The Golden Pivot: A Transformational Journey from Chemical Manufacturing to Servitisation Model
In the ever-evolving business landscape, the ability to transform and innovate is a crucial driver for success. In the era of web 2.0 onwards, many end-customer-facing companies started integrating the upstream suppliers, usually via Mergers & Acquisitions (M&A), to integrate actors in their value chain. Gradually, they grew into giants that can cover a large value network — from digital platforms such as Meta to more traditional manufacturers like Johnson & Johnson. The following case narrates a captivating tale of a reversed supply chain integration, featuring a chemical manufacturer transitioning from a traditional production-oriented business model to a service-based approach. As we reveal this transformation, we’ll explore how we catalysed this company’s evolution, leading to ground-breaking success.
Dawn of Disruption
In a fragmented and fiercely competitive mining sector, a large chemical manufacturer (Company X) had historically produced chemical raw materials for the mining industry. They were at a crossroads, grappling with an extended value chain teeming with multiple players, each seeking to maximise their profit margins. This consequently left Company X with a meagre margin and a rush to the “red ocean” as the raw material suppliers are usually the most squeezed.
Despite being one of the top chemical manufacturers worldwide, the management is concerned that a foreseeable zero-sum game in making the same old products can and will bend their future trajectory. The crux of the problem lies in the value proposition — what customers genuinely seek from their business. The end client, mining companies, were more interested in the result — gold — than the process of purifying it or the raw materials used in those processes. To them, the chemical was simply a means to an end.
Pathway to Paradigm Shift
The challenge required a paradigm shift, a radical alteration of the company’s business model and informed by a clear value proposition. The first transformation was to recognise the actual value proposition. Too often, we’ve seen companies too busy making a product for their direct clients, to recognise the true competencies they may possess and the value they may hold. In this case, an analysis of the value chain suggested what the end customers truly desired: clean gold, simple as that. This led us to propose a radical business model shift — from a supplier of chemical materials to the service provider of delivering clean gold.
We weren’t daydreaming when this proposal was crafted, as Company X had a very unique advantage — all key competencies required for this transformation already existed within the company. As manufacturers of chemicals, their technical expertise, laboratories, and knowledge of logistics were inherent assets that would facilitate the transition towards a service-oriented business model.
Instead of merely supplying chemicals, the company began to offer a holistic service, directly aimed at eliminating the hassle for mining companies. Company X transformed into a one-stop service provider, ultimately delivering clean gold. However, this time they initiated their involvement from the client-side operations. They started by providing on-site consultancy and services, surveying the site and determining stage-based chemical mix usage. They scheduled workflows, managed delivery and coordinated logistics, arranged shipments accordingly, and finally planned production from their own factories.
To enhance this service, Company X acquired a range of local companies specialising in services required by this supply network, thereby strengthening their position as a one-stop-shop for clean gold.
Unleashing Inherent Potential
Three years post-transformation, the change in Company X’s performance amazed the board. From teetering on the edge of losing profitability, the company is now a major service provider in the global mining industry, known for delivering the desired direct service to clients by eliminating the hassle of mining companies. Company X has successfully expanded its reach beyond Europe, making significant inroads in the Middle East and the United States, where their sales just surpassed $1 billion.
This transformation leveraged the power of a service-oriented approach, coupled with a renewed understanding of the client’s actual needs. Company X’s servitisation stands as a shining testament to the effectiveness of transforming businesses into the blue ocean market. By redefining the business model and streamlining the new operational model, Company X not only survived but thrived.
So, the team at the Centre for Business and Industry Transformation, us, have synthesised a range of standard methods for business transformation, tested via cases such as this. We’ve embedded these methods into a Venture Builder Program, and we are ready to help more businesses navigate their unique challenges and steer towards transformation, growth, and success.
About the Centre for Business Transformation:
The Centre for Business and Industry Transformation aim is to fuel a continuous cycle of learning, innovation, and evolution.
A pivotal part of CBIT is the Venture Builder. This dynamic wing of CBIT has steadily gained recognition for empowering disruptive businesses to redefine industry norms. The Venture Builder puts innovative businesses under the microscope, conducting comprehensive ‘fitness assessments’ to identify promising ‘blue ocean’ market opportunities. This process is integral to our vision of fostering transformative growth and steering companies towards untapped avenues of success.
To get more interesting transformational stories like this one, follow Us on:
LinkedIn https://bit.ly/LinkedIn_CBIT
Instagram https://bit.ly/Insta_CBIT
Twitter https://bit.ly/Tweet_CBIT
