Retooling Business model- Chemical Trading
Retooling Business model
Even though the requirements of the market for success has changed immensely in recent years, many companies have incurred huge loss due to antiquated business model and go-to-market approach. Majorly for chemical firms, the problem is manifested in overinvestments in speciality chemicals business because it offers differentiation in market and high profit margin in the past but that are rapidly commoditizing.
Other companies have been too myopic, cutting cost in speciality lines that would actually benefit from more nurturing, innovation and focused investments Chemical companies have been late in recognizing the credible threat from lower-cost capacity built in Asia over the last decade, rendering themselves uncompetitive in these regions, often after they have installed costly assets in commoditized marketplaces. Frequently, these actions reinforce one another and companies end up in a death spiral, forced to close or divest businesses.
To avoid this fate, chemical companies need to deliberately adjust more in their business models not only across different lines of business within their portfolios, but within the business themselves, to keep pace with the changing requirements of distinct subsectors. The retooling process always should start with the answers to these questions:
How differentiated are the company’s current products?
Manager should assess which product are unique in the marketplace, which are marketplace, which are moderately distinctive, and which are indistinguishable from competitor’s offerings. They should also gauge whether increased levels of service could incrementally differentiated some products.
How intense is the competition?
Companies should determine how many suppliers exist in a given market, and whether the primary basis for competition in the market is low cost, increased customization and innovation, or superior customer service.
What are the key operational imperative?
Companies should assess whether market needs cab best addressed by running a plant at full capacity or by operating more flexibly to produce more customised and distinctive products. Should the operational imperative be quality and reliability, or is there greater advantage in tailoring the production process to satisfy unique customer requirements.
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