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

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.