The chemicals sector is building out digital ecosystems…yet still has a way to go

August 2, 2016

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By Pam Schlosser, US Chemicals Industry Leader; and Venky Jayaraman, Principal, PwC

Companies across all sectors in industrial products are in a race to exploit new digital technologies. And the chemicals companies are well on that journey, as they digitize essential functions within internal vertical value chains, and with horizontal supply-chain partners. They’re also enhancing product portfolios with digital functionalities and introducing innovative, data-based services. Much of this is already afoot: from using sensors and Big Data for predictive maintenance of operations, to smart, connected packaging to improve logistics, to “precision farming,” using Internet of Things technology for smarter crop fertilizing.

To get a closer look at the chemicals sector’s current activity around digital transformation – and future ambitions – PwC surveyed 222 chemicals companies globally.

What did we find? For one thing, they’re investing heavily. Chemical companies plan to invest 5% of annual revenue in digital operations solutions in the next five years. This investment is translating into increasingly advanced levels of horizontal and vertical digitization and integration.

And such hefty investment is expected to lift most chemicals companies’ digital IQs. While only about a third of chemical companies report that they have already reached an advanced level of digitization and integration, the future looks bright. More than three-quarters expect to be at such a level in five years – one of the highest among the industry sectors covered in our survey. The slowest advancement of digitization and integration, according to our survey results, is on the business models and product and service strategies of chemicals companies: less than a third (32%) report that they are currently advanced, although this rises to 62% over the next five years.

Optimistic about returns on investment. Our survey respondents anticipate significant gains over the next five years from the implementation of Industry 4.0 initiatives. Chemicals companies expect these initiatives to cut costs by 4.2% annually. This compares to 3.6% among companies across all sectors we surveyed. Survey participants also expect additional significant revenue growth of 3.1% over the next five years to flow from Industry 4.0 initiatives such as new digital business models, new sales approaches and integration initiatives. The pace at which chemicals companies expect to accrue benefits from Industry 4.0 investment leads nearly half to estimate a return on investment within two years. A similar proportion (43%) of companies anticipate recouping digital investments within two to five years, but relatively few (10%) think that it will take any longer than five years for Industry 4.0 investments to pay for themselves. Companies who try to jump in too late will likely find that their internal cultures have lagged behind.

Forming a digital link to customers. Chemicals companies plan to expand their digital portfolio, starting with the digitization of their existing offerings but also expanding into new products and data services. Nearly two-thirds say that the digitization of their existing portfolio will be significant for their future revenue over the next five years. Nearly half said offering digital services to external customers will be important revenue drivers, with just over a third citing Big Data analytics services to external customers.

Shaping a digital culture. According to our survey, the absence of a digital culture and the right training was identified as the single biggest challenge by chemicals companies. More than half put it in their top three challenges. Culture is linked closely with the need to have clear vision and leadership from top management about the direction of digital operations. This is also an important issue for chemicals companies, with 47% placing it among their top three challenges.

Clearly, culture and leadership go hand-in-hand, and one important way of establishing momentum in changing the culture will be for top management to communicate clearly the benefits that they see ahead and to ensure they are identified and celebrated as they are achieved.



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