Digitization and technological advances in energy, such as renewables and improvements in battery storage, are adding to the energy, utilities, and resources (EU&R) industry’s skill set. These technologies offer considerable opportunities for transformation and are disrupting the EU&R competitive landscape.
For chemicals companies, digitization in particular offers opportunities to reduce costs in various ways, and is also creating new business models that are being pioneered by new entrants from outside the sector. As a result, many chemicals companies are facing a mix of challenges that can no longer be responded to in the traditional way.
As our survey reveals, chemicals companies are turning to digitization faster than their peers in the rest of EU&R, but this is not thoroughgoing enough yet to keep up the pace of other industries. While their initial digitization efforts have been targeted at specific bottom-line generating assets such as supply chain and production, we think chemicals companies need to take a more holistic approach to digitization.
The thorniest problem besetting chemicals companies is a by-product of the dynamics of the industry environment in which they operate: commoditization of their portfolios is accelerating, and substitution pressure rises as chemical substances are increasingly scrutinized for their impact on health or environment. In addition, chemicals companies are under increasing pressure from their customers to come up with more and more innovative applications that can, in turn, help those customers respond to the rapidly-changing environment around them.
Given the study results, the question arises what it will take to become a Digital Champion in the industry. We see five areas evolving to set the focus on:
While the environment for the chemicals industry is going to continue to be dynamic and difficult for some companies, this is a good time – perhaps the most crucial time – to develop and expand digital capabilities and set off towards digital maturity. New technologies, apps, databanks, systems and programs will be an essential lever for maintaining competitiveness, developing additional revenue streams and transforming the business model.
Indeed, the most important lesson from Strategy&’s study is that once chemical companies identify the capabilities that they need to modernize and innovate their business model, and aim at digitization to develop and enhance these capabilities internally as well as with suppliers and customers, they start to transform data into real value.