Achieving Operational Excellence: Five Elements of Success in the ...

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Achieving Operational Excellence: Five Elements of Success in the ...

Achieving Operational Excellence:

Five Elements of Success in the

Global Chemicals Industry


The chemicals industry has been hit by a steady

stream of difficult events, centered on a set of

market-changing discontinuities.

Remaining unease across global markets, ongoing price pressures

caused by new competition and decreasing demand, changing

regulations, and an emphasis on “green” supply chains continue

to add volatility and uncertainty to the global chemicals sector.

2


After a period of sustained growth in

the early part of the last decade (15%

CAGR between 2002-2008), the $2.6

trillion chemicals industry is looking

to recapture its lost momentum—and

lost profits.

Where to turn? Given the “new

normal” economic climate, we believe

a razor-sharp focus on operations will,

perhaps more than ever before, help to

separate the winners from the losers.

Operationally excellent companies

historically have demonstrated an

ability to emerge from a downturn in

a stronger position. These companies

achieve superior capital efficiency,

operating margins and growth through

a laser focus on leading industry KPIs.

Regardless of a company’s market

position, winners consistently

deliver results by getting the five

big operational calls right:

First, they have a deep understanding

of their “competitive essence,” which

they have rigorously aligned with their

operations and structures.

Second, they build organizations that

out-structure their competition.

Third, they have the capabilities,

processes, and skills to out-execute

competitors.

Fourth, they find a unique blend of

structural and executional changes

to drive operational excellence.

And finally, they define the right

“change journey” that will lead them to

operational excellence and consistently

high performance.

“Profitable growth in a competitive

global market can only be achieved

through operational excellence,” says

Dr. Jürgen Hambrecht, chairman of

the board for BASF. “Only a long-term

view creates sustainable value.”

BASF has sustained its growth through

a global operational excellence program

intended to generate €1 billion in

additional earnings annually. But not

all companies can demonstrate such a

track record of operational excellence.

Accenture research shows that 95

percent of senior executives across

industries doubt that their companies

have the right operating model to

support their international strategy.

As discontinuities grow in consequence

and in frequency, managers run ever

greater risks of making poor decisions.

They can no longer afford to do so.

Still picking up the pieces from the

global financial crisis, most executives

are already on a journey to change

their company’s operational models,

whether they recognize it or not.

How they make the journey will

have a significant bearing on their

company’s eventual positioning. It

is imperative, therefore, to select the

appropriate change journey with care,

and to embark on it with wholehearted

commitment and full preparation.

2


Operational Excellence:

Leadership Perspectives

“The key drivers—marketdriven

growth and

innovation, increased

presence in emerging

economies and operational

excellence—remain at the

heart of DSM’s strategy.”

Feike Sijbesma, CEO, DSM

“Through perseverance,

resilience, and reorganization,

as well as the ongoing

commitment to operational

excellence, we have

positioned our businesses for

growth in the coming year.”

Jeff Quinn, CEO, Solutia Inc.

3

Major Discontinuities in the

Global Chemicals Market

As the global economy ebbs and

flows from one crisis (U.S.) to the next

(European debt markets), chemical

companies are looking for new

opportunities to improve performance

and recapture lost growth momentum.

But leadership teams are facing a series

of challenges that will likely result

in a reshuffling of winners and losers

across the industry’s distinct segments,

from petrochemicals and polymers

to inorganics and agrochemicals.

The challenges come in many forms:

In saturated Western markets, organic

growth is difficult, leading large

players to look at acquisitions as the

primary means for achieving aboveaverage

growth and increasing market

share. Many segments in the chemicals

industry remain highly fragmented,

with the top five companies in

categories such as adhesives and

sealants, catalysts, plastic additives,

food additives and electronic chemicals

controlling less than 50% of the market.

