In a mature, cyclical industry, most chemical companies have tried to boost financial performance in the usual ways: incrementally improving their efficiency and growing their revenues, mainly through acquisitions and investments in R&D. But companies today are finding that this is not enough to set themselves apart from competitors. In a slow-moving industry, old problems call for new approaches.

The biggest single success factor in the chemical industry is product portfolio. But whether they produce commodities, specialized chemicals, or a diversified mix, most companies can improve performance by adjusting to changes in three areas:

	Purchasing and cost management. Chemical manufacturers must first recognize the real cost of serving each customer and be prepared to lose an unprofitable account.
	Sales and marketing. In addition, chemical producers must understand the economics of their customer's business. With that understanding, they can tailor their product offerings, quality standards, logistics, or other services to reduce the buyers' total cost of ownership, without sacrificing their own margins.
	Operations. Chemical manufacturers could do far more to improve the efficiency of plant operations. For example, even the best plants' uptime – the number of available hours that machines are running – is generally under 80 percent. By adopting new lean operating and management systems, and engaging shop floor employees in the improvement process, companies can transform their operations into a world-class production system with significant improvements in cost, quality, and efficiency.

Although biotech was a losing bet for some early adopters, it is now used to produce a range of compounds (including fine chemicals, textile chemicals, and agrochemicals) accounting for 5 percent of industry revenues. That percentage is likely to double by 2010, and will allow cleaner, more efficient production of many commodity chemicals as well as novel, high-value materials. CEOs who dismissed biotech not long ago must soon decide whether it is time to invest.
 
In the meantime, companies must do everything they can to enhance their financial and operational management. "Most chemical companies have tremendous capabilities," says Karsten Hofmann, the global practice manager, based in the Frankfurt office. "But you rarely find that a company does more than half the things that it could to improve performance. You need to spot the trends, search out programs and tools that do the job, and apply them in a comprehensive way."