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- Herausgeber: John Wiley & Sons
- Kategorie: Wissenschaft und neue Technologien
- Sprache: Englisch
Business Chemistry: How to Build and Sustain Thriving Businesses in the Chemical Industry is a concise text aimed at chemists, other natural scientists, and engineers who want to develop essential management skills. Written in an accessible style with the needs of managers in mind, this book provides an introduction to essential management theory, models, and practical tools relevant to the chemical industry and associated branches such as pharmaceuticals and consumer goods. Drawing on first-hand management experience and in-depth research projects, the authors of this book outline the key topics to build and sustain businesses in the chemical industry. The book addresses important topics such as strategy and new business development, describes global trends that shape chemical companies, and looks at recent issues such as business model innovation.
Features of this practitioner-oriented book include:
- Eight chapters covering all the management topics relevant to chemists, other natural scientists and engineers.
- Chapters co-authored by experienced practitioners from companies such as Altana, A.T. Kearney, and Evonik Industries.
- Featured examples and cases from the chemical industry and associated branches throughout chapters to illustrate the practical relevance of the topics covered.
- Contemporary issues such as business model design, customer and supplier integration, and business co-operation.
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Seitenzahl: 660
Veröffentlichungsjahr: 2018
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Table of Contents
Cover
Title Page
List of Contributors
Preface
Part I: Strategy
1 Management Challenges in the Chemical and Pharmaceutical Industry
1.1 Introducing the Chemical Industry as a Source of Innovation and Prosperity
1.2 Characteristics of the Chemical and Pharmaceutical Industry
1.3 Business Transformation in the Chemical Industry
1.4 Managerial Challenges in the Chemical Industry
1.5 Summary
References
2 Principles of Strategy
2.1 The First Day for CEO Walter Brown
2.2 Strategy Definitions and Their Interrelations – A Framework for Mindful Strategic Management
2.3 Historic and Current Trends in Strategic Management
2.4 Strategy Development Process
2.5 Industry Dynamics, Signaling Systems, and the Effect of Trends
2.6 Summary
References
3 Strategic Analysis
3.1 Strategic Analysis to Improve a Firm’s Performance
3.2 Industry Analysis
3.3 The Resource‐based View in the Context of Strategic Analysis
3.4 Dynamism of Markets
3.5 Dynamic Capabilities
3.6 Summary
References
4 Management of Business Cooperation
4.1 Cooperation and Corporate Strategy
4.2 How Cooperation Can Help to Achieve Corporate Objectives
4.3 Morphologies of Cooperation
4.4 Management of Business Cooperation: A Process Model
4.5 Institutionalisation
4.6 Operational Management of a Cooperation
4.7 Monitoring Cooperation Success
4.8 Summary
References
Part II: Innovation
5 Principles of Research, Technology, and Innovation
5.1 What Is Innovation and Why Do You Need It?
5.2 Sources of Innovation
5.3 Organizing for Innovation
5.4 Managing the Innovation Process: Stage‐Gate
5.5 Summary
References
6 New Business Development – Recognizing and Establishing New Business Opportunities
6.1 New Business Development: Management in Unknown Areas
6.2 Innovation Strategy
6.3 Organizational Structure and Culture
6.4 Searching for New Business Opportunities
6.5 Selecting New Business Opportunities
6.6 Implementing the New Business Concept
6.7 Learning: Capturing the Value from Lessons Learned
6.8 Summary
References
7 Designing and Transforming Business Models
7.1 Business Model Design: Essential Management Decisions
7.2 Strategy, Business Model and Tactics
7.3 Business Model Innovation
7.4 The Role of Business Models in the Chemical and Pharmaceutical Industry
7.5 Summary
References
8 External Integration
8.1 Introduction
8.2 Customer Integration
8.3 Supplier Integration
8.4 Invisible for Black & White – A Best Practice for Collaborating with Both Suppliers and Customers
8.5 Summary
References
Index
End User License Agreement
List of Tables
Chapter 02
Table 2.1 Principle elements of a company’s strategic “game” plan.
Chapter 04
Table 4.1 Sales from HIV drugs.
Chapter 06
Table 6.1 Growth opportunities at WACKER.
Table 6.2 Success rates and time to commercialization for different innovation projects (McKinsey study). Adapted from [10].
Table 6.3 Overview of post‐completion audits.
Chapter 07
Table 7.1 Johnson, Christensen and Kagermann’s business model definition.
Table 7.2 Value‐ and cost‐driven business models – the case of Dow Corning.
Table 7.3 Examples from P&G’s Connect & Develop programme.
Table 7.4 The role of business models in a changing industry landscape.
Chapter 08
Table 8.1 Benefits and costs of collaborative activities with customers [1, 18].
Table 8.2 Important steps in attracting the most innovative chemical suppliers [2].
List of Illustrations
Chapter 01
Figure 1.1 Chemical products in the industry value chain
Figure 1.2 Importance of different trends for the chemical industry in the years 2014 and 2024
Figure 1.3 Business transformation in the chemical industry
Figure 1.4 Strategic learning capability: successful versus less successful companies
Figure 1.5 Focus of optimization activities
Figure 1.6 Value chain flexibility
Figure 1.7 Business model sensing
Chapter 02
Figure 2.1 Strategic moves of chemical players
Figure 2.2 Distinction between commodities and specialties [22].
Figure 2.3 Principles of approach for future of strategy [37].
Figure 2.4 Simplified strategic planning process
Figure 2.5 Future trends in chemicals, driven by global makro trends [47].
Chapter 03
Figure 3.1 Methods for strategic analysis
Figure 3.2 Porter’s Five Forces framework.
Figure 3.3 Battery value chain
Figure 3.4 A firm’s internal value chain.
Figure 3.5 Steps in creating a profit pool
Figure 3.6 Profit pool per competitor
Figure 3.7 Share prices of BASF and Dow Chemical
Figure 3.8 The relationship between resources, capabilities, and core competences
Figure 3.9 S‐curve concept.
