Budde F., Felcht U.H. e.a. (ed.). Value Creation. Strategies for the Chemical Industry

2nd edition. — Weinheim: Wiley-VCH Verlag GmbH & Co. KGaA, 2006. — 467 p.The editors have attempted to incorporate the changes into the agenda of this second edition, which falls into three main parts. Starting with an overview of the chemical industry, the book discusses the elements that are relevant to strategic decision-making in the chemical industry in general and in a number of key industry segments. In the next section, all the key elements of the chemical business system are addressed, reflecting the importance of functional excellence as a
major driver of the industry’s performance. The final set of chapters deals with special topics of interest to chemical companies, including current hot topics such as China and biotechnology.Preface

Acknowledgements
List of Contributors

Today’s Chemical Industry: Which Way Is Up?
Karsten Hofmann and Florian BuddeThe Chemical Industry Today – A Snapshot
Eras of the Chemical IndustryShareholder Value Orientation: Not a Question of Whether, but How
Bernd Heinemann and Thomas Augat

Capital Market Deviations as the Key Challenge for
Shareholder Value Orientation
How Capital Markets Reflect Fundamental Value Creation
Capital Markets and Effects of Earnings Announcements
Capital Markets and Expectations on Fundamental Value Creation
New Tools for an Advanced Shareholder Value Orientation
Capital Market Diagnostic: Gain an In-depth Understanding of
Capital Market Signals
Financing Policy: Harmonizing Financing with Strategy
Investor Relations: from a PR Approach to Targeted MarketingStructural Drivers of Value Creation in the Chemical Industry
Eric Bartels, Thomas Augat, and Florian BuddeIntroduction to the Study
Mobility in a Mature Industry
What Drives Performance?
A Closer Look at Value Creation in the Segments
Commodity Companies
Specialty Companies
Diversified CompaniesChemicals – Driving Innovation in Other Industries
Thomas Schreckenbach and Werner Becker

Liquid Crystals: Superlative, Not Superfluous
Staying Power
Managing an Active Patent Strategy
A Customer-focused Approach Built on Expertise in
Production and Application Technology
Timing is Everything: Internationalization and Diversification
The Best Intellects
Outlook
SummaryToday’s Challenges and Strategic Choices
Florian Budde, Utz-Hellmuth Felcht, and Heiner FrankemolleOverall Outlook Stable
The Value Kaleidoscope
East, West, Is Home Best?
The Feedstock Rollercoaster
Biotechnology – Looking into the Seeds of Time
Mergers and Acquisitions
What Happens Next?
SummaryAn Approach to Determining the Long-term Attractiveness of Commodity Chemical Businesses
Scott Andre, Sunil Sanghvi, and Thomas Rothel

Looking beyond Cyclicality
Two Types of Costs Needed to Anticipate the Future
The Role of Reinvestment Economics
Learning to Love Fly-ups
Putting the Model to Work
The Example of Ethylene
The Rise of the Middle East
Awash with Stranded Gas?
Tailoring the Model

SummaryMiddle East: Opportunities and Challenges from the Rapid Emergence of a Global Petrochemical Hub
Christophe de Mahieu, Christian G_nther, and Jens Riese

Turning to the East
Booming Demand in Asia-Pacific
High Input Costs Render Western Companies Uncompetitive
Pathways to Growth for the Middle East
Local Capacity Expansion
Portfolio Expansion and Forward Integration
Geographic Expansion
Hurdles to Overcome
Way Forward for the West
Capturing the Value
Business Intelligence
Microeconomic Rigor
Managing Risks and Uncertainties
Organizational Excellence
Execution
Conclusion
SummarySurvival when It’s Hard to be Special: A Perspective on Specialty Chemicals
Eric Bartels, Jo_l Claret, Sabine Deppe, and Ralph MarquardtPerformance Has Been Disappointing
The Market Is Not Getting Any Easier
The Price-cost Squeeze Is Getting Tighter and Demand Is Maturing
Customer Industries Are Migrating
The Competitive Landscape Continues to Change
Meeting the Challenge – Five Key Levers to Pull
Revisit Strategies
Find a Winning Answer to Emerging and Developing Markets
Strive for Top-class Operational Performance
Rediscover Innovation
Upgrade Performance ManagementCreating the World’s Leading Specialty Chemicals Company
Utz-Hellmuth Felcht

