Reassessing chemical investments for viability in today's economic climate. Learn key strategies to navigate cost constraints and downstream value chain challenges to ensure survival.
Survive to play another day -
Today’s chemical downturn requires honest reassessment. Affordability constraints matter, and the objective should be to stay in the game.
In a recent LinkedIn post, I offered a short 4 point framework for reassessment of investments that’s required in today’s climate. Every investment, including costs that are "renewed every year” needs to be assessed. It may be tempting to "stay the course," on some investments, and I can see the emotion behind that, but every investment should be scrutinized. Be willing to stop anything that doesn’t make sense.
Save your conviction for what's left over - you're going to need it.
In this post I’m going to review 2 of the 4 points (next week, we’ll follow up). But I’m going to start with the last point first.
#4 Evaluate every investment for viability
All Along the Value Chain
In a recent newsletter I focused on what makes materials go-to-market especially challenging. One of the biggest factors is the complexity of the downstream value chain. Often, it consists of multiple steps, different types of companies in each step, and lots of conflicting interests and perceptions of products. When evaluating your investments, think about looking how each step of the value chain has been impacted in today's economic environment. Has that step become a blocker to your solution? Is that step now negatively predisposed to adoption? Here’s the criteria you should use:
Does every step in the value chain still remain neutral of positive on adopting my solution?
That’s the bar. We often see clients approach this analysis by asking themselves, “who’s left?” or “Can I still find one player who values me?” and cling to those bright spots. It’s easy to get into that mindset, but it’s deadly. Why? because if one step in the value chain is souring on your solution, the entire venture is at risk. So when looking at your investments, the ones that stay alive are the ones that are still valued all through the value chain. This approach applies to every other analysis as well.
#1 Evaluate every investment for viability
in a Cost-Constrained Environment.
This might look at first like a simple, and an obvious lens for evaluation. We may be tempted to look at a simple “can my customer still afford me?” approach. A more holistic view is warranted, specifically,
How is my customer’s cost pressure changing their decision criteria?
When cost pressure occurs, it’s not just that affordability is squeezed and margin pressure comes at us, but criteria weighting change. Next-best alternatives might now be considered when they were obviously inferior in the past. It’s the criteria balance that matters.
An easy example of this is when next-best criteria have different cost profiles. Take biopolymers replacing polyethylene for example. They have different cost dynamics. When oil is cheap, fossil-based polymers become cheaper relative to more sustainable alternatives. Does your value still hold if the spread between them widens? Will the customer still choose you if he has to pay 25cpp more than PE, rather than the 10cpp difference he's used to? When decision criteria shift, your solution may be at risk. (...and remember to look at cost-constraints, all along the value chain - point 4)
Actioning the Insights
Here’s the one key to getting this right that we’ve learned having done evaluations like these for 3 decades. The secret to actioning this insight is:
courage
The analyses are often fairly easy, but often, we ignore the findings. We rationalize away the problems that emerge, because we have an investment that’s “too big to fail.”
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Our reputations are on the line.
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People's jobs are on the line.
There are two key leadership mindset shifts that we have found helpful in countering our cognitive bias when these sorts of behaviors come up.
First, no matter how it might feel like it, nothing is permanent. The goal here is to survive the downturn to play another day. Initiatives can be revived. Capabilities can be rebuilt. In fact, the first to prune, stands the best chance of weathering the storm, and is likely the first to emerge. More importantly though....
Second, pruning breeds innovation. When you close options that are not viable, it opens up the question “What can we do to innovate our way into viability?” Your organization will start thinking about that and you’ll be surprised by what they come up with. But they won’t do it if you keep unviable initiatives alive.
So have the courage to say no. Survive to play another day.
Until next week,
Kendall -
Find me on LinkedIn or Book a 1:1 call
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