Re examining the value leverage
The range of interrelated driving forces that exert pressure on the chemical industry is extensive and complex. To address these factors, chemical manufacturer may need to take bold steps: reassess the seven core value levers that best promote industry growth, reorientation them to support planned initiatives and transformation efforts, if any, and overcome current destructive challenges（ See Schedule 2). By re examining these value levers, chemical enterprises can achieve a series of key and interwoven goals.
First, focus on expanding existing value by improving and modernizing business intelligence (BI) and developing new methods to measure value (value levers 1 and 2). The second is to create new value and promote new investment and resource allocation examples through new product and new business model (value levers 3, 4 and 3 are to better reflect changing value chains and end industries by changing portfolio to control performance, while designing new governance frameworks to support key business models and operations (value levers 6 and 7).
Let’s check the seven value levers in turn.
1. transform traditional business intelligence into a radar guided by value chain and always on.
Nowadays, the business intelligence of chemical manufacturers is often product oriented, which tends to weaken the importance of collecting basic information about growth production activities throughout the value chain. These activities include customer applications, possible regulatory changes, and changes in customer attitudes and preferences. In addition, the disruption of supply and demand caused by covid-19 also reveals the huge Bi gap in the data of customers and suppliers related to the external supply chain.
2. create new value indicators that exceed financial reporting.
Performance indicators tend to focus rather narrowly on typical balance sheet and profitability projects, which is a review. As a result, they cannot provide sufficient information and guidance, portfolio, technology, operations, and current chemical industry conditions related to personnel decision-making.
3. develop new value products to cope with the increase of sales volume and changes in profit pool.
On the one hand, demand and profitability are declining, on the other hand, new growth pockets, and the full digitization of value chains in different industries will force chemical enterprises to focus on value growth to release growth flow. For example, the current life of the drill (which contains a large amount of plastic) is only about 30 minutes. Imagine how much the sales of the drill will be reduced if the self-service point provides “drill one service” in the store and the drill is 1000 times longer than it is now. To make up for the impact on plastic profits, chemical companies may focus on providing solutions to improve the durability of the electric tool housing.
4. create innovative business model.
In order to achieve growth and profitability in the change of industrial value chain and the transition to decarbonization economy, and play a key role in it, chemical manufacturers need to improve innovation projects and change business model in three aspects.
First, they have to solve some difficult problems that will require new chemical solutions and will become increasingly important in the coming years. Among them: improve the battery life cycle; Realize zero loss energy transmission; Development of hydrogen energy; Or design a carbon capture and storage system.
5. create new investment and resource allocation.
What we need is to transcend the paradigm of capital expenditure. By reassessing business intelligence, value indicators, value provision and innovation, chemical companies can gain new financial and resource allocation strategies based on more relevant and accurate knowledge of which business segments are supported. Basically, investment decision-making needs to be relocated from three aspects.
6. build a new portfolio model centered on value chain, business model and ecosystem.
Business mix needs to be re evaluated in a multidimensional way, partly based on insights from new business intelligence plans, and on the value chain being processed and the ecosystem portfolio the company is involved in. The portfolio should be analyzed through new growth pockets and demand cliffs. All of this should be the basis for resource allocation decisions and help determine which parts of the portfolio the company should retain and which parts can be removed.
7. develop new governance model.
The comprehensive impact of the powerful forces that drive the major transformation of the chemical industry – digital transformation, geopolitical change and the increasing relevance of sustainable products and operations – forces enterprises to pay more attention to good corporate governance.