This opens the door for consolidation

through M&A, with the current

economic rebound raising the specter

of new takeover opportunities (recent

examples include CF Industries’ $4.7

billion acquisition of Terra Industries

in the agrochemicals sector, Japanese

chemicals leader Mitsubishi Chemical’s

$2.52 billion purchase of Mitsubishi

Rayon, and the 3.1 billion-euro takeover

of Cognis by BASF). This is a particular

focus of global providers seeking to

improve their presence in emerging

markets along with their proximity to

critical feedstocks and their desire to

move further up the value chain to

increase differentiation. For companies

that prefer to focus on organic growth,

innovation will continue to be the main

driver. But chemical companies are

continually pressured to improve their

return on innovation by increasing both

the effectiveness and efficiency of their

R&D operations. In either case, cost

reductions in operations within mature

market segments will be key to funding

geographic expansion and innovation.

Emerging markets—and emerging

players in those markets—represent

another challenge as they put

increasing competitive pressure on

mature markets. The future state of

the chemicals industry is likely to be

defined by access to feedstocks and

growing consumer demand in emerging

markets. As such, the industry will

increasingly be defined by players that

have access to the feedstocks, markets

and technology of the emerging

world. Already, we are seeing the rise

of emerging market multinationals

(EMMs), with companies such as

Sinopec (China), SABIC (Saudi Arabia),

ChemChina (China), Reliance Industries

(India), Braskem (Brazil), and Lukoil

(Russia) capturing local market share

from mature-market multinationals.

These EMMs are not constrained by

traditional operating models and have

demonstrated a willingness to take on

more risk than more established players.

For example, by investing in assets in

Africa, emerging companies reason that

uncertain political situations in some

parts of the continent are an acceptable

trade-off to ensure better proximity to

raw materials.


Volatility is another disruptive force.

Raw materials costs are increasingly

unstable; the pace of business

cycles is increasing. The growing

interconnectedness of local and regional

markets increase complexity and risk,

as crises in one area can quickly impact

another market on the opposite side

of the globe due to the real-time

exchange of information enabled

by the global economy. Chemicals

companies must respond more quickly

to rapidly changing cycles across

geographies, which requires more

balanced customer bases and product

portfolios, sophisticated cost and price

management practices, and deep

insights into market developments.

As traditional business practices evolve,

companies will need to increase both

the flexibility and agility of their

operating models and processes.

A fourth challenge is sustainability,

spurred by growing environmental

and safety concerns (e.g. REACH). New

regulations aimed at product safety and

sustainable production are driving up

costs and forcing chemical companies

to refine processes and governance

structures to develop more sustainable

products and supply chains by reducing

error rates and increasing flexibility to

adapt to changing operating models.

As chemical companies address

these external trends, they also face

a significant internal challenge: a

shrinking workforce. The worldwide

chemical workforce is contracting,

as aging workers leave the industry

and younger engineers focus on

different disciplines. The gap has

created a need for as many as 15,000

fresh chemists or chemical engineers

globally each year. As chemical

companies seek to revamp their

operating models, they are hard-pressed

to capture and transfer the wisdom

of outgoing employees while attracting,

training and retaining employees

who possess the new skills required to

compete in the new global economy.

To be more responsive to these market

discontinuities, chemical companies

are finding an urgent need to become

more flexible in their operations. The

winners in this new landscape are

creating global operating models that

enable them to capture market share

and exploit global scale efficiencies

(assets, sourcing approaches) whilst

also building flexibility and customer

centricity close to demand points.

Accenture believes that a more

proactive approach to achieving

operational excellence is the most

important competitive differentiator

for these times.

The general principles around

operational excellence are not new.

But the volatility and uncertainty

of global markets for all segments

of the chemical industry makes

operational excellence a new

imperative for many CEOs.

