(167b) Work Processes and People Excellence: The Last Competitive Advantages in the Chemical Industry

At the current stage of the globalization process, it has become clear that competitive advantages like technology, access to raw materials and capital, which used to be important competitive advantages, have become less significant, as technology can be easily purchased or developed, raw materials are now available to anybody and there is an easy flow of capital from one place to another. Therefore, for chemical and petrochemical companies, there are only two remaining competitive advantages: work processes and people excellence.

People As Competitive Advantage For years we have heard that the greatest asset of any company is their people. However, sometimes it has been more nice saying than reality (or at least that was the perception from some employees). However, now it is for real because it is not anymore a matter of choice: there is no other option for companies than to fully understand this and to engrain it in their culture. It is probably not much change after all. The real difference is that globalization has made people much more important and visible due to realities like international fierce competition, people's mobility, open flow of ideas and capitals, and shortage of qualified people.

Regardless of size or capital, if a company cannot attract and retain the right talent will become unable to compete. People's knowledge, skills, experience, brain-power and potential are the most important assets of any company. Clearly, once you have those you can generate profits, attract investors, select or develop technologies. The value of a good company is much higher than just the book value of the company's assets; what is the difference? The know-how, good-will, knowledge and capabilities of its people; bottom-line: people's brains.

Globalization has brought a fierce competition to the chemical industry and in general to the business world. What sometimes we have failed to realize is that competition for talent is even fiercer. Some people cannot understand this considering that globalization brought to the table literally billions of people from China, India, Rusia, Latin America. Definitely there is no shortage of people ? there is shortage of talent, of qualified people who can perform a high level in a fiercely competitive environment. Reasons for that shortage of talent include globalization itself, as there are now tremendous needs for qualified and experienced people all over the world. It has been estimated that China will require 75,000 top-level executives by 2010, about 70,000 more than they have now. Another reason for shortage of talent is baby-boomer generation starting to massively retire in mature markets like US (with about 76 million baby-boomers) and Europe. In fact, ?the country's 500 biggest companies anticipate losing half their senior management in the next five to six years?.

So, the ability to find, fully develop and fully utilize talented people plus ability to retain such people is key not only for growth but pretty much for survival. But, how do you retain people? Does it mean the companies need to relax the standards so that people stay? Not really ? there are some minimum requirements for companies to be able to retain the best talent such as competitive salary and benefits package, a culture of respect for people, high ethical standards. Clearly without those any retention efforts will fail. Giving people some flexibility in working hours and location will help with retention. However, the ?high power? retention tools are providing meaningful and challenging jobs, having clear career paths, creating an environment in which people can perform at their fullest capacity.

Work Processes As Competitive Advantage Understanding work processes as the only other competitive advantage is sometimes more difficult. However, if you have good people but not effective work-processes, you may not get good results. People can change work processes, but normally takes long time. The bottom-line is: you need effective work processes to allow people to perform at their fullest capacity. Work processes can greatly improve productivity and are the means for companies to consistently achieve positive results.

We are talking here about work processes in general, not just manufacturing work processes, as work processes in areas like supply chain, marketing analysis, hiring and promoting people, sharing information, billing the customer can all be significant competitive advantages. In general terms, any company's activity that is prone to significance variance (and most activities involving human beings are) becomes a work process implementation opportunity as a mechanism to reduce variance and to standardize in the most advantageous practices.

Another reason for which work processes have become a key competitive advantage is globalization because globalization has accentuated the need for consistent products, as global customers need products with exactly the same characteristics in each market. How do you get consistent chemical products? The first steps are consistency of raw materials and equipment / technology ?challenging but relatively easy. The most difficult part is to achieve consistency of behavior during manufacturing. This consistency is much more difficult to achieve because deals with cultural differences and local practices.

Diversity and Consistency We can easily explain why consistency is important in the chemical industry. To explain why diversity is important probably is sufficient to say that companies need diversity of thinking to have different perspectives and generate enough ideas to effectively solve problems and continuously improve/innovate in all areas. Teams in which all members have similar backgrounds and opinions can easily miss the whole picture and/or miss opportunities.

The relative importance of diversity vs. consistency depends on time and function. Consistency is much more critical when you are starting operations at a new location or while trying to integrate a recently acquired operation or company. You need consistency of operations to get consistent products; however enforcing consistency in R&D would probably lead to mediocre results.

Companies need to leave some freedom for locals to incorporate their own cultural needs, especially considering that the most localized a strategy is, the most chances that effective execution is achieved. What are the boundaries for customizing? There are three types of boundaries: a) when local practices are not resulting on consistent products or somehow do not meet the intend, b) when local practices deviate from corporate vision or goals, c) when local practices do not follow ethical standards defined by the company.

Improved Consistency and Innovation At first look the phrase ?improved consistency? may look like an oxymoron but it is not. The primary goal is to achieve consistency which is probably not that difficult to get when there are mechanisms in place to enforce that the proper work processes are followed and consistency of behavior is achieved. Each unit, each geographic location must help develop, use and share the best practices. The real challenge is to make sure that the work processes allow and promote improvement and innovation and that whatever improvement or innovation is proved at a given facility/location, gets leveraged at other facilities/locations. Then the already improved work process will receive further improvement and will be leveraged, again and again, across the company ? that is the real path to operational excellence and what we call here improved consistency.

The fierce competition in the chemical industry is a clear call for ?innovate to grow? and even ?innovate to survive?. This is because nowadays no company can remain stagnant without risking to quickly loose its market share. Besides, considering the fierce competition and low margins that globalization have brought, there is no other option than to innovate. The real question is not ?to innovate or not to innovate?? but ?innovate in what?? Are we just talking about new products and new technologies? Well, development of new products and new technologies is a must, but it is not all what is needed. Besides, in the chemical industry new products and new technologies tend to be an expensive and long-term proposition and therefore cannot occur that frequently. Companies need to innovate in every area, including work processes; attraction and retention; cost reduction; interaction with clients; how to do business; how to get the best of everybody; how to continuously improve. Innovation in these areas is definitely less capital intensive and less dramatic than new products or new technologies, but offer plenty of opportunities to contribute to the company's bottom-line and to the company's growth.

Innovation has become the ?buzz word?. The billion-dollar question is how to get a company into the innovation mode? Some companies have created high level ?Chief Innovation Officer? positions to boost their innovation capabilities. Some companies have engaged innovation ?gurus?. Other ways are ?engaging? everybody's brains, encouraging and allowing people to ?think out of the box?, promoting diversity (especially diversity of thinking) and inclusion, leaving some room for experimentation and ?failure?, adding innovativeness to the performance appraisal, creating a culture that not only promotes idea generation but that quickly acts on those ideas ? nothing kills innovation faster than lack of response or action once the ideas are formulated.