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Specialty Chemicals strategy

Our vision is to deliver leading performance based on our five main chemical platforms by driving profitable growth in selected markets. Our expected outcomes for 2015 are to achieve a return on sales level of 12 percent and a return on investment of 15 percent. We came close to meeting our 2015 return on investment expectations in 2014 and are on track to meet both expected outcomes. We are also making progress on our five main action areas:

Specialty Chemicals – Strategic performance – Actions (graphic)Specialty Chemicals – Strategic performance – Actions (graphic)

Build on our strong chemical platforms

Given the asset intensity of our business, we have to carefully prioritize our capital allocation against the most promising growth opportunities. We have identified two strategic approaches – outgrow the market organically and improve performance through enhanced operational excellence.

Outgrow the market organically

In our surfactants and bleaching chemicals platforms, the end-user segment outlook is robust, the market is attractive and our competitive position is strong. We are investing to outgrow the market.

  • Surfactants are used in many different applications and some of these have above GDP growth due to high end-user segment growth. Given our strength in more specialized surfactants – and the sustainability of these chemicals due to the use of renewable raw materials – we are investing in growth in this platform by developing and/or marketing segment-specific solutions, supported by appropriate key account management and other commercial excellence programs. Because our surfactants are centered on a few key technology platforms, we can effectively and efficiently leverage our production capacity for use across all segments as we focus for growth
  • Our bleaching chemicals platform is expected to benefit from continued growth in chemically bleached pulp in South America, where we have a strong competitive position. Our recent investments have been in plants located on-site with our customers, including the Imperatriz Chemical Island facility in Brazil, which was commissioned in 2014. Both the cost and sustainability positions of these Chemical Islands are very favorable, with volume in our South American business growing substantially

Improve performance through enhanced operational excellence

In our other three platforms, our focus is on growing with the market and operational excellence.

  • Polymer chemistry. Given our strong share in this market, we will continue to grow in line with demand growth. Our strategy is to maintain our position in core applications and invest in organic growth in specific niches, for example application innovation, and in high purity metal organics (HPMO) for light-emitting diode (LED) lighting and solar panels
  • Salt-chlorine chain. We have a strong and attractive position in North West Europe in salt and chlor-alkali products, and we have just completed the conversion to membrane electrolysis at our Frankfurt site. Our focus going forward will primarily be on efficient capital expenditure, successful plant utilization and operational excellence
  • Ethylene oxide network. We successfully completed a significant investment in new production facilities in Ningbo, China, and now need to fully utilize our existing capacity to further improve our performance levels. We will invest in growth only in specific applications, such as chelate and cellulosic products

Drive functional excellence

In order to achieve our return on sales expectations, we need to improve our levels of commercial and supply chain performance. We are, therefore, in the process of building a stronger organization in the key areas of integrated supply chain and commercial excellence, as well as leveraging the AkzoNobel Talent management process.

  • Integrated supply chain. Building on the productivity improvement initiatives of recent years, we are now in the process of implementing the AkzoNobel Leading Performance System (ALPS). This company-wide framework of standard processes and tools will help us to drive targeted improvements in cost productivity, resource consumption and customer satisfaction. In addition, we systematically apply Lean and Six Sigma as the main methodology to anchor continuous improvement throughout the organization
  • Commercial excellence. Our major focus areas are enhanced customer satisfaction, organic growth, embedding margin management and increasing salesforce productivity. With regard to customer satisfaction, we now have a common customer feedback process in place which is yielding tangible results. A mixture of increased rigor and focus on opportunity funnel management and key account approaches is supporting the businesses with their organic growth plans
  • Talent management. In 2014, we redesigned our organizational structure to create a flatter organization, which allows us to work more efficiently and reduce costs while we improve the levels of professionalism in our functions. Beyond reorganization, we make sure that our employee base has the right spread by increasing our presence in higher growth regions, improving diversity and building a pool of global leaders

Reduce organizational complexity and cost

In early 2015, we adjusted our organization in line with our five chemical platforms. A particular area of change is in the integrated supply chain, where we are now consolidating our activities at business unit level to drive productivity via continuous improvement processes. In addition, Commercial Excellence and Innovation functions were introduced at business unit level to help drive organic growth.

We are also continuing to prune our product portfolio and divest non-core businesses where we are unable to achieve leading performance levels, such as our Paper Chemicals business, which is scheduled to be divested in 2015. At a more operational level, standardized work processes and a greater cost focus are also contributing to performance improvement.

Commercialize product innovation and deliver process innovation

We continue to make improvements to our product portfolio to deliver better solutions for our customers, particularly in more growth-oriented businesses. For example, in our surfactants platform, we introduced three new products for agrochemicals in 2014. These products help to increase crop yields and reduce pesticide and herbicide usage per unit of production. We also launched a product which improves productivity of low-permeable hydrocarbon reservoirs. It reduces eco-toxicity levels and enhances fracking control at elevated well temperatures.

In addition to product-based innovation, process-based innovation is also essential in Specialty Chemicals. A particular area of focus is in creating more value from fewer resources as part of our Planet Possible sustainability agenda. For instance, in one of our chlorine plants in Germany, through sophisticated mathematical modelling and subsequent smart engineering, we were able to significantly reduce steam requirement and waste by improving yield, thereby reducing costs and carbon emissions.

Capitalize on industry changes

We continue to adjust our strategy, organization structure and manufacturing footprint to respond to and address end-user segment and market trends. These trends include:

  • The growth of the Chinese market in chemicals, which we are continuing to respond to through the construction of local production capacity and growth in our local sales organizations
  • The growth trend in Brazilian pulp, which we are responding to by constructing closed loop, highly sustainable, local production capacity
  • North American market growth, due in part to shale gas. We are taking advantage where possible by upgrading our production capacity in North America, where relevant

An additional area of focus for the Business Area is on renewable energy and bio-based raw materials. Our renewable energy supply strategy has three focus areas – protecting our current renewable share, participating in cost-effective, large energy ventures and exploring commercially feasible on-site renewable energy generation. We are actively positioning ourselves for competitive, biomass-based steam production, particularly in the Netherlands, enabling us to further diversify the current gas-based parts of our portfolio. We have also been very active with regard to bio-based feedstocks. For example, during 2014, we signed agreements to produce algae-based materials and explore waste and sugar beet as a chemicals feedstock.