The Portfolio: Creating the World’s Leading Specialty Chemicals Company
Focus on Specialty Chemicals through Divestments
Development of the Core Portfolio through
Organic Growth and Acquisitions
Organization: as Decentralized as Possible, as Centralized as Necessary
Market Oriented Business Units: Business First
Small Corporate Center, Independent Shared Services
Site Services
A United Corporate Culture: Blue Spirit
A New Brand for the Company with a New Name,
Vision, Mission, Guidelines
Umbrella Brand Degussa: Creating Essentials
New Challenges and the Next Transformation Goals
Solutions to Customers
Emerging Markets
Site Excellence
Human and Corporate Excellence
Conclusion
SummaryProspects for Agribusiness: an Essential Contribution to Global Food Demand
Michael Pragnell and Robert BerendesThe Rationale of Agribusiness
Three Eras of Agribusiness
Driving Plant Yield
Opportunities beyond YieldIndustrial Gases – Growth by Continued Self-Renewal
Aldo Belloni and Lennart Selander

‘The Invisible Industry’: Stability and Profitability
Industry Characteristics
Key Players
Financial Performance
One Hundred Years of Success: the Winning Ingredients
Fit for the Future: Ready to Meet the Challenges
Continued Operational Efficiency Improvements
Managing Capital Investments
Maintaining Growth
Expanding into Emerging Markets
Developing New Business ModelsPerspectives of Chemical Distributors as Partners of Industry
Klaus Engel and Gabriele Roolfs-Broihan

From Wholesaling to Supply Chain Management: the Evolution of Chemical Distribution
An Industry on the Move – the Major Trends
Perspectives Within Changing Environments
Partners on a Global Scale
Partners Ensuring Compliance with Rising QSHE Standards
Partners along the Value Chain
The Future Outlook
SummarySystematically Revitalizing Innovation in the Chemical Industry
Birgit Konig, Gary Farha, and Thomas Weskamp

Drivers of Innovation
Knowledge
Creativity
Perseverance
How to Organize for Innovation
SummaryInnovation for Growth
Thomas M Connelly

The Ever-Present Challenges for the Innovation Process
Three Lessons Guide Us
Lesson – Collaborate with both External and Internal Partners
Polymerizations in Carbon Dioxide
Bio-based Technology with MIT
Nanotechnology for the Soldier
Additional Collaborations with the US Government
Partnerships are just as Important In-house
Lesson – Draw upon Many Sciences
A New Business in Pathogen Screening
Biology Provides More Economical Routes
A Top Innovation in Nanotechnology
Lesson – Technologies Can Find Applications in Many Other Markets
What Will the Future Bring?
SummaryThe Four Pillars of Sustainable Purchasing Transformations
Helge Jordan, Nicolas Reinecke, and Khosro Ezaz-NikpayDesigning a Performance Transformation Program
Initiate and Anchor Behavioral Change in the Organization
Generate Impact through a Proven Value Creation Process
Create a Tailor-made Performance Measurement and Management SystemFeedstock Price Volatility and How to Deal with It
Scott Andre and Sunil Sanghvi

What is Driving Feedstock Price Increases and Volatility?
Crude Oil Surprises
Natural Gas Price Contrasts
Petrochemicals – Layers of Volatility
A Brave New World of Feedstock
Step on the Gas
Coal Gets a New Look
Bio-based Feedstock
Meeting the Challenge of Feedstock Volatility
Optimizing Contracts
Hedging – Financial and Physical
Fleximizing
Looking for Advantage
Restructuring Assets and Taking the Offensive
Conclusion
SummaryTaking a Leap in Purchasing
Gregory Nelson