4


Key impact of market discontinuities on

operational excellence, by chemical segment

Petrochemicals

For emerging companies:

• Managing large-scale operations including distribution

and logistics (e.g., port bottlenecks in the Middle East)

• Managing global governance, as large locals turn into

giant multinational companies

• Managing large-scale, rapid integration of acquired

(e.g., Western) companies

• Managing cultural differences in a global company

For mature companies:

• Managing cost competitiveness; e.g., reduce complexity,

error rates; increase process speed, decision making

• Increasing local presence in emerging markets

Polymers (Plastic Resins, Synthetic Rubber,

Film and Fibers)

• Building processes that allow for high flexibility

to follow customers

• Managing cost competitiveness to deal with cost

pressures from emerging regions

• Segmenting customers to serve cost-sensitive and

other customer needs

• Fostering large-scale facilities to produce cost-efficient

and state-of-the-art technologies (e.g., managing joint

ventures to reach scale)

• Integrating vertically (e.g., to counter tire manufacturers

producing their own synthetic resins)

Inorganics

• Continuing to focus on presence in local markets,

as some markets tend to be very regional

• Choosing capital investments that coincide with the

company’s production cost model as well as market

growth considerations

• Remaining attentive to environmental regulations

• Managing price and maintaining supplier relationships

Source: Accenture research

5

Paints and Coatings:

For emerging markets/companies:

• Exploring M&A options (e.g., the fragmented Chinese

and Indian paints and coatings market)

For mature markets/companies:

• Exploiting high health, safety and environmental standards

as a competitive advantage in emerging markets

• Focusing on innovation , R&D and end market relationships

• Focusing on end-user proximity and stable position within

the home market

• Investing in distribution infrastructure and branding

Agrochemicals

• Building globally efficient operating models (e.g. , sales

and operations planning)

• Differentiating services based on customer and market

demand and driven by profitability

• Balancing working capital with service levels while

maintaining flexibility

• Establishing a global presence in large agro markets

• Defining a strong local presence and knowing how to meet:

– Regional farmers’ needs

– Local legislation on gene-manipulated seeds

– Local soil requirements and weather conditions

• Managing cost competitiveness in the fertilizer business

to deal with strong cost competition

• Building global logistics vs. regional distribution channels

• Leveraging local R&D


The Five Hallmarks of Operational Excellence

For many companies, addressing

these discontinuities and achieving

competitive advantage requires

a renewed focus on operational

excellence. Accenture research shows

that operationally excellent companies

have historically demonstrated an

ability to ride the storm and emerge

from a downturn in a stronger position

(Exhibit 1).

Industry leaders have used the latest

downturn to pursue operational

excellence opportunities. For example,

emerging from a crisp and clear

understanding of its competitive

essence to “manage global complexity

through an integrated portfolio from

feedstock to specialty chemicals,” BASF

has addressed operational excellence

7

through the “NEXT” efficiency program

it launched in 2008 to improve earnings

by an expected €1billion. A significant

part and major benefit lever of NEXT

was the global harmonization of BASF’s

cross-functional, end-to-end processes

across the 75 business units worldwide

led by Dr. Robert Blackburn, Senior Vice

President and Head of Global Supply

Chain Management, BASF.

In the chemicals industry, companies

that consistently outperform industry

averages in both revenue growth

and operating margins have also

shown increased activities related to

operational excellence, such as locating

close to feedstocks, integrating value

chains, and becoming more customer-

or specialty-focused (Exhibit 2).

The best approaches to operational

excellence, however, are difficult

for most companies to pinpoint.

Executive management confronts a

seemingly limitless range of potential

responses: Should we launch a topdown

transformational program,

or a company-wide Lean Six Sigma

program? Do we need to nail down

a new operating model before we

start making big changes? Do current

market disruptions call for a strategic

response that transcends economic

cycles? Working through this maze

of questions in order to achieve

operational excellence right requires

a strategy built from five hallmarks

of operational excellence.


