In a recent investor call, Nutrien reported that its Ag Solutions Digital Hub exceeded its annual target of $500 million in sales by achieving $700 million in just six months. Buoyed by this success, the company is investing more than $50 million annually on digital initiatives in North America and soon beyond. Even so, Wall Street was not too impressed and an equity analyst asked why the digital transformation promised by deals such as Monsanto’s acquisition of Climate Corporation – a start-up that digitized weather data to help farmers with decisions – for more than $900 million going back to as early as 2013 had not quite materialized.
Our teams at ADI Chemical Market Resources have been asking similar question for the past few years as we research and consult on digital with clients across the chemical industry. While there is no dearth of claims and hype around digital by manufacturers, industrial OEMs, software vendors, and management consulting firms, it is difficult to avoid the conclusion that progress has been incremental or “evolutionary” as opposed to be “revolutionary” as the equity analyst on the Nutrien call suggested.
Exhibit 1 lists a number of digital initiatives across a representative range of chemical companies. Sifting through these examples will show that digital has been adopted for several different types of outcomes such as product selection and advice to customers, automation, real-time monitoring, and remote monitoring and optimization. Nutrien is developing a product selection tool that will enable farmers to customize their purchases without going to a store or an expert consultation. Coromandel and Amyris have also developed platforms to interact with their customers online and guide them with product use, while Amyris has even been able to retain some of their retail staff to provide a store-like service to their digital customers.
Sealed Air has developed tools for automated packaging reducing time and personnel required. Flotek recently acquired a data and analytics company that offers technology to enable real-time monitoring of crude oil, gas, or refined fuel systems that will eventually help in maintenance of flow and equipment. Chr. Hansen, which makes food ingredients, uses digital tools to monitor microbe fermentation at a small-scale so they can eventually scale up the process reducing the trial times for product enhancement.
In other examples, Air Liquide uses digital technology to monitor their plants and processes and thus optimize their operations. It is clear that digital provides value to operations by saving line teams time and money, streamlining and lowering downtime, and automating critical unit and business operations. We have also heard many companies report that their efforts to drive adoption of digital initiatives has grown due to the COVID-19 pandemic as companies strive to achieve social distancing in their operations and reduce personnel exposure.
Exhibit 1. Illustrative examples of digital initiatives by chemical companies.
However, most of these end-use cases for digital are limited to cost optimization or, at best, incremental productivity improvements across key functions. None of them either individually or collectively haven’t been able to deliver the transformation necessary for shareholders to reward companies with disruptive valuation jumps. ADI Chemical Market Resources’ research and consulting in the chemical industry has highlighted four specific reasons why digital has failed to achieve this transformation so far:
- Notwithstanding the hype, digital’s value proposition is still focused on cost optimization and lost profit avoidance. Few companies in the chemical industry have demonstrated digital as an independent revenue growth driver. Even in the companies such as Nutrien where digital sales channels have been established, success has come from established customer pools where the company already enjoys strong relationships.
- Digital investments are assumed to deliver returns quickly but adoption is often far slower. While digital investments can be prototyped and deployed quickly using agile tools and approaches, adoption within customers – and, often, internally across business units – is slow limited returns.
- Digital offerings are not necessarily lean in terms of employee support and handholding. Companies that have stood up digital offerings successfully have supported them with large employee teams and resources. Many companies have underestimated the need for such support and expertise limited digital’s adoption and support.
- Finally, digital does not displace the need for strong and established customer relationships. Companies such as Amyris have retained retail staff to give its digital customers the same experience as store customers. Similarly, adoption of digital channels is often better among customer groups where companies have strong existing relationships. As a result, careful customer segmentation to pilot and deploy digital is key to drive adoption in the initial stages.
Our research and client consulting at ADI Chemical Market Resources has shown that digital initiatives in the chemical industry are growing exponentially across a broad range of companies. However, adoption and value creation will be incremental although those outcomes can be enhanced through thoughtful design and implementation. Contact us at +1 (281) 506 8234 or www.adi-cmr.com to learn more about ADI Chemical Market Resources and how we can support digital initiatives in chemical companies.
By Panuswee Dwivedi and Uday Turaga