Market volatility. Intense competition. Activist investors. Escalating security threats. Digital disruption. Why can some chemical companies deal with these challenges better than others? The answer is resilience.
The term resilience originates from psychology and describes the resistance of people to personal crises, as well as the ability to use these crises as a trigger for their own personal development. This concept can be transferred perfectly to the management of a company—including a chemical company, which is our current focus.
As a starting point, chemical companies can develop baseline resilience by focusing on two core capabilities: prevention and agility. Prevention is the ability to anticipate crises (and opportunities) and to set up mechanisms to act in a proactive manner. This approach requires a holistic view of an issue, because both crises and opportunities can originate in the market or from a firm’s balance sheet, due to the particular interests of investors, for example. They can also be security related, stemming from production facilities located in unsafe areas, terrorism or cybercrime.
Looking at agility, a company will become more resilient when it is prepared to react to crises in a quick and flexible manner. As such, digitization and automation both play an important role in becoming more agile.
To date, resilience for chemical companies has primarily been a function of their product portfolio—either broad to spread the risk of market changes, or specialized to be a category leader. The focus is now shifting from selling products to services; thus, one way for chemical companies to increase their resilience is by developing new viable business models,1 as well as cross-industry partnerships. For example, a chemical company could:
Cooperate with a large truck manufacturer, acquire a weather-forecasting company and then start to sell seedlings with guaranteed crop yields.
Collaborate with a start-up organization that builds scooters in order to expand its know-how in the field of new plastics.
Negotiate a joint product innovation agreement with another company or partner with firms in the field of logistics, IT or finance.
Another powerful way for chemical companies to increase resilience is by modifying their organizational structure and corporate culture. A lot depends on how decentralized the organization is and the extent to which employees have been empowered to make their own decisions. This includes the freedom to be open to cooperating with companies from other industries, as well as to establish networks or ecosystems.
In some cases, chemical companies might view this freedom of choice and openness toward the outside world as a risk to avoid. Another way to think about it is the “yin and yang” of resilience. On the one hand, employees gain new freedoms and new responsibilities. On the other hand, due to automation, employees lose responsibility for making critical decisions. As an analogy, think of self-driving cars. In essence, the human gut feeling about driving is replaced by algorithms.
For chemical companies, the opportunities arising from a digital transformation open up new possibilities, such as the analysis of market data and optimization of inventories. It can also create opportunities in logistics, maintenance and manufacturing. And, digitalization makes companies move faster, while adding security at the same time, which eventually creates resilience.
Last but not least, digital technologies help companies get deeper insights into their data and share knowledge. This is essential for a learning organization, in which resilience is a strategic lever that provides resistance to crises, as well as the ability to learn from them.
1Yankovitz, David, Bernd Kreutzer and Paul Bjacek. “Accenture Chemical Industry Vision 2016: New Realities, New Opportunities, Accenture, 2016, https://www.accenture.com/us-en/insight-chemical-industry-vision-2016 (accessed November 1, 2016).