Value Creation: Strategies for the Chemical Industry

Written by a global team of top managers and senior McKinsey experts, this expanded and completely revised second edition provides a wide-ranging manual on the subject of value creation in the chemical industry. Drawing on extensive first-hand management experience, several hundred consulting engagements, and in-depth research projects, the authors outline the key ingredients for managing chemical companies successfully. The book addresses in detail key issues of strategy and industry structure, describes best practice in the core functions of the chemical business system, looks at the state of the art in organization and post-merger management, and covers a selection of the most important current topics such as industrial biotechnology, the role of private equity, and the chemical landscape in China. Although mainly directed at executives and managers in the chemical industry, the knowledge contained in this comprehensive overview will also benefit scientists, engineers, investors, students, and anyone else dealing with management issues in this sector.

Table of Contents:
Preface XVII Acknowledgements XIX List of Contributors XXI 1 Today’s Chemical Industry: Which Way Is Up? 1 Karsten Hofmann and Florian Budde 1.1 The Chemical Industry Today – A Snapshot 1 1.2 Eras of the Chemical Industry 7 1.3 Summary 10 2 Shareholder Value Orientation: Not a Question of Whether, but How 11 Bernd Heinemann and Thomas Augat 2.1 Capital Market Deviations as the Key Challenge for Shareholder Value Orientation 11 2.2 How Capital Markets Reflect Fundamental Value Creation 13 2.3 New Tools for an Advanced Shareholder Value Orientation 19 2.4 Summary 26 3 Structural Drivers of Value Creation in the Chemical Industry 27 Eric Bartels, Thomas Augat, and Florian Budde 3.1 Introduction to the Study 27 3.2 Mobility in a Mature Industry 28 3.3 What Drives Performance? 30 3.4 A Closer Look at Value Creation in the Segments 33 3.5 Summary 38 4 Chemicals – Driving Innovation in Other Industries 41 Thomas Schreckenbach and Werner Becker 4.1 Liquid Crystals: Superlative, Not Superfluous 42 4.2 Outlook 51 4.3 Summary 52 5 Today’s Challenges and Strategic Choices 53 Florian Budde, Utz-Hellmuth Felcht, and Heiner Frankemölle 5.1 Overall Outlook Stable 54 5.2 The Value Kaleidoscope 55 5.3 What Happens Next? 59 5.4 Summary 61 6 An Approach to Determining the Long-term Attractiveness of Commodity Chemical Businesses 63 Scott Andre, Sunil Sanghvi, and Thomas Röthel 6.1 Looking beyond Cyclicality 64 6.2 Putting the Model to Work 71 6.3 The Example of Ethylene 73 6.4 Tailoring the Model 75 6.5 Conclusion 76 6.6 Summary 76 7 Middle East: Opportunities and Challenges from the Rapid Emergence of a Global Petrochemical Hub 79 Christophe de Mahieu, Christian Günther, and Jens Riese 7.1 Turning to the East 79 7.2 Pathways to Growth for the Middle East 85 7.3 Way Forward for the West 89 7.4 Capturing the Value 90 7.5 Conclusion 92 7.6 Summary 93 8 Survival when It’s Hard to be Special: A Perspective on Specialty Chemicals 95 Eric Bartels, Joël Claret, Sabine Deppe, and Ralph Marquardt 8.1 Performance Has Been Disappointing 95 8.2 The Market Is Not Getting Any Easier 99 8.3 Meeting the Challenge – Five Key Levers to Pull 102 8.4 Summary 108 9 Creating the World’s Leading Specialty Chemicals Company 109 Utz-Hellmuth Felcht 9.1 The Portfolio: “Creating the World’s Leading Specialty Chemicals Company” 109 9.2 Organization: “as Decentralized as Possible, as Centralized as Necessary” 113 9.3 A United Corporate Culture: “Blue Spirit” 117 9.4 New Challenges and the Next Transformation Goals 120 9.5 Conclusion 124 9.6 Summary 125 10 Prospects for Agribusiness: an Essential Contribution to Global Food Demand 127 Michael Pragnell and Robert Berendes 10.1 The Rationale of Agribusiness 128 10.2 Three Eras of Agribusiness 130 10.3 Driving Plant