What does digitization mean for chemical companies?

Digital technology allows chemical companies to release more than $200 billion in new value by reducing service costs, increasing pricing, and gaining growth from competitors.

In the past decade, the chemical industry has achieved great success, bringing more value to shareholders than its upstream suppliers and downstream customers, or even the entire global stock market (Table 1).

But experience shows that we cannot be complacent. Among the top five chemical companies from 2000 to 2004, nearly 50% of them no longer exist from 2010 to 2014. If today’s chemical companies continue to follow the same path, they can not expect to continue to get returns higher than the market. This is because this road is largely built by the progress of productivity. However, many traditional productivity levers are now exhausted. Where can companies look for the next change in financial performance?

We believe that digital technology will enable them to tap new value pools and grow from their competitors. For the $3.8 trillion chemical industry per year, the application of ready-made digital methods for marketing and sales to reduce service costs and improve pricing can bring about $105 billion to $205 billion of EBITDA per year. In addition, companies that are quick to move and actively deploy digital tools can also gain additional revenue of US $45 billion to US $65 billion by stealing customers and revenue from less flexible peers (see Table 2).

We estimate that the additional EBITDA generated by chemical companies will also improve the return on sales performance. Similarly, fast-growing companies are expected to make considerable profits (Table 3).

Other B2B industries are demonstrating this approach – the introduction of digital tools, technologies and methods, which also apply to the chemical environment. Leading chemical companies are already looking for digital solutions to help them meet challenges and explore new business opportunities.

Let’s be clear: the entire business model of the chemical industry will not be subverted by new digital players. Huge assets require huge investment, there is no private production capacity to tap, and the manufacturing and distribution industries are subject to comprehensive supervision. The barriers to entry are too high to allow large-scale transfer of digital attackers. However, it is profitable, and companies that ignore digital opportunities may be defeated by more agile competitors. The introduction and expansion of digital sales channels, the application of advanced analysis and machine learning tools, the improvement of automation, and the digitization of end-to-end processes in business operations will help chemical companies to use all aspects of digital to improve their growth and profitability.

To do this, however, companies must understand what digital transformation involves. Technology is the key to building a digital business backbone, but digital transformation is a business priority, not an IT project, so it must be managed as a project. This transformation involves adopting new skills, mindsets, tools and processes, and learning how to apply them to every part of the business. Leaders must also act quickly. As Klaus Schwab, executive chairman of the world economic forum, put it, “in the new world, it’s not big fish eating small fish, it’s fast fish eating slow fish.”

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