Maximizing Value Creation
Using Purchasing Power
Making Aggressive Input Changes
Scrutinizing Processes to Cut out Costs
Getting the Most out of Negotiations
Creating Sustainable Value for the Business
Carrying Out an Improvement Program
Building Capabilities
Tracking Performance
Putting a New Organization in Place
The Next Horizon
SummaryExcellence in Operations – the Never-ending Journey Continues
Leonhard Birnbaum

Operational Improvement – the Bar Is Rising
Making Lean Operations Happen in Chemicals
Defining Relevant Aspects of Successful and
Sustainable Operational Transformations
Making Transformation Happen – Front-end Loading with Content
Making Transformation Happen – the Soft Side of Change
An Expert Community
Training
Performance Dialogues and Leadership
Program ManagementState-of-the-art Production Concepts in the Chemical Industry
Uwe Nickel

Operating in a Transformed Environment
Decelerating Innovation
Chemicals Have Become More Global than Ever
Competition from Low-cost Labor Countries Is Changing the Industry Landscape
Challenges and Responses
Structural Cost Optimization
Designing a Global Production Network
Focusing on Distinctive Value Creation
Operational Cost Optimization
Introducing a Continuous Performance Improvement System
Optimizing and Restructuring Plants
Managing Complexity
Putting Global Supply Chain and Production
Network Management in Place
Establishing Technology and Knowledge Management
Outlook
SummaryThe Role of Site Services and Infrastructure for Productivity Management
Alejandro Alcalde Rasch

Site Services and Infrastructure: an Important Driver of Manufacturing Productivity
Transition: Site Services and Infrastructure’s Coming of Age
Going Forward: Increasing Site Services and Infrastructure’s Competitiveness
To Divest or Not to Divest Site Services and Infrastructure?
Improving Performance and Growing SelectivelyCreating a Revenue Advantage through Sales and Marketing Excellence
John Warner, Joёl Claret, Ralph Marquardt, and Eric Roegner

Defining World Class
Developing a Winning Go-to-market Strategy
Value Chain Insights/Customer Segmentation
Target Customer Identification and Value Proposition Design
Defining the Customer Interface Model
Pricing Excellence
Performance Management
Building World Class Revenue Capability
Performance Expectations
Program Design
Commercial Toolkit
Capability Building Agenda
Mindsets and BehaviorsAchieving Top Performance in Supply Chain Management
Andrea Cappello, Martin L_sch, and Christoph Schmitz

Supply Chain Management as a Strategic Lever for the Chemical Industry
Key Supply Chain Management Elements and Opportunities for the Chemical Industry
Service Level Management
Order and Demand Management
Production Management
Supply Management
Distribution Management
Integrated SCM Planning and Execution
Delivering on the Opportunities – the Key Success Factors for Achieving Top Performance
Designing Top-performing SCM
Alignment of SCM with Business Strategy and
Product/Market/Customer Characteristics
Transparency of Performance – Inventory as the
SCM Thermometer
Clear Cross-functional Interfaces and
Coordinated Decision Making
Careful Design of the Performance Management System
Tailored SCM Organization Structure
Detailed Approaches and Sophisticated Mathematics
Priority of Process over IT
Managing an Improvement Program
Ambitious Targets and Systematic Approach
Strong Basis for Long-term Sustainability and
Continuous Improvement
Conclusion
SummaryRight Second Time – Unlocking Value with IT
Peter Peters and Detlev RulandBreaking the Barrier
World Class IT Infrastructure Management
ERP Harmonization as the Basis for Global Process Architectures
Making CRM Work to Create Profitable Growth
Key Success Factors for the JourneyManaging Organizational Performance
Karsten Hofmann and Heiner Frankem_lle

Supporting Strategy by Structure
Understanding the Performance Challenge
Making Organizational Change Happen
Diagnosing the Status Quo
Designing the Program Architecture
Ensuring Effective ImplementationPost-Merger Management: it’s All in the Design
Eric Bartels, Tomas Koch, and Philip Eykerman

