Over the past few years, terms like AI, blockchain, RPA, big data, and IoT have become buzzwords synonymous with innovation. Many corporations in the chemical/materials and life sciences industries now have some variation of a digital team tasked with developing and executing a digital strategy based on these tools or platforms. However, very rarely are these initiatives designed with the intention to make money. Instead, most “digital transformation” projects I’ve seen in the industry have an inherently inward-facing goal – to improve the efficiency of an existing process, rather than to radically change an old way of doing business.
Don’t get me wrong, saving your bottom-line is important and all leadership should have a roadmap for implementing digital technologies swiftly to reap the cost saving benefits of more efficient operations. But this is more like updating the operating system on a desktop computer vs. developing the first mobile smartphone – the transformative impact on how we work thanks to the latter far outweighs any incremental improvements by a software upgrade. This is the type of moonshot thinking that I find missing in most digital strategies and it’s been the backbone for the disruptive rise of companies like Amazon, Google, and Ginkgo Bioworks (just to name a few) in the past decade.
An industrial chemical company is not a tech startup born from some garage in Silicon Valley – but, perhaps we too easily dismiss some of the lessons we can learn from these types of companies with convenient excuses like “we’re not B2C” or “we’re not a software company.” I’ve long been a fan of the genesis story for Amazon Web Services (AWS) – a poster child example of how an internal project in Amazon, an e-commerce company, was externalized to pioneer a $200 billion cloud services market. But, I also recently had a mini moment of appreciation when I watched Apple’s latest live-streamed Spring Event in March. Unlike the usual keynotes with highly anticipated product announcements or iOS updates, Apple unveiled a suite of new premium services such as Apple TV+, Apple Card with Goldman Sachs and Mastercard, and Apple Arcade a gaming subscription service. In his opening remarks, Apple’s CEO Tim Cook didn’t mention the iPhone a single time, despite it being the largest chunk of Apple’s annual revenue (over 50%). The whole event was a bit whacky and the focus on premium services may seem like a “Hail Mary,” but I see the big picture vision in the midst of economic headwinds.
While I’m not a financial analyst, my observation is that both Apple and industrial chemical companies face similar market pressures that force management to make these type of major strategic shifts. Yes, selling iPhones is different from selling polyurethane, but mobile phones are becoming increasingly commoditized just like performance chemicals, and growing competition in China is a major factor in declining APAC sales for both industries. iPhone sales were down as much as 30% in Q1 2019 in China, as domestic competitors like Huawei dominate the market. Does this sound familiar? This example is not a true apples to apples comparison between the two industries (pun intended), but the key takeaway for me was how quickly Tim Cook and his management team responded to slowing iPhone sales with a clear focus on revenue growth by pushing new premium services to billions of customers through their infrastructure of hardware devices.
If the chemicals industry is to take full advantage of digital technologies for true digital transformation, there must be this disruptive mindset in leadership to constantly push the boundaries of core businesses instead of just focusing on protecting profit margins. In the heat of the digital transformation era when global spending on digital technologies is forecasted to reach $2.1 trillion by 2021, will you become the biggest customer of digital transformation, or dare to take a piece of the pie?
Author: Victor Oh (views are author’s own)