1. Roland Berger survey: 60 percent of companies know that they need a digital strategy
2. But half of firms lack the necessary competencies and expertise to pull off their own digital transformation
3. Evolution or revolution? A combination of the two holds the biggest promise of success

Munich, July 24, 2016

The chemicals industry is entering a new era. Whereas past years were principally marked by mergers & acquisitions in the life sciences, the sector is now making great strides toward digitization. The number of digital innovations influencing the chemicals industry is growing constantly: Sensors for example now monitor product quality in real time; precision agriculture is changing the way agrochemicals are used; 3D printing and other digital tools are giving birth to brand new production methods. Just like the manufacturing industry has experienced with Industry 4.0, so the chemicals sector is now having to deal with radical change. The opportunities and challenges facing companies are described by experts from Roland Berger in their new publication "Master the maze – Formulating a winning digital strategy in chemicals".

The chemicals sector is an important pillar of the global economy. Its worldwide business volume currently amounts to some 2.3 trillion euros and is set to grow to 5.6 trillion euros by 2035. But this significant industry will only be able to profit from this growth by future-proofing its business. "To date it has been production site optimization or pricing that has determined the success of chemical companies," said Carolin Griese-Michels, Partner at Roland Berger. "In that sense it is hard, at first glances, to make out any parallels to the digital world of internet companies."

But the dramatic effects of digitization in other sectors of industry have to some extent sensitized chemical CEOs to the subject. "Decision makers have realized that digital technologies have the potential to change the chemical value chain for good – from research & development to the supply chain and production, to marketing and sales," said Philipp Leutiger, Partner at Roland Berger.

The challenge is to separate the hype from the reality

In a poll conducted by Roland Berger, almost 60 percent of chemical companies conceded that they had a need for a digital strategy. But half of all respondents said they are not in a position to actually address the opportunities presented by the digital transformation. "And yet that is absolutely crucial for companies who want to stay competitive," explained Brandon Boyle, Principal at Roland Berger: "It's not just about using innovative technologies. The main question is how well companies manage to separate the reality from the hype and how they work out the right approach to adopt. In short, it’s about finding the key to success in the digital fog."

Big chemical companies have two options here: They can go for evolution, in other words adjust their existing technologies and structures, or they can opt for revolution, the complete transformation of conventional industry structures with resounding innovations or extensive new processes. The Roland Berger survey found that about ten percent of chemical companies have still not decided which option they want to take; they are still analyzing the situation. Some 70 percent of firms are going down the path of evolution, embarking on a gradual digital transformation. The revolutionary approach is not suited to most companies and is only used by a few firms in their distribution activities.

Combination of evolution and revolution

The Roland Berger experts see a third way, which they believe holds the greatest promise of success: a combination of evolution and revolution. About 20 percent of respondent firms are so far doing this, mostly specialist chemical companies focusing on individual customer industries. "They have a vision, and by that I mean they can see where the opportunities are going untapped in their value chain and they are making targeted use of digital technologies to drive evolutionary improvements while also achieving new and revolutionary competitive advantages in selected areas," said Griese-Michels. "In doing so they retain a leading position in their industry and also drive the market transformation to suit their business."

The problem is that, in the chemicals sector with its large bandwidth of products and applications, there is no generally accepted vision and description of exactly how to go down this path. Each company must develop its own vision for the future and then put the right measures in place to achieve it. A systematic approach can be very helpful here.

Digital transformation in three stages

The Roland Berger experts recommend three key steps for chemical companies to take to optimally exploit the opportunities presented by digitization:

Define your business essence and develop a future vision: Companies should start by defining their core competencies in relation to the needs of their market. This includes scrutinizing their digital capabilities in areas like research & development, production, supply chain, marketing and distribution. And they should draw on the insight of a wide range of experts – futurologists, innovators, entrepreneurs, their own managers, stakeholders and customers – to develop future scenarios for digitization with regard to industry trends, evolving customer needs, competitor behavior and key technologies.

Identify digital approaches with business relevance: The second stage is about identifying potential approaches for digital measures along the value chain in the chemicals industry. This will allow companies to determine the most suitable digital agenda for them.

Digital hubs for realization: Finally, chemical companies should communicate their digital agenda internally and determine the skills and expertise they will need to realize it. Key to this is the transformation of their corporate culture.

"For companies in the chemicals industry as in all others, digital transformation is a trend they cannot ignore, assuming they want to remain a competitive force going forward," said Roland Berger expert Philipp Leutiger in summary. "The sooner they get to grips with this issue and develop a strategy for the digital transformation of their business, the sooner they will be able to seize the promising opportunities it presents."