Figure 3.10 Convergence model
Figure 3.11 Brent and WTI
Figure 3.12 Exchange rates
Chapter 04
Figure 4.1 Advantages and disadvantages of using markets and hierarchies
Figure 4.2 Management model
Figure 4.3 PEST analysis and its implications for cooperation management
Figure 4.4 Analysing revenue and cost effects of a cooperation
Figure 4.5 Deriving indicators for measuring cooperation performance
Chapter 05
Figure 5.1 Definition of innovation [4].
Figure 5.2 Innovation typology according to the degree of innovativeness
Figure 5.3 Heuristic for identifying innovations depending on their innovativeness
Figure 5.4 Elements of the innovation system [5].
Figure 5.5 Innovation versus research and development [37].
Figure 5.6 Decision model for the organization of R&D [38].
Figure 5.7 Close versus Open Innovation logic [42].
Figure 5.8 Open Innovation model [44].
Figure 5.9 Overview of the Stage‐Gate process
Chapter 06
Figure 6.1 A model for new business development (NBD) [1].
Figure 6.2 NBD process.
Figure 6.3 The R‐W‐W‐screen.
Figure 6.4 McGrath’s discovery‐driven planning – an effective tool for NBD.
Figure 6.5 An NBD portfolio at a specialty chemical company.
Figure 6.6 Key performance indicators in NBD (BU = business unit, ECV = expected commercial value, FTE = full‐time employees, IP = intellectual property, NPV = net present value, MTM = management).
Chapter 07
Figure 7.1 The two functions of a business model.
Figure 7.2 BASF’s strategy for its plastic segment in 2001 [16].
Figure 7.3 Market segments for plastics (bubble size = consumption in 2006). Estimation based on data from: Feldmann (2006) [15]
Figure 7.4 The relationship between strategy, business model and tactics.
Figure 7.5 Core capabilities for chemical and pharmaceutical companies.
Figure 7.6 Business model framework.
Chapter 08
Figure 8.1 Need and solution information. Own representation
Figure 8.2 Relationship between the voice of the customer, customer integration, and customer co‐creation [1]
Figure 8.3 Comparison of the voice of the customer, customer integration, and customer co‐creation [1]
Figure 8.4 Typologies of customer co‐creation [1]
Figure 8.5 Architectural design of customer co‐creation practices. Own representation
Figure 8.6 Performance indicators of customer co‐creation practices [58].
Figure 8.7 Three causes for raw material changes in formulations and the subsequent induction of innovations [2]
Figure 8.8 Spectrum of supplier integration [1, 77].
Figure 8.9 Typologies of suppliers according to their contribution [2]
Figure 8.10 Illustration of manufacturer–supplier relationship [2]
Guide
Cover
Table of Contents
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Business Chemistry
How to Build and Sustain Thriving Businesses in the Chemical Industry
Edited by
Jens Leker
University of Münster, Department of Chemistry and Pharmacy, Germany
Carsten Gelhard
University of Twente, Faculty of Engineering Technology, The Netherlands
Stephan von Delft
University of Glasgow, Adam Smith Business School, United Kingdom
This edition first published 2018© 2018 John Wiley and Sons Ltd
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Library of Congress Cataloging‐in‐Publication data applied for
Hardback: 9781118858493
Cover image: Evonik Industries production plantPhotograph by Stephan Kube; Courtesy of the editorsThe cover photo shows Evonik's new production plant for C‐4 based products in Marl (Germany). Thanks to a globally new process, the company can now use FCC C4 (FCC = Fluid Catalytic Cracking) material flows for the production of a broad portfolio of chemicals.Cover design: Wiley
List of Contributors
Manuel Bauer is the Global Head of Innovation Management at LEDVANCE, a global leader in the general lighting market. Previously, he was a Manager at Innosight Consulting, a boutique consultancy founded by Professor Clayton Christensen, which focuses solely on helping clients develop and implement innovation and organic growth strategies. Previously he had worked as Corporate Innovation Manager at Clariant, a global specialty chemical company headquartered in Switzerland. There, he co‐developed the new innovation management approach and implemented it in two of Clariant’s largest global business units, including the project management process and tools, as well as the innovation portfolio management process and performance management concept. Manuel started his career at McKinsey & Company, in the Munich office, where he was a member of the global chemicals practice. He holds a PhD from the University of Münster, Germany, and a master of science in Chemistry from the University of Würzburg.
Carsten Gelhard is an Assistant Professor of Product‐Market Relations at the Faculty of Engineering Technology of the University of Twente, The Netherlands. Prior to this, he was a postdoctoral researcher at the Amsterdam Business School, The Netherlands. Carsten received his PhD from the University of Münster, Germany, where he also studied Business Chemistry. His research is at the intersection of marketing, innovation management, and operations management. In particular, Carsten examines how firms can achieve sustained competitive advantage: (i) by managing trade‐off situations that are associated with value creation activities and (ii) by collaborating with external partners across the value chain. His work has been published in the Journal of Business Research and the Journal of Operations Management.
Gerald Kirchner is Head of the Department of Corporate Environment, Health, and Safety at ALTANA, Wesel, Germany. Previously he headed the Innovation Management Group and the Global Regulatory Affairs Department within BYK, a division of ALTANA. Gerald started his professional career at Chemie Linz/DSM (Austria) as a research chemist in the area of organic intermediates. He spent his postdoctoral year at the Massachusetts Institute of Technology, USA, within the Department of Chemical Engineering/Bio Catalysis. Gerald studied Technical Chemistry at the Technical University of Graz, Austria. In his thesis, he elaborated different synthesis routes to plant growth hormones.
Jens Leker is a Professor at the University of Münster, Germany, and Director of the Institute of Business Administration at the Department of Chemistry and Pharmacy. His research focuses on forecasting techniques, open innovation and knowledge sharing in R&D collaboration. Jens has published more than 30 articles on technology and innovation management in journals such as the International Journal of Innovation Management, R&D Management, Technological Forecasting and Social Change and Technovation. He studied business administration at the University of Kiel, Germany, where he also received his PhD. Jens is a member of the German Chemical Society (GDCh), Head of the Advisory Board of the International Society of Professional Innovation Management (ISPIM) and an Editor‐in‐Chief of the Journal of Business Chemistry.
