Chemical companies still seeking the right formula for growth

Source: PlantServices.com

Dec 08, 2010

Despite an economy that remains sluggish overall, a majority of senior executives in the chemical industry expect their companies to be back to pre-recession revenue levels by the end of this year, and four out of ten expect their companies to be involved in some sort of merger-and-acquisition activity within the next 12 months. However, the bad news is that it’s not at all clear that chemical companies are effectively employing the right operational tools and methods, including business-analytics ones, to achieve the kind of growth they want to achieve now that they’re finally getting back to “even.” That’s according to a survey of 88 chemical-company CEOs, presidents and other senior-level executives released today by AlixPartners LLP.

“When the economy turned south a couple of years ago, chemical companies — especially compared to companies in many other industries — responded quite well by cutting costs and driving leaner operations,” said Bob Sullivan, managing director of AlixPartners and co-lead of the firm’s Global Chemical Industry Practice. “And of course, there are still benefits to be realized on that front, as there always is in any industry. But the name of the game now is the top line — everything from improving pricing, to improving customer relationships, to improving employee productivity. That’s where chemical companies are going to sink or swim from here on out. However, at this point it would appear that many are content to just tread water.”

The survey found that 53% of companies expect to reach pre-recession revenues by the end of 2010, and 42% of respondents said they think it’s either “very” or “somewhat” likely their companies be involved in a major acquisition, merger or takeover in the next 12 months — and for executives from large chemical companies that number was 54%. Moreover, about three out of five respondents said that their companies’ performance in profit growth has increased over the past three years. However, those companies without formal growth targets were less likely to report an increase — 55% of companies with no or informal growth targets reported an increase in profit growth, versus 62% of companies with formal, measurable growth targets

“As in chemistry itself, coming up with the right mix of elements to spur growth in the chemical industry, be it organic growth or acquisitive growth, is a delicate balance,” said Mike Sinoway, managing director of AlixPartners and leader of the firm’s Global Growth Services Practice, “and achieving that right balance is nearly impossible without crystal-clear visibility into both your market and inside the operations of your own company.”

The AlixPartners survey found that chemical-processing companies see the year ahead as indeed being very much a growth-oriented one. When asked to name their top three priorities for the next 12 months, 43% cited innovation and 40% said revenue growth. By comparison, just 34% cited cost reduction. Additionally, despite the apparent interest in M&A in the year ahead, 56% of said they view organic growth as either a “critical” or “major” revenue engine as well. 

One way in which companies might improve their growth prospects is more effective business analytics, and the survey results indicate that industry executives agree. Thirty percent of those surveyed said they expect their companies to increase spending on business analytics in the year ahead, while only 3% plan to decrease spending in this area.

Said Bob Noe, managing director of AlixPartners and lead of the firm’s Global Strategic Information Management Practice: “In today’s competitive environment, taking on a growth agenda without the visibility that sound business analytics provides is like stepping into traffic with a blindfold on: You might make it across the street, but then again you might not. And more and more, the issue today isn’t so much whether your company has analytical systems but rather you’re getting the most out of those analytics for the money you’ve put into them? For many companies, that’s a question that remains perpetually unanswered.”

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