Structural Drivers of Value Creation in the Chemical Industry

A long-term analysis of the chemical industry has revealed that many factors that are thought to increase value actually do not, and delivered interesting insights into the true drivers of value creation. The study shows that the primary driver of value creation in chemical companies is in actual fact the composition of their product portfolios. Strategies to improve return on invested capital (ROIC) as the primary value driver in each of the product segments should focus on capital efficiency as well as margins and take a cautious stance on trying to outgrow performance problems. On a corporate level, a rigorous approach to portfolio management can be a significant factor in value creation, if centered around improving long-term ROIC rather than on size and growth targets, and if it ensures that the different parts of the portfolio are managed in accordance with the type of business.