Thibaut Lenormant is an Innovation Manager at Gebauer & Griller in Vienna, Austria, and a PhD candidate at the University of Münster, Germany. He studied chemical engineering at the ESCPE Lyon, France, and innovation management at EMLyon, France. Thibaut also worked for several years as a Business Developer in the chemical industry where he contributed to the development of major innovations. His research focuses on organizational learning, complexity theory, and new product development processes.
Tobias Lewe is Partner and Managing Director at A.T. Kearney Management Consulting GmbH, Germany. He has more than 17 years of experience in top management consulting, leads A.T. Kearney’s EMEA practice for Energy & Process Industries, and is a member of the A.T. Kearney’s EMEA senior leadership team. Since starting his career he has consulted for a broad range of multi‐national clients, concentrating on downstream oil and petrochemicals as well as on chemical and coatings industry chains. His consulting expertize includes exogenous and organic growth, operating model design, innovation management, and digitization strategies as well as operations and performance transformation. Prior to joining A.T. Kearney, Tobias worked in the downstream oil industry, where he had management functions in supply and distribution and manufacturing/refining for ExxonMobil/Esso in Central Europe. He received his graduate and doctoral degrees in Chemistry at the University of Cologne.
Eric Meyer is Researcher at the Institute of Cooperative Systems at the University of Münster, Germany. After studying mathematics and economics at the University of Oldenburg he received his PhD from the University of Münster. His research focuses on the cooperation of companies. He is especially interested in how existing management methods have to be extended and adapted in order to make them applicable in business cooperation.
Theresia Theurl is Professor at the University of Münster, Germany, and Director of the Institute of Cooperative Systems. She studied economics at the University of Innsbruck, Austria, where she received her diploma. After three years as a Lecturer at the University of Munich, she returned to Innsbruck and received her PhD in economics. Theresia is member of numerous committees and councils related to cooperatives and cooperating companies. Since 2014 she has been Dean of the Münster School of Economics and Business. Her research focuses on the governance mechanisms that can be observed in cooperatives and cooperative groups and on the mechanisms that govern the cooperation of companies.
Irina Tiemann is a Senior Researcher at the Department of Business Administration, Economics and Law of the University of Oldenburg, Germany, and a member of the Oldenburg Center for Sustainability Economics and Management (CENTOS). Irina received her PhD from the University of Münster, Germany, where she also studied Business Chemistry. She subsequently worked as Business Development Manager at aleo solar GmbH in Oldenburg, Germany. Her academic interests are in the field of innovation management and sustainable entrepreneurship. Her work has been published in the International Journal of Innovation Management and International Journal of Business Venturing.
Hannes Utikal is a Professor for Strategic Management and Sustainability at Provadis School of International Management and Technology, Frankfurt, Germany, where he leads the Center for Industry and Sustainability. His research interests focus on strategic management and the design of transition processes. He initiated the “rhein‐main‐cluster chemie and pharma” where successor companies of the former Hoechst AG exchange knowledge about good management practices in the chemical and pharmaceutical industries. Hannes co‐edited the book Future. Chemistry. Glimpses at the World of Tomorrow and has published on the industries’ managerial challenges in the Journal of Business Chemistry and CHEManager. In addition, Hannes is involved in innovation and education projects at Climate‐KIC, the world’s largest public–private partnership working in the fields of climate adaptation and mitigation. Hannes studied business administration at the University of Cologne, where he also received his PhD. He is a member of the German Chemical Society (GDCh) and an Editor‐in‐Chief of the Journal of Business Chemistry.
Stephan von Delft is a Lecturer in Strategy at the Adam Smith Business School, University of Glasgow, UK. His research focuses on business model design, business model innovation, and organizational capabilities. Stephan has published in CHEManager, Nachrichten aus der Chemie, the Journal of Business Chemistry and the Journal of Business Research. He studied Business Chemistry at the University of Münster, Germany, where he also obtained his PhD. Stephan has been a visiting researcher at the University of San Diego, USA, and a postdoctoral researcher at the Amsterdam Business School, the Netherlands. He is a member of the German Chemical Society (GDCh), the Strategic Management Society (SMS), and a member of the Scientific Panel of the International Society of Professional Innovation Management (ISPIM).
Daniel Witthaut is Head of Corporate Innovation Strategy at Evonik Industries AG, a leader in specialty chemicals. Prior to his current role, he worked for six years as a Vice President in building up and leading the New Business Development Department for the former Advanced Intermediates Business Unit of Evonik. Daniel has more than 18 years of professional experience in innovation, strategic controlling, and strategy functions in different areas of the chemical industry and has lived in diverse cultures (USA, Germany, China, Singapore). He is a lecturer and a frequent (key note) speaker at conferences on Innovation Management. Furthermore, Daniel is a member of the Board of the European Industrial Research Management Association (EIRMA). He holds a PhD in Organic Chemistry from the University of Münster, Germany, and an MBA from the University of Chicago, USA.
Preface
Marketing‐, R&D‐, and production‐related activities need to be orchestrated with the architecture of a firm’s business model to build, grow, and sustain a chemical company in today’s competitive environment. This orchestration inevitably requires that chemists, chemical engineers, and other R&D experts acquire business skills from the fields of strategy and innovation to jointly create value with marketers, business developers, and executives with backgrounds in business administration. Consequently, there is a growing demand in the chemical industry for trained specialists who not only have a solid chemical knowledge but also a good understanding of the underlying management processes. What is needed are experts in both chemistry and business – business chemists.
