Human beings don’t like change, and they don’t like argument. They prefer to assume, whenever possible, that life will continue in a straight line. This preference is especially common in large companies. Change for them means having to develop new products and services, enter risky new markets, and have potentially awkward conversations with investors.
But we all know that change is inevitable, and that life doesn’t move in straight lines. We also know that companies who miss the moment to change can soon find their business model under major attack. Doing nothing is often the riskiest option. Just ask those who worked for once-great companies such as Hoechst, ICI, Union Carbide and others who now no longer exist.
Today, as the blog works with company boards around the world, it is clear that change is increasingly seen as inevitable:
• Many companies are now incorporating a demographic element in their Strategies and Budgets
• Immediately they study the topic, they realise the 25-year SuperCycle from 1983 is over
• Ageing populations in the West and China mean demand is becoming replacement-driven
• Equally, today’s heavy and increasing debt levels mean that people’s spending power is becoming limited as governments increase taxes and reduce benefits
But these companies are still a minority. The problem for the rest, as one senior executive told the blog, is that they avoid the issue and instead encourage ‘the tyranny of the majority’. Employees are discouraged from asking ‘uncomfortable questions’ and frozen out if they persist.
But this attitude will not change what is happening in the real world. Even policymakers are finally, and far too late, beginning to realise their policies have taken us in the wrong direction. Thus Finland’s central bank governor, Erkki Liikanen, has become the first western policymaker to warn:
“Along with rising public debt, the proportion of elderly people in Finland’s population will expand, creating a risk that Finland will drift onto a path of fading economic growth, persistently high unemployment and deteriorating public finances”
Equally Goldman Sachs, famous for their suggestion a decade ago that the BRIC countries were on a fast-track to Western living standards, have now warned:
“China has basically said goodbye to 8% GDP growth in spirit if not in statistics and will have to embrace slower growth, with the average annual growth rate in the next seven years to 2020 perhaps falling to the vicinity of 6%”.
Realistically, of course, 6% is more likely to be a ceiling rather than a floor, given the $tns of debt built up over the decade to finance its wasteful infrastructure and housing boom.
Chemical companies also face the threat of lower demand not just from lower spending, but from technical innovation. Bottles and packaging are becoming ever-thinner, due to developments in polymer engineering, whilst the shift from rigid packaging to pouches means less polymer is needed. Equally, ‘Smart Bottles’ can be 10-15% more efficient than traditional blow-moulding.
None of this means that the end of the world is about to happen. Instead it means that change is underway, and taking us in a new direction. As we move into Budget season, companies need to embrace this change and put into practice the wisdom of telephone inventor, Alexander Graham Bell:
“Sometimes we stare so long at a door that is closing, we seek too late the one that is open”
Innovation is the life-blood of the chemical industry. It is also a critical success factor as we transition to the New Normal. Many of today’s plants and processes are simply too old and too inefficient to remain competitive in a world of slow and volatile economic growth.
Yet making the case for investment in new technology is always difficult. So a key enabler can often be entry to a major innovation competition. The ICIS Innovation Awards, now in their 10th year, can thus prove an ideal springboard for future success.
The blog has personally seen this happen:
• As well as chairing International eChem, it is chairman of NiTech Solutions, now a fast growing spin-out company from Scotland’s Heriot Watt University
• In 2010, NiTech entered the ICIS Innovation Awards and won the SME category – its latest advanced reactor/crystalliser technology is pictured above
• The technology in its winning entry was installed by Genzyme (part of major pharma company, Sanofi) and has now run successfully for 5 years with minimum maintenance
• The Nitech plant replaced traditional processes which would have required 2 x 150m3 (40,000 US gallon) pressurised reactors
The blog can thus personally testify to the power of the endorsement provided by this success. NiTech is now making sales to a growing number of major chemical companies and research institutes around the world.
Winning can be equally important for large companies. Previous winners include many major names such as BASF, Dow, Teijin, ExxonMobil, Solvay, DSM, Clariant and Arkema.
If you are an SME moving onto the global stage, or an innovative business in a major company, the blog strongly recommends you consider entering this year. The entry process is simple, and there are full details are on a dedicated website, as well as a video.
The global economy is moving into a difficult period, as it transitions to the New Normal. Debt levels are high, and incomes are under pressure, particularly for the large numbers of people moving into retirement.
Cost must be the key criteria when examining the opportunities for new product development and research. Chapter 8 of our free ‘Boom, Gloom and the New Normal’ ebook examines the application of this philosophy to the 4 megatrends that we have identified as being key to the future of the chemical industry:
• Improving water availability
• Improving food production
• Increasing life expectancy
• Reducing carbon footprint
It suggests that the key need is to be practical. Companies should focus:
• In the fields of water/food, on reducing the amount of waste, and the output that is lost when product is moving to market
• In developing new products and services for the over 55s, on core needs such as food, water, health, shelter and mobility
• In turn, this will enable them to ‘do more with less’. Carbon footprint will be reduced, and products will be more affordable
This philosophy is quite different from that seen during the 1982 – 2007 economic SuperCycle. Then, companies competed for the middle ground, as we saw in chapter 7. They added features, and pursued the concept of adding value in order to boost profits. Over time, they focused more and more on the wealthier parts of the global population, and became increasingly disinterested in those outside this privileged group.
Today, however, it is no longer viable to focus in this way.
The Western BabyBoomers are joining the New Old generation of those aged 55+, and they face the prospect of much lower incomes as they transition from salaries to pensions.
Similarly, incomes in emerging economies are dramatically lower than those in the West. It is wishful thinking to imagine that these regions can therefore somehow replace the demand for added value products that is disappearing in the West.
Doing more with less is therefore our motto for future success. The chapter contains, as always, a wide range of practical examples to help stimulate ideas within your own business. We are convinced that those who accept its challenges will benefit for many years to come.
FREE DOWNLOAD OPTIONS FOR CHAPTER 8 Click here to download a 2 page summary of the Chapter . Click here to download the full Chapter Click here to view the 4 minute video with Paul Hodges