Players in the chemicals and materials sector face constant battles to avoid commoditization
One way to prevent commoditization is to continuously invest in the development of new products and customized formulations. The other approach is to move from an upstream position of raw materials provider to a more downstream position of solutions provider in critical, high-value end-markets.
The efforts by DuPont over the past six years is a good example. First, they did a spin-off their more commoditized chemicals business as the new company, Chemours. The subsequent merger with and spin-off from Dow to focus on specialized products what the second key moving. Together, this repositioning of DuPont is an excellent example of a player in this space, developing a much more value-oriented down-stream solutions strategy. We expect to see others attempt similar moves.
To be successful in such a strategy, a company in this space needs to develop a much greater understanding of the end markets they want to play in. What are the key drivers of value, who are the players, how could they enter, and who must they incentivize to change behavior and accept them as a provider of solutions and not just raw materials and chemicals? We believe a crucial element of executing on this strategy is to develop the capability for doing rapid identification and assessment of market opportunities. We explore some of the critical aspects of doing so here.
What are market opportunity assessments?
Opportunity assessments are a two-step approach to finding new opportunities for growth. The first step is opportunity identification. In this step, we look for opportunities at the intersection of mega-trends and industry responses to these trends, with the specific capabilities and technologies that a particular player can bring. The goal in this step is to find durable opportunities — clear mega-trends to support that — and doable — that is, opportunities that others are already trying to address and that represent a functional overlap with your existing or emerging capabilities. The identification step can start with a long list that we further prioritize through an assessment of attractiveness and fit.
The second step is opportunity hypotheses and testing. In this step, we identify the three or four things that must be true for the opportunity to be both attractive and a good fit. In this step, we don’t map out the entire business case or market entry strategy; those steps come later. Instead, we focus on the three or four critical hypotheses about an opportunity and then test those by talking to lots of industry experts in the market.
Why are opportunity assessments critical?
This approach is vital to chemicals and materials companies that must quickly and continuously identify new market opportunities and efficiently narrow down to the few worth real invesment. First, it generates a large number of opportunities up-front (it essentially combines top-down and bottoms-up opportunity identification) based on specific criteria (vs., just a general brainstorm). Second, it provides a systematic and efficient process for prioritizing and testing individual opportunities to determine if they are worthy of further investment — for those that move forward favorably, the development of a full business case and market entry strategy. The whole process becomes very repeatable and forms the basis of creating a robust portfolio of new growth opportunities.
In one example of applying this approach, we worked with a global chemicals and materials company to identify new growth areas. In the first step, one opportunity we identified was at the intersection of the trend of renewable energy generation and their capabilities in advanced materials. Specifically, we identified the industry trend of developing systems that combine sun and wind energy conversion for urban settings with constrained areas for deployment. We showed a clear intersection of this trend with the client’s core capabilities in producing lightweight, high strength materials.
In the second step, we evaluated specific market opportunities, such as shopping malls in norther in Europe and asked four critical questions:
- Is the value of the market opportunity attractive and supported by clear trends?
- Is there a clear path to market entry?
- Is there a real business case for the customer?
- Does the proposed solution meet the needs of the market in a defensible way?
An affirmative answer to these four questions was a clear indication that the opportunity was worthy of further investment.
The approach is fast and efficient, with each step taking a few weeks. Critical for success is an organized and disciplined approach to each step and ready access to the outside industry experts who are essential in providing the business insights to answer these four questions.
At 10EQS, we have developed a methodology and approach to doing exactly that. We have created the 10EQS Opportunity Assessment to work closely with clients in the chemicals and materials sector in developing and prioritizing their portfolios of growth opportunities.
Jeff is CEO of 10EQS and Member of the Board of Directors. Prior to joining 10EQS Carbeck built and led the Global Advanced Materials and Manufacturing practice at Deloitte Consulting. He started his career in academia as Professor of Chemical Engineering at Princeton University. After leaving academia he co-founded and built a series of businesses enabled by emerging technologies. Carbeck works closely with the World Economic Forum, serving on a number of Global Councils.
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