Business Chemistry is a practitioner‐oriented book that grew from this demand. It takes the characteristics of the chemical industry (e.g., research intensity, business‐to‐business relationships) into consideration while introducing experts with backgrounds in science and engineering to the most relevant and latest managerial topics for the chemical industry and related sectors, such as biotechnology, consumer products, and pharmaceuticals. The book is structured into two parts. The first part deals with key topics from the field of strategy, such as industry‐specific challenges impacting strategy formulation and execution, as well as analytical methods and concepts of strategic analysis applied by chemical companies. The second part covers key topics from the field of innovation, such as concepts and tools for new product and new business development in the chemical industry as well as collaborative activities with customers and suppliers. All chapters within these two parts of the book are written by experienced practitioners from companies such as ALTANA, A.T. Kearney, and Evonik Industries, and leading academics from the field of business chemistry.
We would not have been able to edit this book without the support from several individuals. Firstly, we would like to thank all co‐authors for their valuable contributions and great commitment to offering insights into the chemical industry. Secondly, Birte Golembiewski, Gerrit Knispel, and Nicole vom Stein are thanked for their feedback and for facilitating the editing process. We also thank Walter W. Zywottek for a vital discussion about various topics covered in the book. Of all the great contributors behind the scenes, we finally wish to thank our publisher Wiley, especially Shagun Chaudhary, our project editor, Sarah Higginbotham, our lead manuscript editor, and Rebecca Ralf, Managing Editor Life Sciences Books. Without their support, this book would not have been possible.
We hope that this book will be informative, useful, and enjoyable for you, and that it will enable you to build and sustain thriving businesses in one of the most exciting and versatile industries of all.
Jens Leker, Carsten Gelhard, and Stephan von DelftMünster, Enschede and Glasgow 2018
Part IStrategy
1 Management Challenges in the Chemical and Pharmaceutical Industry
by Jens Leker and Hannes Utikal
2 Principles of Strategy: How to Develop Strategy
by Jens Leker and Tobias Lewe
3 Strategic Analysis: Understanding the Strategic Environment of the Firm
by Jens Leker and Manuel Bauer
4 Management of Business Cooperation
by Theresia Theurl and Eric Meyer
1Management Challenges in the Chemical and Pharmaceutical Industry
Jens Leker1 and Hannes Utikal2
1University of Münster, Department of Chemistry and Pharmacy
2Provadis School of International Management and Technology AG
For time and the world do not stand still. Change is the law of life. And those who look only to the past or the present are certain to miss the future.
John F. Kennedy (1917–1963), 35th President of the United States of America
The first chapter of this book outlines the specific characteristics of the chemical and pharmaceutical industry regarding, for example, products, site locations, competition, and research efforts. Additionally, the chapter summarizes results of a survey in the German chemical and pharmaceutical industry on business transformation processes and drivers of change that affect the industry. From these findings, management challenges and solutions to these problems will be derived.
1.1 Introducing the Chemical Industry as a Source of Innovation and Prosperity
The chemical industry is one of the major global industries affecting all parts of human life. Advances in chemicals and pharmaceuticals have contributed to improving living conditions and particularly nutrition and health levels worldwide. Enhancements in the field of automobiles as well as new developments concerning battery electric or fuel cell vehicles have resulted, not least because of new materials and new formulations originating from the chemical industry. New electronic devices such as smartphones have only been possible due to a change of pace in the development of electronic materials and an increase in their purity. Continuous research for and production of active pharmaceutical ingredients (APIs) are of central importance for fighting (new) diseases and improving therapeutic methods.
The chemical and pharmaceutical industry alters modern life through the transformation of scientific findings into marketable products. The invention and industrialization of production pathways such as the Haber(–Bosch) process for ammonia synthesis, the Fischer–Tropsch process to produce liquid hydrocarbons, or the contact process for producing sulfuric acid laid the foundations of the chemical industry. These processes acted as prerequisites for overall industry growth, technological change and wealth creation, whereby the underlying reaction pathways still apply today. Enormous advancements in technology in recent years have additionally enabled the sector to have an economically, ecologically, and socially positive impact on society in the future as well as today. In order to continue to achieve this goal, the chemical industry is reconsidering its modes of operation and finds itself in a phase of transformation [1].
From an economic perspective, the crucial role of the chemical industry for different customer value chains and the connection to nearly every end‐consumer market is reflected by the impressive size of world chemicals sales in 2013 of €3156 billion and the average global growth rate slightly above the global gross domestic product (GDP) [2]. It has to be considered that this overall development is mainly driven by high growth rates in the Asian–Pacific region, eventually compensating for lower growth rates in Western countries. Asia has already become the largest market for chemicals, with now more than 50% of the global market. This share is very likely to increase even more due to the growing population in Asia and the declining demand in the West, especially in Europe.
All these facets and volatilities make the chemical industry one of the most fascinating industries, not only from a scientific, technological or societal perspective, but also from a business point of view. In the following, we first characterize this highly interesting industry with regard to its specific characteristics and then subsequently highlight current managerial challenges relevant to the industry. In order to do so, we combine results from a literature review with findings from one of our own empirical studies on the management challenges in the chemical industry.
1.2 Characteristics of the Chemical and Pharmaceutical Industry
The chemical industry today is one of the largest industries in the world, with an impressive history (see, e.g., [1, 3]). This is reflected by the variety of products, processes, and market characteristics.
1.2.1 Product and Process Characteristics
The chemical industry is a process industry where firms “add value to materials by mixing, separating, forming, or chemical reactions” [4: 28]. Process industries differ from so‐called discrete industries with regard to the production process. In discrete industries, for example the automotive or engineering industry, production pathways converge as final products are assembled by using multiple discrete input components [5]. In contrast, a product in the chemical industry can simultaneously act as an intermediate, be processed further to synthesize other products, or serve as a finished, salable product. Production processes can therefore be convergent and divergent at the same time, resulting in an increased complexity for the planning and optimizing of such processes. In each process, components are mixed and react under well‐defined physical conditions. In order to obtain high reaction yields, chemical companies rely on experience and knowledge from different fields, especially chemistry and engineering, and in some cases biology and biotechnology. Hence, the special nature of the highly complex processes sets the framework for all managerial decisions in the chemical industry.
