Opinion: Chemical companies need a bold new approach to value levers

Mike Edwards   

Features chemical industry

A raft of powerful and structural challenges to the chemical industry has surfaced, in part, but not entirely, because of the COVID-19 pandemic. While the industry has already had to deftly navigate product commoditization, shifting consumer attitudes and regional preferences, and regulatory changes over many decades, the dynamics today are unique and more potentially disruptive than ever before.

Taken as a whole, these factors affect the entire value chain and are driving a tectonic shift in the chemical industry that has been a long time in the making.

Because these challenges and their impact are tightly interconnected, chemical companies must take steps to view them holistically, navigate them, and find ways to benefit from them. That will mean a complete reexamination of how value is generated in light of the new pressure points the companies face. And they must be certain that these reoriented value levers are operational and targeted, combined with clear metrics to determine their efficacy while supporting objectives for future growth.

Uncertain looming demand and profitability cliffs

The primary challenge that many chemical companies face is volatile and often declining demand, a trend that will affect chemical segments and applications differently. Between 2015 and 2019, median chemical company sales gains held at 3.8% per year, virtually in line with global GDP growth. But many chemical companies — particularly those targeting the European and North American markets — cannot expect that type of growth anymore.

Indeed, chemical companies’ value creation is already showing troubling signs. For the past two decades, total shareholder return in the chemicals sector has not only lagged behind the average of all industries but also behind the results of its key customer sectors, including construction and nondurable consumer items. By this metric, chemical companies have outpaced only the auto industry.

Read more of this blog from Boston Consulting Group here

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