Living Business in Chemicals: Strategies and Offerings

March 12, 2018

In a previous blog post, we explored the need for chemical companies to become “Living Businesses.” A Living Business can anticipate and adapt to customer needs, and stay in step with customers so that it remains perpetually relevant to them. In this blog, we look at two tenets of transforming into a Living Business: develop growth strategies for the digital age and create connected products and services.

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Growth Strategies for the Digital Age

Growth strategies should be recast for the digital age and focus not just on expanding the business, but also on disruption and the creation of new businesses. This means breaking new ground through the use of technology and through innovative approaches to sales and marketing. Chemical companies’ digital growth strategies should consider a range of possibilities:

Shape new ecosystems. Innovations such as “skin-as-a-platform” (i.e., the use of wearable patches/devices that sit on the skin to enable continuous biometric monitoring and drug delivery) have the potential to open new opportunities for chemical companies involved in those value chains. So too do changing customer preferences that are leading to products such as “fully-automated farms.” Chemical companies need to look at how they can best be part of the ecosystems behind these innovations and offerings. Here, they can not only engage with ecosystem partners, but also work proactively to shape these new ecosystems to facilitate growth. Those that do not participate actively in these ecosystems are likely to become “just another supplier” and find themselves further from the customer—and thus at a competitive disadvantage.
Reach across scientific and industrial boundaries. As customers and products evolve, markets are growing less homogenous, and new multi-industry sectors are being formed. For chemical companies, the ability to venture beyond the traditional industry and scientific-discipline boundaries could be a key to future growth. Already, we see some collaborating with and investing in businesses in the biotechnology, internet and digital sectors. Such cross-industry interactions may well open the door to new products and new businesses. However, diversification outside traditional boundaries has not been rewarded by chemical industry investors or been a significant driver of M&A. To take full advantage of such boundary-crossing strategies, then, chemical companies will need to think less like mature-industry players, and more like companies entering a new industry.
Invest to drive the circular economy. The circular economy replaces the traditional, linear “take-make-dispose” approach with a model in which materials are constantly cycled back through the value chain for re-use, resulting in less energy and resource consumption. Some chemical companies are already focusing on circular economy initiatives. For example, Borealis has acquired the German plastics recyclers mtm plastics GmbH and mtm compact GmbH as part of its commitment to sustainability.¹ And SABIC has partnered with Dell to recycle excess carbon fiber and scrap raw materials into new Dell products.² The recycled materials have an approximately 11 percent smaller carbon footprint, compared to new materials.
Invest in the “new” with startups. The chemical industry has seen a great deal of high-profile M&A activity recently, with most deals focusing on cost synergies rather than growth. But beneath that M&A tsunami, there is an undercurrent of smaller deals involving startups. Over the last five years, several large chemical companies have purchased startups, and BASF recently announced³ that its venture arm is investing in NBD Nanotechnologies, a venture-backed company that makes innovative coatings. However, the industry’s spending on such companies is still relatively low. For example, the total funding of chemical startups over the last year was about US$650 million globally,⁴ while approximately US$3 billion⁵ was invested in European pharmaceutical startups alone.

For chemical companies that do make these investments, startups could become new engines that help evolve the core of the business. These startups are often at the frontline of disruptive growth and tuned in to the customers’ demands and preferences. To succeed with startup investing, chemical companies will need to conduct continuous screening of the new companies, manage their integration well and be prepared to scale up those companies’ innovations.

Create Connected Products and Services

Companies that consistently develop successful new products and services tend to focus not on what customers are buying, but why they are buying it. That is, they look at what the customer wants to accomplish.

Connected products and services are one key to meeting those needs. These offerings take advantage of wireless/mobile connectivity, the Internet of Things, sensors and big data to enable personalization and link together the components, processes and analytics needed to deliver the outcomes that customers want. At the same time, they provide a new way to engage customers and enable companies to gather data about customers that can be used to constantly improve offerings.

How do connected products and services work in the chemical industry? Consider one chemical company that is transitioning from selling water-treatment chemicals to selling water-treatment services and expertise. The company’s offering combines chemicals, remote services, and sophisticated monitoring and control of factors such as scale, corrosion, fouling and microbiological growth to help customers reduce, reuse and recycle water in their operations. When used at hotels, this connected product/service has helped reduce annual water use by more than one-third. Looking ahead, the chemical company plans to aggregate and analyze data from across many customer systems to better anticipate disruptions, model scenarios and manage water and energy use across an enterprise.

Meanwhile, another company that traditionally sold marine coatings now offers a predictive tool that lets ship owners and managers monitor the condition of a hull while the ship is in use. Traditionally, fleet managers have struggled to make the right trade-offs between downtime, maintenance costs and fuel usage when it comes to hull maintenance—largely because it is difficult to know the condition of the hull underwater. The predictive tool uses advanced modeling, analytics and artificial intelligence to provide insights into hull conditions. This enables scenario planning and the development of more-accurate hull maintenance specifications before ships go into dry dock for repairs.

Yet another business—a vehicle-finish manufacturer—has launched a digital tool for use in body repair shops. This tool helps simplify workflows and provides a real-time overview of the repair process. This helps shops increase throughput, eliminate waste and enhance employee engagement. In essence, the chemical company has combined digital innovation and big data with a deep understanding of the key challenges faced by its customers as they use its products. Overall, this approach enables the company to move from selling paint to facilitating margin improvement for the owners of the body shops.

As these examples show, some chemical companies are moving ahead quickly with connected products and services. We believe that others should set targets that can help them make that shift—focusing, for example, on achieving a certain percentage of revenue from such products by a given year. Those companies that started on this transition some time ago have set targets of up to 50 percent by 2020.⁶

By applying the Living Business tenets to sales and marketing, chemical companies can stay closer to evolving customer preferences and find new ways to use digital technology to drive growth.

In the next blog in this series, we take a look at another tenet of the Living Business: “Orchestrate iconic customer experiences.”

Living Business in Chemicals: Strategies and Offerings

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