By adapting a value chain perspective, the chemical industry appears to convert organic and inorganic raw materials into value added products (see Figure 1.1). The upstream stages are closely linked to the petrochemical and exploration industry and are only manufacturing a few products, such as fertilizers or basic plastics originating from the Naphtha fraction of crude oil, and, in the case of inorganic materials, deriving from chlorine and salts. In the downstream steps, products of the upstream operations are further processed into a variety of products, which then enter various end markets. The customers of chemical companies are usually other firms who process the materials into end products, so that most relations are business‐to‐business (B2B) in nature.
Figure 1.1 Chemical products in the industry value chain
Within the chemicals value chain, the production processes vary. One can distinguish continuous, campaign, and batch production processes. Each process requires specific production assets, which tie up capital:
Continuous processes run on single‐purpose resources, steadily producing one product and not requiring regular changeover decisions. This type of process avoids downtime and scrap. However, flexibility in applying a different feedstock and input is limited as the production line is specialized for a certain product or process. Continuous processes can typically be found at the beginning of the chemicals value chain, involving petrochemicals, basis chemicals, and bulk polymers.
Campaign production is related to multi‐purpose assets, so that different processes and products can run on the same production resource.
Batch production is also related to multi‐purpose resources and, in addition, is suitable for steps implying a well‐defined start, throughput, and end production time as well as the ability to customize the huge amounts of the desired product. This is typically the case in the specialty chemicals segment [5].
There are different approaches to classify products of the chemical industry. Kline (1976) [6] distinguishes between commodities and specialty/fine chemicals. Following this categorization, commodities demonstrate a low degree of differentiation and a high production volume. They can be found in the early stages of the value chain and are manufactured by means of continuous production processes. These standard, high‐volume products with few variants are typically characterized by a low unit value and a low unit margin. Thus, the main buying criterion is the price. On the contrary, the specialty segments show a high degree of differentiation and a small production volume. Specialty chemicals are typically located at later stages in the value chain and are produced in batches. These products are often available in many variations and generate fairly high unit values and margins. Customers buy specialty chemicals due to their specific and unique product properties.
The different segments of the chemical sector can furthermore be described by looking at the relative importance of additional key success factors, such as the intensity and contribution of research and development (R&D) to success, the relevance of distinctive knowledge about specific markets and customer insights, and the importance of highly qualified personnel for the success of a business. These aspects are particularly decisive for the pharmaceutical and specialty chemicals segment, whereas the extent of investment in production facilities, the energy intensity of manufacturing, and an immediate access to raw materials significantly affect the success of commodity businesses.
1.2.2 Market Characteristics
The chemical industry has been growing since its emergence in the 1860s. By encompassing all parts of modern life and creating new materials or new active ingredients for pharmaceuticals, the chemical industry has always been a trigger for innovation in its customer industries. The chemical industry has a share of 3 to 4% of the global GDP. The main markets are the European Union, the United States, and Asia, with Japan and China as central markets. While the growth rates of chemical consumption in mature economies such as Germany and the United States are similar to the rates of the respective national GDP, emerging economies, especially China, are demonstrating significant growth.1
Geographically, the chemical industry acts within at least three different markets. For a very limited number of products, companies produce the entire quantity of a product for the global market at one location. In this case, transportation costs must be negligible in view of the total cost position of a product and economies of scale. As a consequence, consolidation of the production in one plant is preferred over a global duplication of production activities. This is particularly valuable for producing APIs, where production processes typically have to be accredited. Nevertheless, regional production for the European, North American, and Asian markets is pursued for the majority of products. While there are limited trade flows between these main manufacturing regions, trading within the regions, for example within the European Union, is more intense. In addition to the global and regional markets, local markets can be identified, where products are only delivered around or even within one specific production facility. This can be observed in a so‐called Verbund production system, which is an integrated production where products are delivered directly, via pipes, to customers that are based on the same chemical park. Overall, the chemical industry occupies a multiregional role.
With its different segments, the chemical industry provides significant profit earning potential. In rankings comparing the profitability of different industries, the pharmaceutical industry is often found among the top industries with an EBIT (earnings before interest and taxes) of about 20%. Other profitable industries included within this class are petroleum, tobaccos, or consumer foods. The chemical industry (without pharmaceuticals) ranks in the middle of the list of 16 sectors [7]. Other industries with a much higher visibility in the business news, such as electronics, telecommunications, or aviation, have much lower results. In the following, we will discuss reasons for this favorable profit position.
First of all, companies active in the chemicals value chain provide value to their customers. Pharmaceutical firms produce highly differentiated products bought by price‐insensitive consumers and new products often benefit from their monopoly‐like position due to patent protection. The producers of specialty chemicals manufacture highly differentiated products as well, and can often charge high prices, as customers need these specific products and might even be able to generate a competitive advantage for their firm by buying them. On the other side, the price pressure is much higher for commodities where products are highly standardized, so that companies can only differentiate themselves from their competitors through product prices. However, it would be wrong to assume that only highly price‐differentiated companies can be profitable. In the chemical industry, those companies with an access to low‐cost raw materials, low‐cost energy or a highly effective interlinked production can realize above‐average profits in the field of commodities as well [8].
The intensity of competition, another main driver influencing industry profits, varies by segment and region. While the whole chemical industry is somewhat less consolidated than other industries, a higher degree of concentration can be observed at the segment level. This is, for instance, reflected by the top six manufacturers of crop protection products, who account for around 80% of this market [9]. In regional terms, the North American market shows the highest concentration, implying a rather oligopolistic market structure (with few players of similar size and power). Although Asian markets show lower degrees of concentration, profit‐destroying price wars can be impeded due to the strong growth [10]. In addition to the number of players active in the sector, risks for the profitability of the chemical industry stem from its capital intensity and high barriers to exit the market. For instance, in times of an economic downturn, firms are not able to reduce their production volume gradually due to process requirements, especially in the case of continuous production processes. The resulting overcapacities eventually lead to deteriorating prices and, in turn, to deteriorating profits. Moreover, exit barriers such as lay‐off protection and environmental regulations, which primarily apply to European production sites, constitute high exit barriers. High market entry barriers, notably the major investments in production plants, R&D, and marketing, have mostly prevented new companies from entering the chemical industry in the past. Consequently, the industry is characterized by a specific set of companies, where mergers and acquisitions occur frequently but new players are rare [3, 11, 12].