Exhibit 1: Operationally excellent companies can separate

themselves from the pack post-recession

Average ROIC

Related to

the industry

Index

Source: Accenture research

Exit from recession

Winners

Followers

Time

Exhibit 2: Characteristics of top performers in the chemicals industry

Financial performance/company classification

Revenue Growth

(CAGR 99-09)

Operating Margin

(Avg. 99-09)

Source: Accenture research

Sustainable Top Performers

Segment Average

Sustainable Top Performers

Segment Average

Close to source/

commodity focused

companies

Value chain

integrated

companies

23.4% 8.7% 16.6%

13.6% 3.6% 8.0%

24.5% 23.0% 25.7%

15.0% 13.9% 19.7%

Customer/specialty

focused companies

8


Operational Excellence:

Leadership Perspectives

Operational Excellence is a

focus activity in 2010.”

Bob Margevich, Managing

Director, Functional Chemicals,

Akzo Nobel

9

1.

What is our competitive

essence?

Can you define what your organization

does better than anyone else? This is

the “competitive essence” that, when

operationalised, enables a company

to win in a market.

Competitive essence is the mechanism

by which the organization best creates

economic profit. It is a long-term

characteristic—something that should

change only when the company’s

underlying value proposition changes.

It can be summarized simply and

clearly; it’s a statement that everyone

in the organization can hold onto.

A great example is when President

John F. Kennedy famously asked a

janitor at the National Aeronautics

and Space Administration (NASA) what

he did, and the janitor replied: “I help

men get into space.” Other examples

come from Apple, whose competitive

essence is speed to market, rooted in

delivering constant innovation (think

iPhone) and ‘cool’ products; and Procter

& Gamble, defined by the speed and

success of new product development.

In the chemicals industry, Monsanto’s

competitive essence is leadership in

farming innovation, while BASF’s lies

in managing global complexity with

an integrated portfolio, from feedstock

to specialty chemicals.

Competitive essence is much more

than a question of brand labeling

or an exercise in creating a clever

tagline. It also transcends ideas of

brand perception and brand equity.

It is also just the first step in the

journey toward operational excellence,

in which companies must decide

whether to focus on pursuing

advantages in structure, execution,

or a mix of both.

2.

What changes can we

make to out-structure

the competition?

For companies to achieve operational

excellence, their structure must

align with their competitive essence.

Aligning both the organization

(governance, process, people) and

asset (infrastructure, network) structures

to optimally support the competitive

essence often requires programs

of transformational nature. Both

organizational as well as asset-based

structures are designed and developed

based on external and internal

priorities—from regulatory trends

and long-term supply-chain

costs to changing skill sets and

improved technology capabilities.

The structural dimension must

answer four key questions:

• What are the distinctive capabilities

of our organization and our assets,

and the activities in which we should

focus investments?

• Where do we establish our operations

to ensure the right mix of global,

regional, and local presence?

• Who should be in the critical

roles required for our structure

to succeed, and who should we

partner with to outsource non-

core capabilities?

• How do we execute on this model

to gain advantage?

In an increasingly global marketplace,

where power centers are being

established in emerging markets, new

operating models will be required. For

example, in petrochemical products and

major plastics, Asia and the Middle East

have emerged as the top two producers

(Exhibit 3). In other segments, mature


Exhibit 3: Chemical capacity shifts, top petrochemical products and major plastics

Capacities in million metric tons - Top 12 Petrochemical and Plastic Products

107 133

23

161

122 131

88

313

companies are building capacities

close to raw materials and emerging

companies are growing a local presence.

Structural adjustments will be required

to capitalize on accelerated growth

openings in these emerging markets.

The organization will benefit from

global scale while remaining locally

responsive, and will be able to spread

leadership talent across the enterprise

to support growth in new markets.

The right operating model will take

full advantage of rapidly developing

global talent, skills and cultural

differences. And it will mitigate the

rising risks inherent in an increasingly

interconnected global economy. P&G is

one example of a leading company that

has continuously evolved its operating

model to achieve structural advantage.

