Published on 11/18/2016 | Operations
In a volatile industry such as chemicals, the nimblest organizations prosper the most. Recent research from McKinsey and Company shows that those companies that frequently and strategically reallocate resources across businesses in response to changing conditions easily outperform those that don’t. The companies with the most frequent reallocations had a CAGR of 10.8 percent, with thos that reallocated the least had a CAGR of only a 2.5 percent.
The analysis spanned 23 years—from 1990 to 2013—and showed that companies that started the period with similar prospects had markedly different values at the end of the study, with the most frequent allocators having a market capitalization 6 times higher than the least frequent allocators. In addition, frequent allocators had a 30 percent higher chance of remaining independent in addition to better total return to shareholders.
Companies generally react to changes in market conditions rather than anticipate changes, so reaction time is critical to a successful reallocation strategy. When the shale-gas boom began in 2009, it took even the fastest companies two to three years to react. However, the companies with the fastest reaction times were able to pivot their strategy and reallocate resources to take advantage of the change in the situation. The fastest companies were able to begin building the required infrastructure well ahead of their less nimble counterparts, enabling them to lock down a lower cost structure that provided a significant margin advantage.
While companies must still take basic steps to clarify their business strategy, new technology has enabled a digital transformation that supports both rapid analysis of complex situations and the ability to quickly align budgets to strategy.
A successful business strategy should act as a road map to the company’s goals—covering at least five years, and including investment priorities and targeting business and portfolio composition. With this idea in mind, companies can use Big Data and in-memory analytics to combine large volumes of disparate data from multiple sources to provide insight in real time. The companies that undergo this digital transformation soonest will have an advantage over their less-agile competitors. As a result, they will be able to quickly move resources and reallocate budgets and priorities so that projects and businesses with the greatest growth potential receive the greatest share of the available resources.
This digital transformation enables rapid analysis and implementation of such strategies, driving enhanced business processes and creating fully empowered workforces that are able to make informed decisions at anytime, anywhere, and at any appropriate level.
Establishing the underlying foundation of real-time, in-memory analytics, flexible and adaptable business processes, and a culture attuned to digital transformation of business will help enable companies in the chemicals industry to quickly take advantage of business opportunities that reduce costs, return shareholder value, and increase competitiveness. Those companies that fail to adopt the tools for digital transformation will find themselves lagging their competitors in operational efficiency and every meaningful financial metric, while those that embrace it will prosper.