The evolution of the chemicals industry can be explained by means of its underlying basic sciences [13]. Business historian Alfred Chandler finds that the success of companies in the chemical and pharmaceutical industry results from transferring findings from basic research into marketable products and using the profits and experience gained from each new generation of products to commercialize the next generation [3]. Such companies have yet to be aware of a future where science and technology essential to the continuing growth of high‐technology companies might stop being the engine for innovation and growth. The chemical industry, with its periods of research‐based growth between the 1880s and 1920s and again during the 1940s and 1950s, has to cope with the fact that since the 1950s, only a few major new developments have been created by chemical sciences or engineering [1, 14]. Incremental product and process developments have thus gained more importance for successful companies in the chemical industry than basic research (which is rather aimed at radical inventions). Also, the successful model of pharmaceutical companies developing new products based on basic research findings (blockbuster products) has stumbled lately. However, in spite of this, in the 1960s and 1970s, biology, as well as the related disciplines of microbiology, enzymology, and the beginnings of molecular biology, contributed to the generation of new pharma products. Since the 1980s, advances in the field of biotechnology have fueled the development of innovative products from basic research findings.
To sum up, the chemical industry is actually a process industry encompassing thousands of products used in different applications and enabling innovations in their customers’ industries. The industry is capital intensive and consists of various segments, each having specific success factors and typically showing a multiregional character. The industry has a long tradition, with the initial industrial chemistry dating back to the 1860s in Great Britain. Applying insights from industry lifecycle theory [15], the industry can be classified to be in a maturity phase where the basic technological know‐how is well diffused and the focus is – except for patent‐heavy pharmaceuticals and some specialty chemicals – moreover set on technological improvements rather than on breakthrough innovations.
1.3 Business Transformation in the Chemical Industry
How can we then explain companies’ success in this industry? And how can companies prepare for future success? While the perspectives and methods differ, these core questions are of importance for management practitioners and scholars alike [16].
1.3.1 Business Transformation and Organizational Change Processes
Business historians have analyzed the successful companies in the chemical and pharmaceutical industries by (mainly) focusing on past events. As mentioned earlier, Chandler (2005) identified a company’s ability to create learning processes from one product generation to the next as being key to success. He found that companies with a focused strategy, limited in complexity in terms of different markets and products, are often more successful than firms pursuing strategies of unrelated diversification [3]. Another striking finding addresses the capability of successful companies to manage relationships within a value network. A chemicals firm’s position in industry networks, encompassing other chemical and pharmaceutical firms, and a supporting nexus of specialized suppliers of products and services, serves as a market entry barrier. While these networks were basically established for the chemical industry between the 1880s and 1920s, developments in biotechnology might open up a new field where positions for new as well as established players are not yet fixed.
In recent years, the questions of whether and how companies can proactively adapt to upcoming changes have gained a lot of attention. Approaches have touched various aspects at all levels within a company, from path‐dependent strategic behavior over continuous innovation cultures to the presence of (certain) dynamic capabilities that enable firms to adapt to changing environments. On the one hand, exogenous developments, such as globalization, demographics, and technological changes, have had a profound impact on the way companies do business. On the other hand, endogenous dynamics, such as product and process innovation or the re‐invention of business models, may also lead to large‐scale organizational change. Organizational change is defined as a shift in form, quality or state of an organizational entity over time [17]. Change processes can be observed for multiple entities (e.g., a whole industry) or for a single entity (e.g., a single company). One influential field analyzing change at the level of multiple entities is the so‐called population ecology school, stating that the ability of a single entity to change is very limited. This school proposes a Darwinian view, describing change processes as a result of variation, selection, and retention to be adequate in order to understand change processes (e.g., [18]). The opposite position is taken by the school of planned change. This model in turn views developments at the level of the individual organization as a result of an active organizational design process, where decision makers formulate goals, implement measures, and evaluate the impact on the defined goals (cf. [19] for the different models). In the following, we discuss organizational change from a single company perspective and base our reasoning on the assumption that companies have some discretionary power in actively designing change processes.
Organizational change processes can differ according to their intensity. Incremental changes encompass minor modifications of the status quo, whereas radical changes have a profound impact on different fields of an organization [20]. Transformation processes can additionally be distinguished in terms of the question of whether the organization anticipates an upcoming need to change or whether it reacts passively as a response to external influences [21]. Even though the term proactive transformation appears to have a positive connotation in the practice‐oriented management literature, proactive behavior might not be a successful concept per se. On the contrary, it is challenging for managers to balance the need for stability and exploitation of today’s resource base, on the one hand, with the prospects of exploring new paths, on the other.
Summing up, we use the term business transformation to describe processes of intended organizational change. We conceptualize managers as change agents who proactively or reactively try to develop and shape their fields of responsibility (company, business unit, or department) in order to achieve prior defined organizational objectives.
In a recent study, we analyzed the need for business transformation in the German chemical and pharmaceutical industry by means of a large‐scale online survey, conducted in 2014. In this survey, we addressed upcoming trends, potentially creating a need for transformation, and also asked participants about the relevant management activities to cope with these trends. In total, 270 people participated in the online survey: 141 managers possessing relevant experience in the industry completed the questionnaire; 34% of the respondents considered themselves as being experts in the segment of specialty chemicals, 16% in the field of polymers, 22% in pharmaceuticals, 10% in basis chemicals, 8% in agrochemicals, and 10% in other fields; 50% of the participants were top‐managers (board level), 20% were experts in R&D and innovation, 25% had other leading positions in chemical and pharmaceutical companies, and 5% held other positions. The sample covered different company sizes: 13% of the participants were affiliated with companies of up to 100 employees, 14% were in firms with 101–1000 employees, 21% were in companies with 1001–10 000 employees, 42% worked in large companies with 10 001–100 000 employees and 10% in companies with more than 100 000 employees.