Yield 132 10.4 Opportunities beyond Yield 134 10.5 Summary 134 11 Industrial Gases – Growth by Continued Self-Renewal 137 Aldo Belloni and Lennart Selander 11.1 HThe Invisible Industry’: Stability and Profitability 137 11.2 One Hundred Years of Success: the Winning Ingredients 141 11.3 Fit for the Future: Ready to Meet the Challenges 143 11.4 Summary 148 12 Perspectives of Chemical Distributors as Partners of Industry 149 Klaus Engel and Gabriele Roolfs-Broihan 12.1 From Wholesaling to Supply Chain Management: the Evolution of Chemical Distribution 150 12.2 An Industry on the Move – the Major Trends 152 12.3 Perspectives Within Changing Environments 153 12.4 The Future Outlook 157 12.5 Summary 158 13 Systematically Revitalizing Innovation in the Chemical Industry 159 Birgit König, Gary Farha, and Thomas Weskamp 13.1 Drivers of Innovation 160 13.2 How to Organize for Innovation 170 13.3 Summary 172 14 Innovation for Growth 173 Thomas M. Connelly 14.1 The Ever-Present Challenges for the Innovation Process 173 14.2 Three Lessons Guide Us 177 14.3 What Will the Future Bring? 183 14.4 Summary 184 15 The Four Pillars of Sustainable Purchasing Transformations 185 Helge Jordan, Nicolas Reinecke, and Khosro Ezaz-Nikpay 15.1 Designing a Performance Transformation Program 186 15.2 Initiate and Anchor Behavioral Change in the Organization 188 15.3 Generate Impact through a Proven Value Creation Process 191 15.4 Create a Tailor-made Performance Measurement and Management System 196 15.5 Summary 199 16 Feedstock Price Volatility and How to Deal with It 201 Scott Andre and Sunil Sanghvi 16.1 What is Driving Feedstock Price Increases and Volatility? 201 16.2 A Brave New World of Feedstock 206 16.3 Meeting the Challenge of Feedstock Volatility 209 16.4 Conclusion 213 16.5 Summary 213 17 Taking a Leap in Purchasing 215 Gregory Nelson 17.1 Maximizing Value Creation 215 17.2 Creating Sustainable Value for the Business 219 17.3 The Next Horizon 224 17.4 Summary 225 18 Excellence in Operations – the Never-ending Journey Continues 227 Leonhard Birnbaum 18.1 Operational Improvement – the Bar Is Rising 227 18.2 Making Lean Operations Happen in Chemicals 230 18.3 Summary 239 19 State-of-the-art Production Concepts in the Chemical Industry 241 Uwe Nickel 19.1 Operating in a Transformed Environment 242 19.2 Challenges and Responses 246 19.3 Outlook 256 19.4 Summary 256 20 The Role of Site Services and Infrastructure for Productivity Management 257 Alejandro Alcalde Rasch 20.1 Site Services and Infrastructure: an Important Driver of Manufacturing Productivity 257 20.2 Transition: Site Services and Infrastructure’s Coming of Age 258 20.3 Going Forward: Increasing Site Services and Infrastructure’s Competitiveness 262 20.4 Summary 267 21 Creating a Revenue Advantage through Sales and Marketing Excellence 269 John Warner, Joël Claret, Ralph Marquardt, and Eric Roegner 21.1 Defining World Class 270 21.2 Building World Class Revenue Capability 275 21.3 Summary 279 22 Achieving Top Performance in Supply Chain Management 281 Andrea Cappello, Martin Lösch, and Christoph Schmitz 22.1 Supply Chain Management as a Strategic Lever for the Chemical Industry 281 22.2 Key Supply Chain Management Elements and Opportunities for the Chemical Industry 283 22.3 Delivering on the Opportunities – the Key Success Factors for Achieving Top Performance 290 22.4 Conclusion 295 22.5 Summary 295 23 Right Second Time – Unlocking Value with IT 297 Peter Peters 23.1 Breaking the Barrier 297 23.2 World Class IT Infrastructure Management 299 23.3 ERP Harmonization as the Basis for Global Process Architectures 302 23.4 Making CRM Work to Create Profitable Growth 305 23.5 Key Success Factors for the Journey 308 23.6 Summary 309 24 Managing Organizational Performance 311 Karsten Hofmann and Heiner Frankemölle 24.1 Supporting Strategy by Structure 312 24.2 Understanding the Performance Challenge 315 24.3 