McKinsey Says Digitization Offers Gains for Chemicals
Digitization could offer chemical companies the opportunity to unlock more than $200 billion of new value, according to new research by global management consultant McKinsey.
With many traditional productivity levers exhausted, where can companies look for their next step change in financial performance, McKinsey asks. The consultancy believes the answer lies in applying digital technologies that can reduce the costs to serve, improve pricing and, for the fast movers, capture growth from competitors.
According to the research, digitization can cut the cost to serve by 15-20%, margins can be raised by two to three percentage points of return on sales and customer satisfaction can be enhanced by as much as 20-30%.
Implementing readily available digital approaches to marketing and sales could be worth as much as $105 billion to $205 billion annually in additional earnings before EBITDA to the chemical industry, which McKinsey values at $3.8 trillion a year. In addition, it says, fast-mover companies that “act aggressively” to deploy digital tools could also capture another $45 billion to $65 billion of extra earnings by taking customers and revenues away from “less nimble” peers.
McKinsey said leading chemical firms are already looking to digital solutions to help them tackle challenges and explore new business opportunities. It highlighted BASF as a case in point. The German major, in seeking to expand its footprint in China, decided in 2015 to open an e-store on Alibaba to gain access to the small- and medium-sized enterprises (SMEs) that make up 99% of companies in the country. This move, said McKinsey, helped BASF to serve customers with minimum complexity, to keep its selling costs low and to manage its portfolio easily.
While McKinsey said digitization is not about to turn chemical companies’ business models “upside down,” it said there is money to be made and warned that those firms that neglect the digital opportunity risk being outmaneuvered by more agile competitors.