138 147

128

395

173

132 141

2000 2010 2015 2020

Source: Accenture research

Europe North America Middle East Asia

442

Over the past 30 years, it has remade

its model four times: from a multilocal

model in the 1980s, to a regional/

functional structure in the mid-1990s,

to a global model at the turn of the

century, to its current state: a “superglobal,

super-local” model that has

been simplified around category, market

and business service outcomes.

BASF’s Verbund model is one example

how a company can achieve structural

advantage through its physical asset

structure. BASF locates and links

multiple processing plants at one site

to create efficient value chains. The

plants can share byproducts and other

materials to save resources and energy.

Close physical location also minimizes

emissions and lowers logistics costs.

Benzene

Butadiene

EPS

Ethylene

HDPE

LDPE

LLDPE

Methanol

MX

PET resins

PP

Propylene

PS

PVC

Toluene

10


Frequent Measures of Structural Excellence

Chemical companies seeking structural excellence often take

one of these paths:

Global vs. Local Operating Models: The dynamics of the

global marketplace, combined with maturing information

technologies, is enabling new ways of doing business and

making new types of relationships possible. The globalization

of supply/ demand markets requires companies to review

existing operating models and decide what they want to do

locally and what will be done on a global level. Key dimensions

when considering a global vs. local operating model include:

multidirectional capital flows; competition for resources

and talent; emerging consumer segments; and new sources

of innovation. There are many options of operating model

configurations; key design parameters are framework, scope,

site locations, sourcing strategy and implementation.

Network Configuration: The structuring of assets is as

important as organizational structure when pursuing

operational excellence. Chemical networks are characterised

by asset-intensive manufacturing sites and global material

flows. These activities can result in significant inventory and

transportation costs. The network configuration defines the

ideal manufacturing sites, storage locations and transportation

Structure

11

Segment relevance Petrochemicals Polymers Inorganics

Shared Services

Global vs. Local

Operating Model

Network Configuration

mode by optimising total network costs vs. required service

levels. High service levels combined with low-value density

products can force chemical companies to manufacture and/or

store products as close as possible to customer sites.

Shared Services/Outsourcing: Companies in mature markets

will need to continue to make difficult decisions about which

organizational functions (e.g., support and service) should

be centralized across business units, in order to manage

costs more effectively. Business services such as finance

and accounting, HR, procurement, customer service, and IT

can be bundled in a shared service center and consolidated

geographically or outsourced fully to an external service

provider. We’re seeing a trend toward creating a global network

of multi-function shared services instead of a single shared

service across the entire organization. Benefits of a shared

services model include: improved business performance metrics

(e.g. DSO) and quality of service with guaranteed service levels;

standardized processes and specialized expertise to drive

continuous improvement; increased flexibility to adapt to new

demands; and an increased focus on core business and revenue

generation initiatives

Paints and

Coatings Agrochemicals


Exhibit 4: Companies that achieve execution excellence do so through simplicity, speed and discipline

Business

Processes

Manufacturing

Operations

3.

What capabilities do

we need to out-execute

the competition?

Execution excellence is a hot-button

issue among senior executives: Polled

recently by The Conference Board,

CEOs rated “excellence of execution”

as their top challenge for the second

year in a row. Nearly half of the survey

participants—up from roughly a quarter

just six months earlier— were also

concerned about their organizations’

speed, flexibility and adaptability

to change.

