17 May 2013 09:56 [Source: ICB]
Companies have shown a wide range of performance since the 2008 downturn - an ICIS survey, with Oliver Wyman, will gauge the factors that deliver star results
As the global economic outlook continues to be uncertain and growth in gross domestic product (GDP) in many countries is still elusive or below par, chemical producers are having to work hard to grow sales and earnings. Indeed, even the biggest multinationals are finding that sustaining a growth trajectory is a profound challenge.
Copyright: Rex Features
A recent review of all-sector company performance before and after the 2008 economic crisis shows that of the Standard & Poor's 500 companies in 2005, a mere 13% have maintained double-digit revenue growth on a compound annual growth rate (CAGR) basis, both before and after this turning point.
How do the best companies achieve this? Is it down to market positioning in terms of product and sector, brilliant strategy, excellent business execution, or having just the right organisational structure? The review, carried out by management consultancy Oliver Wyman, shows that while many companies experience similar market conditions, there is a tremendous variation in performance. It concludes that strategy and organisational and executional factors - in equal measures - are the real culprits.
Says Laurent Thomas, Oliver Wyman partner: "The analysis carries even more relevance when we divide the market into sectors. Though average growth rates vary significantly clear growth winners exist in each of them, including double-digit superstars. Not surprisingly, these are the firms that tend to exhibit the highest market capitalisation appreciation in their sector."
Further delving into recent top chemical company financial results shows that a full two-thirds of companies that bettered the average earnings before interest, tax, depreciation and amortisation (EBITDA) performance of the group over the period 2009-2011, did so by pursuing a growth rather than an efficiency play.
Analysis also shows that smaller companies showed an ability to grow EBITDA at a higher rate, while larger companies were able to achieve higher average revenue growth.
Finally, says Oliver Wyman, very high sales revenues growth can actually come at the expense of EBITDA performance. The firm's extensive case experience shows that a company's structure, its capabilities, its people, culture and talent all play an important role in its success.
Yet, as Thomas explains, few studies to date have delved deeply into the organisational factors that drive or constrain growth. "Most are content with repeating the same mantras: create a customer-driven culture, tailor solutions to customers, ensure that structure and decision-making support the customer segment strategy, implement best practices in commercial excellence and adjust the compensation system at all levels to reward growth."
To understand the factors involved in profitable growth, Oliver Wyman is embarking on a major cross-sectional survey of leading industrial producers, in an effort to "crack the organisational code for growth". As part of this study, ICIS and Oliver Wyman are working together to survey the chemical industry and are today launching an online questionnaire, the results from which will be fed into the overall analysis.
The study will focus on a number of key aspects, including company organisation - both formal and informal; innovation; business excellence; approaches to mergers and acquisitions; culture; and business transformation. The aim is to understand what internal levers a company can use to improve its performance, given that external market conditions continue to be less than conducive to organic top-line growth.
Ultimately, says Thomas, the research will be used to answer the central question: "How can major companies design and mobilise their organisations to achieve sustainable growth in today's environment?" In turn, we hope the results will provide actionable insight in critical areas.
The report, which will be available later this year, will focus on areas such as innovation, leadership attributes, culture and talent, strategy and transformation.
HOW TO TAKE PART
To contribute your views to the ICIS/Oliver Wyman chemical industry survey, please go to www.icis.com/codecracking.
All answers will be aggregated in the overall results and analysed anonymously.
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