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Value Creation: Strategies for the Chemical Industry, 2nd Edition

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Value Creation: Strategies for the Chemical Industry, 2nd Edition

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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.

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

"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