Excellence in execution centers on

three drivers and is equally important to

manufacturing and business processes

(Exhibit 4):

Execution Excellence

• Low operating costs

• High capital turns

• Fast to market

• High success rates

• High client satisfaction

• High flexibility

Simplicity Speed Discipline

• Eliminate duplication

and rework

• Eliminate low

value activities

• Clarify decision

making authority

• Standardize and

harmonize processes

• Reduce cycle times

• Reduce waiting time

• Harmonize processes

• Share information

collaboratively

• Manage for results

• Build an execution

culture

• Measure, report

and improve

• Set incentives

• Simplification: the elimination of

duplication and low-value activities

and a clearly defined decision-making

authority

• Speed: a reduction in cycle times,

waiting time, and errors; elimination

of waste; standardizing and

harmonizing processes; and the

collaborative sharing of information

• Discipline: managing for results,

fact-based work, performance

measurement and the proper

incentives

These drivers emphasize how the right

day-to-day work processes can help

an organization achieve significant

measurable performance improvements

in cash flow and cost efficiencies

by improving flexibility and speed

to market, quality and reliability,

Supporting Methods:

• Process Harmonization

• Lean Six Sigma

• Complexity Management

• Kaizen

• Etc.

and customer value. The drivers also

can help leadership teams focus on

the right methods for addressing market

discontinuities (see sidebar on page 13)

A leading South American chemicals

company, for example, was faced

with organizational and supply chain

complexities created by a past merger.

The company launched a program to

harmonize its cost-to-serve, demand

planning and inventory management

processes and policies. The benefits

were numerous: reduced inventory,

increased availability of plant capacity,

greater visibility of inventory levels, a

better balance between production and

sales, and optimized shipping (fewer lost

orders). The program is expected to drive

savings of $35 million annually.

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6 Areas for Improving Executional Excellence

Chemical companies seeking excellence in execution may take

one of several paths to address the market discontinuities and

other challenges we described earlier. These paths include:

Asset Utilization/Optimization: CAPEX demand, the market

impact of new capacities, and time-to-build issues can limit

the economic options of a chemical company looking to

grow by investing in new assets. Optimizing asset utilization,

therefore, is often a better option for increasing output (or

reducing waste) to help generate additional revenues. Key

drivers of asset optimization are maintenance excellence,

integrated planning, TCO models and a heavy emphasis on

quality.

Demand/Supply Balancing and S&OP: In the complex market

environment of the chemicals industry, companies must excel

at forecasting product demand and adjusting supplies up

or down quickly in response to changing market conditions.

Improved demand and supply balancing typically increases

service levels and reduces inventories. Sophisticated planning

capabilities also enable companies to adjust costs and service

levels according to their competitive essence (e.g., a low-cost

provider plans with less inventory, trading off against the risk

of stock outages).

Lean Manufacturing and Operations: Increasing cost

pressures have forced many chemical companies to produce

their products at the lowest possible costs. This pressure has

led many organizations to implement lean manufacturing

programs, utilizing techniques such as Six Sigma to optimize

the production process and reduce errors. Lean manufacturing

will also help chemical companies address the war for talent,

Execution

Segment relevance Petrochemicals Polymers Inorganics

Asset Utilization/

Optimization

Demand and Supply

Balancing/S&OP

Lean Manufacturing

and Operations

M&A Integration/

Process Harmonization

Customer Interaction

Compliance and

Risk Management

Source: Accenture research

13

which is heating up amidst a shrinking workforce and the

expected decline of well educated engineers pursuing careers

in the chemicals sector.

Merger Integration/Process Harmonization: Leadership

teams considering mergers or acquisitions must carefully select

targets and perform the due diligence necessary to ensure that

the target company fits the buyer’s strategy and competitive

essence. Operationally, merger execution must be as efficient

as possible – across all areas such as culture, infrastructure

(physical and IT), and back-office systems – in order to capture

maximum value. Dow, for example, has a track record of

achieving 14-18% cost synergies with its major acquisitions.

It continued that trend when it purchased Rohm & Haas in

2009. Dow combined Rohm & Haas with its specialty materials

businesses under the Advanced Materials portfolio, creating

synergies of $1.3 billion, including over $400 million in

purchasing synergies.

Customer Interactions: High levels of customer service often

require significant investments, while low service might result

in lost customer sales. It is critical, therefore, that a company

offers service levels that align with its competitive essence.