Making Organizational Change Happen 318 24.4 Summary 325 25 Post-Merger Management: it’s All in the Design 327 Eric Bartels, Tomas Koch, and Philip Eykerman 25.1 Phases of an Integration 328 25.2 Defining and Communicating the Aspirations 330 25.3 Fully Identifying Value Creation Potential 330 25.4 Determining the Cornerstones of an Effective Organization 335 25.5 Tailoring the Integration Approach 338 25.6 Summary 341 26 M&A – the UCB Case 343 Georges Jacobs 26.1 A Brief History of UCB – Eight Decades of Mergers, Acquisitions, and Divestments 344 26.2 The Formation of Surface Specialties – A Three-way Integration 346 26.3 The Integration of UCB Pharma and Celltech 353 26.4 Key Learnings 356 26.5 Summary 357 27 The Chemical Industry and Public Perception 359 Wilfried Sahm 27.1 Public Perception of the Chemical Industry – its Structure and Significance 359 27.2 Image and Acceptance in Germany 362 27.3 Creating Awareness and Acceptance through Communication 369 27.4 Current Challenges 371 27.5 Summary 373 28 Industrial Biotech: From Promise to Profit 375 Rolf Bachmann and Jens Riese 28.1 Time to Exploit the Potential 375 28.2 Waste Biomass – a Feedstock with Mass Appeal 379 28.3 Turning the Promise into Profit 381 28.4 Capturing the Value – How it is Done in Practice 383 28.5 Finding the Right Answer 387 28.6 Summary 388 29 Industrial Biotech at DSM: From Concept to Customer 389 Colja Laane and Feike Sijbesma 29.1 From Petro to Bio 389 29.2 From Principle to Product 390 29.3 From Specialties to Commodities 398 29.4 From Innovation to Impact 399 29.5 Summary 401 30 Leveraged Buyout Transactions – Challenges and Learnings 403 Achim Berg, Florian Budde, and Bernd Heinemann 30.1 Chemical Sector LBOs Show No Sign of Abating 403 30.2 Understanding Value Generation in Chemical Buyouts 407 30.3 Learnings for the Chemical Industry 410 30.4 Learnings for Buyout Firms 411 30.5 Summary 415 31 What Attracts Private Equity Firms to the Chemical Industry? 417 Thomas Jetter 31.1 Chemical Industry Restructuring 418 31.2 Private Equity Transactions in Chemicals – Success Stories, Mostly 419 31.3 The Value Drivers of Private Equity Investments 420 31.4 Summary 425 32 Facing China 427 Sönke Bästlein, Ralf Dingeldein, Tomas Koch, and Karsten Neuffer 32.1 China Is No Longer HOptional’ 428 32.2 Most Chemical Companies Are Not up to Speed 430 32.3 The Lessons of Confucius 433 32.4 Summary 440 33 China – Key for Success in Asia 441 Jürgen Hambrecht 33.1 Why China? 441 33.2 BASF and its Long Relationship with China 442 33.3 Sustainable Development in China 447 33.4 Outlook 448 33.5 Summary 449 Index 451

About the Author :
Florian Budde is a Director in the Frankfurt office of McKinsey & Company, Inc. He co-leads the firm's European Chemicals Practice and has served a large number of chemical clients on strategic, organizational, and operational issues, with an emphasis on capital market-oriented corporate strategy. Earlier in his career, he was based in McKinsey's Seoul Office for two years. He holds a PhD in physical chemistry. Utz-Hellmuth Felcht is Chairman of the Board of Management of Degussa AG and a member of the Board of Management of RAG Aktiengesellschaft, as well as holding a number of other Supervisory Board positions. He also serves as Vice President of the German Chemical Industry Association (VCI) and as a member of the Board of the German Association for Chemical Technology and Biotechnology (DECHEMA e. V.). He has a PhD in chemistry and is an honorary Professor of the University of Munich. Heiner Frankemolle is a Director of McKinsey & Company, Inc. based in the Cologne office. He leads the firm's Global Chemicals Practice. The main areas of emphasis in his client work are corporate transformation, strategy, M&A, and post-merger management, as well as total operational performance and continuous improvement. He holds a PhD in agricultural economics.

