• Remaining attentive to environmental regulations
• Managing price and maintaining supplier relationships
Source: Accenture research
Paints and Coatings:
For emerging markets/companies:
• Exploring M&A options (e.g., the fragmented Chinese
and Indian paints and coatings market)
For mature markets/companies:
• Exploiting high health, safety and environmental standards
as a competitive advantage in emerging markets
• Focusing on innovation , R&D and end market relationships
• Focusing on end-user proximity and stable position within
the home market
• Investing in distribution infrastructure and branding
Agrochemicals
• Building globally efficient operating models (e.g. , sales
and operations planning)
• Differentiating services based on customer and market
demand and driven by profitability
• Balancing working capital with service levels while
maintaining flexibility
• Establishing a global presence in large agro markets
• Defining a strong local presence and knowing how to meet:
– Regional farmers’ needs
– Local legislation on gene-manipulated seeds
– Local soil requirements and weather conditions
• Managing cost competitiveness in the fertilizer business
to deal with strong cost competition
• Building global logistics vs. regional distribution channels
• Leveraging local R&D