Doing so requires a clear view of current service levels and

clearly defined objectives for customer service.

Compliance and Risk Management: For obvious reasons,

compliance in the chemical industry is a critical factor in

business performance. Companies must be able to adapt

quickly to new regulatory environments – those that stay

nimble in the ever-changing regulatory environment can

gain competitive advantage.

Paints and

Coatings Agrochemicals


15

4.

What blend of structural

and executional changes

does the company need?

Most companies strive for the proper

balance of structure and execution that

drives operational excellence. It’s not an

easy equilibrium to achieve. Given the

opportunities and threats presented by

the recent global financial crisis, we are

now seeing many companies in Japan,

Korea, India, and China seeking to place

much greater emphasis on regional

and global operating models and better

balancing their efforts across execution

excellence and operating model

changes. At the same time, we

are also seeing many companies in

developed economies focusing on

execution excellence while evolving

their operating models to better

compete in a changing world.

DuPont, for example, increased its

emphasis on cash generation in 2009

as it sought to maintain its financial

strength during the recession. A

main driver of the cost savings was

a corporate reorganization in which

the company integrated 23 strategic

business units into 13 businesses,

removing layers of management and

moving decision-making closer to its

customers. The restructuring also helped

the company to generate $3.4 billion in

free cash flow and achieve $1.1 billion

in fixed cost productivity.

At the same time, however, the

company did not pull back on

its innovation execution. DuPont

introduced more than 1,400 new

products in 2009—about 60 percent

more than in 2008—and filed more than

2,000 U.S. patent applications, the most

ever in a single year for the company.

5.

What change journey

will achieve operational

excellence?

It is not enough for executives to

know where they plan to take their

organizations, or the proper blend of

structural and executional excellence

they hope to achieve; how they

make those journeys will also have a

significant bearing on their companies’

eventual positioning. Choosing an

appropriate “change journey” is nontrivial

because each company has a

different context for change, a unique

starting point and its own “corporate

DNA”—all of which influence the type

of journey that will work best for

the organization. Business leaders at

chemical companies are no exception;

they must select the appropriate change

journey with care and embark on it

with wholehearted commitment and

full preparation.

Accenture has identified three main

types of change journeys (see table to

the right). For every company and every

leadership team, there will be, in theory,

one optimal response to discontinuity—

one “journey” that best suits the

company’s culture and positions it for

survival and/or leadership (Exhibit 5).


Exhibit 5: A range of factors influence the change journey

Structure

Execution/

Structure

Balance

Execution

Tax Efficient

Operating Models

Continuous

Improvement

1. Continuous improvement focuses

on building bottom-up process

excellence step by step. This change

journey usually involves a large number

of small initiatives dispersed across

the organization in order to build an

ongoing change capability. Continuous

improvement efforts are typically led

by divisional or geographical leaders

and yield quick benefits, require small

relative investments and tend to

become a natural part of doing things.

This journey best suits an organization

that believes it has a solid target

operating model defined and that tends

toward decentralization of authority to

carry the model out.

Global Shared Services

Operating Models

Process Innovation/

Optimization

Lean Six Sigma Execution

R&D

Operations

Global Operating

Model Re-Invention

HQ

Simplification

Global Operations

(SCM) Strategy

2. Transformational programs

involve top-down, largely structural

change. Here, the journey involves

change on a grand scale, almost

always with complete reinvention of

the operating model and big shifts in

the organization’s structure to sync

up with the business strategy. In a

company that has the right DNA and

the right C-level leadership to drive the

program, transformation is usually the

fastest way to implement big change

and to leapfrog the competition.

Transformational

Programs

Lean Transformation

Regional Operating

Models

Lean Six Sigma

Capability Building Targeted

Interventions

Incremental Magnitude of Change Step Change

The three main “change journeys”

3. Targeted Interventions involve

functional improvement programs

across structure and execution. This

is the most common type of journey,

aimed at focusing on the area of

greatest need that will yield clear

return on investment. There is typically

a compelling reason to change—a

threat caused by a market or industry

discontinuity, or a new opportunity for

growth—along with a sense of urgency.

