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February 08, 2017
The outcome-based economy: Emergence in chemicals
By: Matthias Hégelé

Today, you can have cars, clothing and food “your way.” Indeed, being able to customize products to meet your needs is rapidly becoming the “new normal.” As a result, many manufacturers are on a journey to greater customer centricity, with a growing range of products tailored to meet individual consumers’ needs. That shift can be seen as part of a broader trend toward the “outcome-based economy,” which is likely to reshape the chemical industry in the years to come.

An “outcome-based economy” is an economy in which value is driven by the delivery of complete solutions that meet a need—in other words, outcomes. In this type of economy, companies will compete on their ability to provide outcomes, rather than just products. The early stages of outcome-based models can be seen, for example, in today’s car-sharing models, in which the auto industry provides the ability to make trips conveniently, rather than simply sell vehicles; or, in the technology industry’s use of software subscriptions, rather than software packages. From the customer’s perspective, the focus changes from “owning a product” to “paying for results.”

How would this work in the chemical industry?

Digital technology is a key enabler of the outcome-based economy. From mobile to the Internet of Things and analytics, it is opening the door to new capabilities for communicating, collaborating and analyzing data. These capabilities make it easier for partners to work together to deliver outcomes, and to identify, measure and target customers’ desired outcomes. All of this is making it possible for chemical manufacturers to move beyond their traditional cost-leadership and operational-efficiency strategies, and instead work with partners and customers in a kind of real-time integrated value chain to shape and deliver new products and services and, ultimately, deliver complete outcomes to customers.

For chemical companies, this could mean selling the guaranteed delivery of clean water, rather than water-treatment chemicals. The traditional product—the water-treatment chemicals—would be integrated into a customized, complete solution, co-created and delivered in conjunction with other parties in the value chain. Table 1 shows a number of other possible shifts from today’s product focus to tomorrow’s outcome-based offerings.

Table 1: What is the outcome economy?


Let’s look at an example related to de-icing chemicals. Frost on the wings of an airplane can degrade the wings’ ability to create sufficient lift and thus greatly interfere with the plane’s ability to safely takeoff, potentially even causing the plane to crash. Therefore, in certain weather conditions, airline companies rely on airports to supply chemical de-icing capabilities. At a busy airport on a busy morning, these materials can have a multimillion-dollar economic impact across all stakeholders, and thus their availability is of critical importance. An outcome-based business model would provide guaranteed product availability and therefore a guarantee of de-iced wings. This is achieved by incorporating airport-specific weather information and tank sensor data (that shows the amount of available de-icing chemicals) to get an accurate demand and supply picture, which is then combined with the proactive shipping of de-icing products to airport locations when required.

Getting there

For chemical companies, the shift towards outcome-based business models could have several potential benefits. For example, the collaborative co-creation of tailored solutions should make it possible to create unique offerings that provide customers with greater value and increase customer “stickiness,” helping to reduce churn rates. In addition, individualized targeted solutions are likely to support stronger and higher “value-based” pricing than traditional products alone.

Moving to outcome-based models will require changes in the way chemical companies operate. Sales, customer service, research and development, and the supply chain organization will need to be transformed to handle the increased complexity. New skillsets will likely be required too—including the ability to form and manage collaborative relationships that can co-create outcomes for customers.

Building stronger digital technology capabilities will also be high on that list. As the technology continues to evolve, chemical companies will need to excel at using it for everything from autonomous operations to analyzing the huge amounts of data coming from across the value chain. Indeed, the ability to enable outcome-based solutions with advanced digital technology will be key to compete in the future.



Co-author:

Oliver Erdenberger

Senior Manager – Chemicals, Accenture Consulting

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