Phases of an Integration
Defining and Communicating the Aspirations
Fully Identifying Value Creation Potential
Determining the Synergy Potentials that are Directly Business-related
Securing the Business and Uncovering Additional Potential
Determining the Potential from New Strategic Opportunities
Determining the Cornerstones of an Effective Organization
Aligning Management Behind a Common Goal
Rapidly Determining New Organizational Structures
Building a Shared Performance Culture
Managing Top Talent
Tailoring the Integration Approach
Setting up a Powerful Project Organization
Selecting Project Management Tools
Communicating PermanentlyM&A – the UCB Case
Georges Jacobs

A Brief History of UCB – Eight Decades of Mergers, Acquisitions, and Divestments
The Formation of Surface Specialties – A Three-way Integration
Phase : Plan and Get Going (Dec – Jan )
Phase : Design and Implement the Organization (February – May )
Phase : Define Improvement Initiatives (May – September )
Phase : Implement and Follow Up on Results (October – December )
The Integration of UCB Pharma and Celltech
Key Learnings
SummaryThe Chemical Industry and Public Perception
Wilfried Sahm

Public Perception of the Chemical Industry – its Structure and Significance
What Does the Public Associate with the Chemical Industry?
What Is the Value of a Good Image for the Chemical Industry?
How is the Image of the Chemical Industry Formed?
Image and Acceptance in Germany
Credibility in Public Debate
The Chemical Industry Viewed as an Economic Factor
Value and Responsibility Criteria
Acceptance: Yes – But With Strict Controls
Insights from the Long-term Trend
Creating Awareness and Acceptance through Communication
Joint Advertising and Political Campaigns
Dialog Programs and Events
Current Challenges
The Industry’s Image in an International Comparison
Shaping the Future with New TechnologiesIndustrial Biotech: From Promise to Profit
Rolf Bachmann and Jens Riese

Time to Exploit the Potential
Better Technology, Faster Results
Environmentally and Balance-sheet Friendly
Rekindling Innovation
Increasing Corporate Action in all Segments
Waste Biomass – a Feedstock with Mass Appeal
How Waste Biomass Works
Economic Benefits and Regulation
Further Management Action Needed
Turning the Promise into Profit
Ascending the Staircase inside the Company
Handling External Pressures
Capturing the Value – How it is Done in Practice
Finding the Right Answer
SummaryIndustrial Biotech at DSM: From Concept to Customer
Colja Laane and Feike Sijbesma

From Petro to Bio
From Principle to Product
Food, Feed, and Nutritional Ingredients
Pharmaceuticals and Fine Chemicals
From Specialties to Commodities
From Innovation to Impact
SummaryLeveraged Buyout Transactions – Challenges and Learnings
Achim Berg, Florian Budde, and Bernd Heinemann

Chemical Sector LBOs Show No Sign of Abating
Understanding Value Generation in Chemical Buyouts
Timing: Three Phases of a Buyout
Value Generation Mechanisms
Sources of Value Generation
Learnings for the Chemical Industry
Learnings for Buyout Firms
Good Deals Are Getting Harder to Find
Exiting Through the Right Door
Time to Stand Out From the CrowdWhat Attracts Private Equity Firms to the Chemical Industry?
Thomas Jetter

Chemical Industry Restructuring
Private Equity Transactions in Chemicals – Success Stories, Mostly
The Value Drivers of Private Equity Investments
Business Strategy and Operations
Performance Improvement
Cash Flow Acceleration
Implementation Principles
Financial Market Conditions
Aligned Interest of Management Teams and Financial SponsorsFacing China
Sonke Bastlein, Ralf Dingeldein, Tomas Koch, and Karsten Neuffer

China Is No Longer 'Optional’
Most Chemical Companies Are Not up to Speed
The Lessons of Confucius
A Good Strategy at Home Wins the Battle a Thousand Miles Away
He Who is Close to Water is First to See Reflections
When Away from Home, Seek Help from Friends
The Sharper Saw Does the Better JobChina – Key for Success in Asia
Jurgen Hambrecht

Why China?
BASF and its Long Relationship with China
BASF’s First Steps in China
The Post-Second World War Era
Toward the Future
Sustainable Development in China
Outlook
Summary