In the following, we present findings from this survey. In doing so, we distinguish between “successful” and “less successful” companies based on participants’ self‐evaluation.2 Following this distinction, 31% of the respondents classified their companies as being very successful, while 57% designated their companies as being on average successful, and 12% as not successful.
1.3.2 Drivers for Change
The future of the chemical industry, and particularly the impact of so‐called global megatrends, is actively debated in the literature [1, 22, 23]. Global megatrends are long‐term trends that may have a global reach lasting for more than 20 years and are defined as drivers of change that affect all parts of society, business, and politics. On the basis of these megatrends and their complex interplay, political institutions, industry associations, and companies create different scenarios for the future. Industry associations employ these pictures to communicate potential opportunities and risks for an industry to politicians, while companies utilize these scenarios to identify relevant fields for action, for example the need for cost cutting in one division and for investment in another [13].
There might also be a critical side to taking megatrends as a starting point for industry scenarios. Megatrends are often vague, for example the megatrend of urbanization. Information about how many people are moving from rural communities is just given in a span. The selection of relevant trends is always subjective and their interaction does additionally hinder the determination of precise scenarios. On the other hand, taking the trends into account may increase companies’ understanding of forces influencing their market and technological environment as well as their current business model. In our study, we focused on megatrends since they are one of the prevailing topics in the chemical management literature in the 2010s. Megatrends may thus serve as a common frame of reference when analyzing the necessity of transforming business in the chemical industry.
There are different ways to group relevant trends for the chemical and pharmaceutical industry [22, 24, 25]. For our study, we distinguished between 12 trends and asked the participants to rate their importance for their business activities in the years 2014 and 2024 (Figure 1.2).
Figure 1.2 Importance of different trends for the chemical industry in the years 2014 and 2024
Across all segments, the most important trends for the chemical industry in 2014 are the ongoing globalization, including the increasing importance of the Asian market, the need for interdisciplinary innovation, for example in the field of bio‐ or nanotechnology, and the growing significance of a higher employee qualification. The German chemical industry is thus becoming more international, opening up to adjacent scientific disciplines, and assigning significant importance to a highly skilled workforce in order to attain its goals. It is striking that for the year 2014, so‐called “green issues,” for example sustainable products, the shift to alternative energy sources, and the use of renewable resources, are considered to have the least relevance of all potential megatrends. At the same time, participants assume that these aspects will increase in significance until the year 2024. Successful companies – as defined earlier – attribute higher importance to these trends than less successful ones.
The variation in importance is also observable when comparing different industry segments:
For managers from the
basic chemicals segment
, the most relevant trends are the increasing significance of the Asian market, rising living standards in developing and emerging countries, and urbanization. They perceive cross‐industry and interdisciplinary innovations in addition to the shrinking and more diverse workforce in Europe to be of less relevance. The results reflect the aforementioned characterization of the basic chemicals segment as being highly automated, capital intensive, and based on established product and process know‐how.
Managers from the
specialty chemicals segment
also underline the meaning of Asian markets and the growing worldwide population. In contrast to the basic chemicals segment, special importance is attributed to interdisciplinary and cross‐industry innovations as well as a highly skilled workforce. This finding corresponds to the identified success factors for the specialty chemicals segment, which are, among others, the presence of customer and market knowledge, and a customer‐specific development of solutions.
The
pharmaceuticals segment
indicates the realization of interdisciplinary innovation as the most essential trend, followed by the opportunities that can be realized due to an ageing population in industrialized countries and growing Asian markets. Highly skilled workers are thus significant. Again, the empirical findings support our description of key success factors for pharmaceutical companies, that is, high R&D intensity, availability of market and customer knowledge, and use of qualified personnel.
In summary, the identified megatrends and their impact are perceived differently by the respondents depending on their associated sub‐segment of the chemical industry. Nevertheless, the specific key megatrends are stated to remain important in the future. While this may hold true on an aggregated level, the question of whether and how a specific chemical company will have to transform its business activities has still to be examined – an aspect that has not yet been analyzed in other studies.
1.3.3 Fields of Business Transformation
In our study, the participants also evaluated to what degree their business unit or company would have to change in the light of the described trends (“need for change”) and to what degree the respective unit is already prepared for this upcoming change (“degree of preparedness”). They identified a medium need for change for all three segments. Regarding this aspect, a significant difference between the chemical and the pharmaceutical industry, on the one hand, and other industries such as electronics, newspaper or financial industries, on the other, can be observed. While the chemical industry actually shows an evolutionary change pattern, the other mentioned industries are characterized by a more radical or “disruptive” change. Thus, radical innovations might not be expected in the chemical industry in the future.
The degree of preparedness in the chemical industry corresponds to the required change when considering the means of the answers. Differences can however be identified across the relevant fields of change. The degree of preparedness coincides with the existing need in the areas “strategy and business model” and “business processes,” whereas a relevant discrepancy can be identified in the fields “workforce qualification” and “company culture.”
Dividing the sample by industry segments as shown in Figure 1.3 reveals additional insights. The field of basic chemicals seems to be very well prepared, thus facing a rather small need for change. In the field of specialty chemicals, participants indicate a higher need for change. They assume that expected shifts within the key field of cross‐industry and interdisciplinary innovation will imply changes in the workforce qualification and the company’s values.
Figure 1.3 Business transformation in the chemical industry
With regards to the pharmaceutical segment, the highest levels of required change encounter the lowest degree of preparedness. A great need for transformation is seen within the fields “corporate culture,” “employee qualification,” “strategy/business model,” and “business processes.” Compared with the other segments, the pharmaceuticals segment shows – with the exception of the topic strategy/business model – higher gaps, not only regarding so‐called “soft issues” of “corporate culture” and “workforce qualification” but also concerning specific business processes.
