Managing A Moving Target

An International Study Analyzes Organizational Structures of Chemical Companies in the Area of Operations

11.04.2013 -

A World Of Changes - Globalization and a more competitive and complex business environment have created constant pressure for structural change of chemical supply chain processes. The trend toward consolidation leads to distinctive challenges for operations management regarding its organizational structure and its efficient utilization. A transparent framework and methodology has to be established in order to leverage synergies within the value chain network.

The Global Change of Operations in the Chemical Industry

In the 21st century, the chemical industry is much more diversified and globalized than before. Climate and demographic change as well as the protection of the environment demand attention. Companies also have to stay innovative, flexible and quick to respond to a market change. Logistics and production strategies are no longer based only on cost efficiency, quality and short lead-times, but flexible and robust supply chain management and the ability to adapt quickly to business dynamics can provide a competitive advantage.

How can a chemical company translate these dynamic changes and business requirements into an organizational strategy for operations? A lot of enterprises answer this question by launching restructuring projects, which create a time-consuming reorganization process and high uncertainty for employees. A transparent analysis of the value chain needs to be implemented in order to prevent an expensive and distracting restructuring and identify the critical organizational factors.

Organizational Benchmark of Operations Management

An international expert survey was conducted in close collaboration with Merck Chemicals (Shanghai) Co. Ltd. and the "Forschungsinstitut für Betriebswirtschaftslehre - Unternehmensführung, Logistik und Produktion" chaired by Professor Horst Wildemann from the Technical University Munich, in order to provide new insights into the organizational structure of operations in the chemical industry. The target groups for this organizational benchmarking study were senior managers in the chemical industry. The specific purpose of this research was to identify variables that influence the organizational structure of technical operations management in the chemical industry, as well as to derive guidelines for the organizational design of operations.

High Potentials Regarding an Efficient Restructuring Process

The results of the survey illustrated in Fig. 1 prove the highly practical relevance of the research topic. Of all research subjects, 91% considered operations as a core competency in their chemical company, whereas 17% were not satisfied with their structure. Furthermore, more than 74% have undertaken a restructuring program of operations in the last five years, and 29% are planning a reorganization project. These numbers emphasize the strategic importance of the organizational design as well as the remaining potential chemical companies seem to expect from reorganizing its operations. It also indicates the need for further investigation regarding a suitable and transparent methodology, which supports the complex redesign process.

Traditional Organizational Models are Dominating the Chemical Industry

The coherences between internal business and external requirements as well as the specific attributes of the supply chain and production network create a unique situation for operations management and its organization. The conducted survey reveals interesting insights regarding the general formal organizational structure of operations, presented in Fig. 2. It shows that the functional and divisional structures are dominating the chemical industry. In contrast, the percentage of companies using a process-oriented structure is quite low.

Three organizational core elements of operations management could be identified: Manufacturing, supply chain management and operational excellence.
Distribution and logistics as well as quality management possess ambivalent structural solutions. A clear tendency toward separation from operations can be recognized regarding procurement and EHS (environment, health, safety and security), which emphasizes the high strategic relevance of these two functions in the value chain network.

Value Chain Management Implies a Clear Focus on Product Life Cycles and Capacity

The trend toward strategic value chain design and process management can also be recognized in the chemical industry. Figures 3-6 (c.f. page 16, back cover) are illustrating the survey results of the different specializations of each value chain (Fig. 3), correlations regarding operations complexity and business diversity (Fig. 4), the correlation between specific capacity models and the distinct organizational structure (Fig. 5), and suggestions for operations strategies for different stages of the product life cycle (Fig. 6).

Transparent Organizational Structures Need to be Implemented

The development of operational excellence is an important competitive factor regarding efficient value chain design and related to specific informal organizational characteristics. The survey revealed that chemical companies that don't put a lot of focus on operational excellence exhibit a lesser degree of formalization of their processes as well as a tendency toward functional thinking and goal conflicts. There is no clear accountability for performance, and process transparency is not managed well.

The first phase for organizational excellence is to develop clear accountability and transparent roles within the operations organization. Enhanced internal customer orientation and performance transparency are the next steps toward superior operational excellence, along with a diverse spectrum of work. Finally, there is tremendous potential in the utilization of the knowledge of the chemical workers. Chemical organizations should utilize this internal entrepreneurship, in order to achieve a sustainable competitive advantage for the long-term.


The process of structuring an operations organization needs to leverage synergies within the value chain as well as enhance the focus on core competencies of the business. The larger and more diverse a chemical portfolio becomes, the more complex its operations and the number of production and supply chain processes. In order to serve the business, an organization has to react to this development with decentralization of its operations organization and implement flexible and adaptable customer-oriented structures. A clear focus on product life cycles as well as sophisticated resource management needs to be implemented, in order to achieve an efficient performance and cost structure. Concepts such as complexity and process management can enhance the transparency, accountability and internal customer orientation of an organization. If there isn't a stronger consideration of these informal attributes, an operation's restructuring effort might face tremendous resistance and turnover in the course of the redesign. Hence, a clear analysis as well as monitoring of the organizational characteristics will not only help the overall efficiency of an operations restructuring process, but it will also be a sustainable competitive advantage for the long term

Operations Management in the Chemical Industry

An international expert survey conducted by Merck Chemicals (Shanghai) and Technical University Munich provides new insights into the organizational structure of operations in the chemical industry. The trend toward strategic value chain design and process management can also be recognized in the chemical industry. Fig. 3 illustrates the survey results of the different specializations of each value chain in the chemical industry.

A quality focus is clearly dominating the operations organization, which needs to handle the internal and external complexity of manufacturing and supply chain processes as well as the diversity of the business portfolio. The survey could reveal new correlations regarding these two factors, which are shown in Fig. 4. It implies that a higher degree of business diversity as well as operations complexity suggest the utilization of a decentralized structure.
Higher complexity often implies growth of a business and a larger portfolio, which requires professional resource management. Managing capacity with a view toward the fulfillment of customer expectations as well as efficient asset utilization is a complex task in the chemical value chain network. Ensuring smooth operational processes by providing enough technical capacity increases labor and costs.

An interesting point of the survey is the correlation between specific capacity models and the distinct organizational structure that is primarily associated with them, which is illustrated in Fig. 5. There is a tendency toward idle technical capacity if decentralization increases. Therefore, companies need to implement a more sophisticated capacity management, in order to lower and monitor an excess of resources.
This includes a higher focus on product life cycle management. The survey indicates that products and services possess different operations strategies in each stage of their life cycle, which is illustrated in Fig. 6. During the growth stage, the dominating organization is a functional structure. Sophisticated and clear processes for new products need to be established, which can be achieved by the traditional functional structure. In the maturity stage, the business grows and the formal structures tend to develop into a more decentralized structure.

A focus on transparent resource management during this phase helps to prevent the unnecessary buildup of capacity. During the saturation stage, the trend toward process standardization increases and there is a significant tendency toward centralized structures. A chemical company needs to be aware of this phenomenon and design its operations structure as well as available capacity adequately in advance.


Merck Chemicals Co. Ltd.