Review :
"This reviewer would have been very glad to have had a book such as this, about value creation in the chemical industry, at the start of his industrial career! In this book, which contains 33 chapters written by over 50 authors, the three editors have succeeded in putting together a work on this complex subject that is very readable and easy to understand, even for nonchemists. Of the 54 authors, 35 are from the McKinsey consultancy organization, while 19 are experienced business leaders from the chemical industry. The book can be strongly recommended for everyone who is working in this or a related area, or intends to do so...This is an excellent book, both in its standard of production and especially in its content, and I hope that it will reach a wide readership so long as it remains up-to-date." Angewandte Chemie "This comprehensive collection of data and ways of thinking of people, who as non-chemists have an ever increasing influence on the way the chemical industry is managed, is of considerable influence to those, who should provide the basis for the innovations to come, the scientists. Only if members of the two worlds talk to and understand each other, the chemical industry can continue to prosper. It is hoped that this well-conceived book will play its role at this important interface." Macromolecular Chemistry and Physics "Geschrieben von einem globalen Team von Top-Managern und Senior-Experten des Wirtschaftsforschungs-unternehmens McKinsey, verspricht das Werk umfassende Information zur Wertschöpfung in der chemischen Industrie. Dabei werden insbesondere die Schlüsselpunkte erfolgreichen Managements in Chemieunternehmen dargestellt...Derzeit außerordentlich wichtige Einzelaspekte wie der prosperierende Markt in China, Biotechnologie und die Rolle von Private Equity werden nicht ausgespart. Obwohl das Werk eigentlich an Entscheidungsträger und Manager in der chemischen Industrie gerichtet ist, nützt das akribisch zusammengetragene Wissen auch Wissenschaftlern, Ingenieuren, Investoren, Studenten und Interessierten in der Branche." Welt der Farben - Fachmagazin für die Farben- und Lackindustrie "Ein solches Buch über Wertschaffung in der chemischen Industrie hätte sich der Rezensent zu Beginn seiner Industrielaufbahn gewünscht! Die drei Herausgeber haben das Kunststück fertiggebracht, mit 33 Einzelkapiteln, geschrieben von insgesamt über 50 Autoren, einen auch für Nichtchemiker durchweg leicht lesbaren und verständlichen roten Faden durch die komplexe Thematik zu ziehen. 35 der 54 Autoren sind Mitarbeiter des Beratungsunternehmens McKinsey und 19 sind "gestandene" Führungskräfte aus der Industrie. Das Buch kann jedem, der in dieser oder einer verwandten Branche tätig ist oder es werden will, wärmstens empfohlen werden...Dem in seiner Ausstattung, besonders aber im Inhalt herausragenden Buch wünsche ich einen großen Leserkreis, solange es noch aktuell ist." Angewandte Chemie "Auf hohem Niveau und mit viel Umfeldwissen beschreibt das Buch moderne Unternehmensprozesse und untermauert sie mit Fallbeispielen und Handlungskonzepten...Jeder Beitrag ist auf seine Art interessant, und es macht Spaß, die verschiedenen Sichtweisen und Zusammenhänge zu lesen. Man findet durchdachte Handlungskonzepte, Zahlenangaben sowie kleine und große Fallbeispiele, die im Zusammenklang mit dem destillierten strategischen Wissen den Wert dieses Buches ausmachen. Die Überlegungen sind nie einseitig, sondern ausgewogen und für den jeweiligen Fall sowohl hinreichend konkretisiert als auch durch viel Hintergrundwissen verdichtet. Damit lohnt sich ein Blick für Führungskräfte, Mitglieder von strategischer Planung und ähnlichen Abteilungen in diese Konzeptsammlung, wenn Entscheidungen anstehen und man nicht fatal daneben liegen möchte...Aber gerade auch diejenigen, die nicht zu der erlesenen Runde der Entscheider gehören, sollten dieses Buch lesen, da es auf unaufgeregte Art und jenseits von Häme oder persönlichen Eitelkeiten die Einflüsse, Entscheidungsmöglichkeiten und Bedrohungen für ein Unternehmen zeigt und damit mehr Durchblick für unternehmerische Handlungen ermöglicht." Nachrichten aus der Chemie