1.4 Managerial Challenges in the Chemical Industry
After identifying major trends and fields of business transformation, the following section will present the findings from our study on current managerial challenges and elaborate on how to cope with the upcoming changes in the chemical industry.
1.4.1 Creating Strategic Learning Processes
Product life cycles in the chemical and pharmaceutical industry vary in terms of duration. For example, the product life cycle for chemical products that are used in electronic devices is often very short – lasting merely six months [26]. However, the majority of goods manufactured by chemical companies are characterized by having long product life cycles. Some of the commodities at the beginning of the industry’s value chain were invented more than 100 years ago and are still produced on the basis of the same chemical reaction (irrespective of optimizations in the production process over the years). Commodity production is capital‐intensive and ties up product‐, market‐ or even customer‐specific resources. Therefore, it is necessary to leverage economies of scales in order to achieve a cost advantage. Over the years, chemical companies have developed core competencies in optimizing established processes and managing complex value chains. These core competencies can however cause rigidity [27]. Applying insights from path dependence theory, it could be argued that the development of a chemical company is to a high degree determined by past decisions and investments. Companies may thus stick to their well‐established business activities and could be resistant to change. As a consequence, such a high continuity of relevant product, process, and market know‐how may prevent companies from looking outside the company, identifying future trends, and accepting the need for transformation [28, 29]. At the same time, routines and subsequent capabilities have been found to be developed in path‐dependent learning mechanisms.
Strategic learning capability is defined as a company’s ability to derive knowledge from past strategic actions and to use this knowledge to adjust strategy [29, 30]. As illustrated in Figure 1.4, we asked participants in our study to assess the strategic learning capability of their company or business unit (according to the measure used in [30]).
Figure 1.4 Strategic learning capability: successful versus less successful companies
It turns out that successful companies stand out due to their strong strategic learning capability. More precisely, they are superior at assessing failures in strategic approaches and recognizing alternative strategies. Hence, these firms learn from their mistakes and are more flexible in adapting their current strategy and business practices. These firms significantly surpass other companies that are, according to their self‐assessment, not as successful.
Strategic learning capability is crucial for chemical companies in light of the discussed megatrends. It is, for instance, a perquisite for adopting influences from bio‐ or nanotechnology and, accordingly, redirecting firms’ research and/or production efforts. In addition, it enables companies to reconsider whether traditional success parameters on which their business model is assessed still apply. Recognizing non‐sustainable pathways and quickly adjusting strategies is facilitated when companies have such a capability – only then can a company take advantage of innovation and growth opportunities.
1.4.2 Managing Value Chains Across the Globe
A growth of 4.5% per year up to 2030 is predicted for the global chemical industry [22]. The extent of growth will presumably vary by region and industry sector. A modest increase with a growth rate of 1.8% p.a. (per annum) is forecasted for mature chemical markets such as Germany, while Asian markets are expected to grow above average. The rising demand in Asia is explained by the increased prosperity in the region, resulting in a greater number of people buying chemical‐intensive products. While the current share of Asian countries in the worldwide chemical production accounts for 40%, forecasts believe it will accumulate to 55% in 2030. By taking a company perspective, the key questions are how to participate in this growth and how to organize the value chain accordingly. In particular, companies have to decide about the geographic location of their value chain activities and about the way they handle interfaces across their globally dispersed activities.
Our study thus included a question asking companies about the geographic center of their business activities. Across all business functions and business segments, respondents answered that the relative importance of Europe as a location will decrease as Asia’s importance will increase. For 15% of the companies, their current geographical production focus is located in Asia. This share is estimated to rise to 44% in the year 2024. Participants assume that they will additionally shift their marketing and sales activities to Asia: this number rises from 11% for 2014 to 41% for 2024. A shift is also expected for R&D activities. While 89% of the respondents indicated that the geographical focus of R&D activities in 2014 is in Europe and less than 1% in Asia, they believe this proportion to change in the next ten years to 77% for Europe and 15% for Asia.
Creating additional capacities for downstream processes (e.g., production and marketing and sales) close to or in growing markets can be explained with the help of location science research. Location science identifies factors influencing companies’ international location decisions (for an overview cf. [31]). Scholars distinguish between sourcing‐oriented (e.g., raw materials availability, energy costs, labor supply, and skills), transformation‐oriented (e.g., climate), sales‐oriented (e.g., market potential), and government‐oriented (e.g., subsidies, trade barriers, business climate) aspects. For the commodity segments in particular, sourcing‐ and sales‐oriented factors are reasons for the decision to build up additional production and marketing and sales capacities in Asia. When raw materials are available on‐site, companies produce their products close to their customers and thus avoid high transportation costs. Companies need to interact with their customers closely, such as producers of specialty chemicals, and might move their sales and application engineering employees to the target markets as well. They thereby create rich communication channels [32] that might be more appropriate for discussing innovative topics.
The still existing advantages for conducting R&D in North America and Europe explain why respondents only observe a low tendency to move R&D activities to Asia. Beneficial attributes are the well‐established academic systems and a highly skilled workforce. An additional advantage is the presence of strong networks between chemical companies, their customers in lead markets such as the automotive industry, and specialized innovation partners in related industries such as machinery. For instance, many leading chemical producers in principal customer markets are still carrying out their research and production activities in Germany. The physical proximity and a comparable level of professionalism thus facilitate organizing cross‐industry and cross‐disciplinary collaborative projects. These agglomeration effects (e.g., in‐sourcing, transformation, and sales) described by location theory still favor R&D in Europe and North America. Though – according to business associations and managers in the chemical industry – the limited innovation climate and openness might be detrimental to allocating R&D activities to European countries. This is, for instance, reflected in the fields of green biotechnology and fracking, where R&D is concentrated in North America, due to the less favorable legislation and the business climate in Europe.