In this type of journey, an organization

decides to make big changes to its

operating model, but chooses to do

it a piece at a time in order to lessen

the risk of the change initiative.

16


Operational Excellence:

Leadership Perspectives

“We will continue to rigorously

apply the financial discipline

and operational excellence

needed during one of the most

challenging economic periods

ever seen.”

Ellen Kulmann, CEO, DuPont

17

Determining the Right Path

The complexities of markets, customers,

business units, and departments mean

that most companies will attempt

more than one approach to achieving

operational excellence. Some senior

managers will argue persuasively

for discrete incremental efficiency

programs, while others press

equally powerful arguments for

wide-ranging, highly public, multi-

year transformation initiatives.

So how do companies know which

journey to take? Companies that

successfully reach higher planes of

operational excellence work through

three key steps:

1. They assess the operating models

they will need. Leadership teams should

be very clear about the discontinuities

that are the primary catalysts for

their change journeys. They then can

work through a diagnostic exercise to

assess their current operating models

and to validate their target operating

models. The focus here is on both the

strategic operating models that define

their capabilities in the face of the

discontinuities and on the operating

models that emphasize improving

efficiencies in existing business

processes.

For global companies, choosing the

right operating model requires a set

of thoughtful tradeoffs between the

need for local market agility vs. global

scale in processes and capacity, the

cultural acceptance of standardization,

the availability of talent, and other

factors. The right operating model is

a function of a company’s response

to global market changes and the ability

of leadership teams to evolve and grow

as they balance being both super global

and super local.

2. They are realistic about choosing

the right journey. Making clear-eyed

comparisons of their “to be” and current

operating models, companies can more

easily select the change journey that is

most likely to be successful for them.

Their choices are determined largely

by the company’s own characteristics—

its capacity for change, the skills and

experience of the leadership team,

its openness and transparency, its

goals and expectations, its operating

efficiency, and more—as well as by the

personal characteristics and leanings

of its top managers.

3. They take steps to improve the

odds of executing well. With the

change journey selected, operationally

excellent companies pay close attention

to the factors that improve the odds

of execution success—putting in

place the right governance systems,

appointing the right staff to the right

teams, establishing the right incentives,

identifying the most crucial project

milestones, and tracking progress

against them.


Will the global economic crisis

rewrite the chemical industry

landscape?

It’s possible.

Chemical companies looking to recapture momentum

must sharpen their focus on operational excellence,

or risk falling behind rapidly in the face of new

competition and market discontinuities that are

disrupting “old” operating models. The winners will

be those that are taking steps now to define their

competitive essence, determine how to out-structure

and out-execute their competition, and choose the

proper “change journey” that leads to sustainable

growth and innovation. The losers—paralyzed,

perhaps, by budget constraints and steep drops

in shareholder value—are already falling behind.

18


About Accenture

Accenture is a global management

consulting, technology services

and outsourcing company, with

approximately 204,000 people serving

clients in more than 120 countries.

Combining unparalleled experience,

comprehensive capabilities across

all industries and business functions,

and extensive research on the

world’s most successful companies,

Accenture collaborates with clients to

help them become high-performance

businesses and governments. The

company generated net revenues

of US$21.6 billion for the fiscal year

ended Aug. 31, 2010. Its home page

is www.accenture.com.

Copyright © 2010 Accenture

All rights reserved.

Accenture, its logo, and

High Performance Delivered

are trademarks of Accenture.

For more information:

To learn more about reaching a new

level of operational excellence contact:

Mark Pearson

mark.h.pearson@accenture.com

44.20.7844.3247

Matthias Hegele

matthias.hegele@accenture.com

41.44.219.5803”

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