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The Next Chapter: Chemicals Manufacturer Weighs Options for its Future

Corporate strategy for chemicals manufacturing sector

Abstract

Based on the feedback the team received from the company’s chief executive officer (CEO) and board, the most valuable lessons learned included:

  • Deep insight into the true future outlook of the current business model. Although both the CEO and board felt strongly that their business might be in trouble, the profitability assessment confirmed that with rock-solid fact 
  • True understanding of the company’s most valuable/important capabilities and assets
  • Recognition of the company’s strategic alternatives
  • Greater awareness of the pervasiveness of the company’s “legacy” thinking, and how that had created overwhelming resistance to new ideas
  • An understanding of how to effectively pursue the company’s preferred strategy

The Challenge

The client requested help to (1) evaluate the sustainability of the current business; (2) create strategic alternatives to the existing business model; and (3) outline a road map to transition from the current approach to the preferred strategic alternative.

With commodity prices at their historical peak, the management team recognized the likely inability of the business to survive once the cycle shifted downward. Although the business had survived similar downturns in the past, several new factors were in place to create a greater likelihood that the company would not emerge successfully from a substantial drop in commodity prices. These factors included:

  • Variable costs were on a strong, upward trajectory – most notable, energy costs
  • Transportation costs were also at risk of increasing. Most notably, growing political/community concerns related to the transport of certain chemicals by rail were increasing the likelihood of costly new transport and delivery legislation
  • New competitors were entering the market, creating an expectation that prices would fall even more than the historical norm because of a supply overabundance

How We Helped

With only eight weeks until the next board of directors meeting, at which a new corporate strategy was to be presented, the Deloitte Consulting LLP team helped drive the following analyses:

  • Development of a robust, exhaustive model of current and future profitability. This exercise required additional activities, such as:
    • Clarifying/quantifying key future business environment risks 
    • Synthesizing future sales and customer expectations from each of the core business units
    • Understanding drivers influencing both fixed and variable costs, and how these were to change in the short- and intermediate-term
  • Assessment of strategic options, including organic growth and merger and acquisition alternatives. Related activities included:
    • Understanding organizational core competencies and attractive/competitive elements
    • Identifying and evaluating high-potential incremental and transformational strategic alternatives 
    • Outlining a road map to facilitate the transition from the existing business model to the new, next-generation strategy

Solution

Based on the feedback the team received from the company’s chief executive officer (CEO) and board, the most valuable lessons learned included:

  • Deep insight into the true future outlook of the current business model. Although both the CEO and board felt strongly that their business might be in trouble, the profitability assessment confirmed that with rock-solid fact 
  • True understanding of the company’s most valuable/important capabilities and assets
  • Recognition of the company’s strategic alternatives
  • Greater awareness of the pervasiveness of the company’s “legacy” thinking, and how that had created overwhelming resistance to new ideas
  • An understanding of how to effectively pursue the company’s preferred strategy

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