Culmination of decades-long trends in science, business, and government are leading to redistributed everything, shifting how value is captured — between capex and opex, products and services, hardware and software, and even between industries. One result is that companies in the chemical and material industry are vulnerable to losing out on their usual bread-and-butter businesses. For example, in the automotive industry, the rise of connected and (partially) autonomous vehicles, among other trends, is leading to the greater use of electronics, rising from just 10% of average car cost in 1980, to 30% in 2010, and set to reach 50% in 2030 (see figure below) – and displacing materials as the source of value in the industry.
How to respond? Companies need to look at new material trends, new industry trends, and new business models in order to thrive.
One of the most important new material paradigms that presents opportunities for the chemical industry is smart materials – substances that change properties in response to an external stimulus. Some categories have been around for a decade – like piezoelectrics that change volume in response to an applied electric change, widely used in electronic devices – but many new categories are emerging (see figure below). For instance, the start-up Camfridge (client registration required) is creating magnetocaloric materials that absorb or release heat due to magnetic fields, allowing for efficient cooling devices with no moving parts.
Smart materials are strategically essential to chemical and material companies because they provide embedded functionality in materials. Just as makers of consumer products from automobiles to dishwashers have had to look at embedding information technology (IT) into their products, chemical and material firms will need to consider how they can embed smart functionality into theirs to maintain strategic relevance and pricing power in the value chains they sell into. They should build the relevant competencies to create application-specific smart materials in order to capture the value this functionality represents – or risk losing it to their customers or competitors.
A new industry trend that presents opportunities for chemical and material companies is building prefabrication – or more precisely, since prefab itself is hardly new, what we call “prefabrication 2.0.” Despite offering advantages like cost and time savings, prefab has seen limited adoption due largely to the lack of customization, which limits its value to customers. However, new technologies like digitization tools, automated equipment and robotics, and advanced building materials are enabling prefab 2.0, which offers a higher degree of flexibility and customization.
Prefab alters the building and construction industry value chain, shifting costs away from onsite labor and toward factory-produced components. Chemical and material companies have an opportunity to capture this value through offerings like advanced building materials that can be incorporated into prefab elements as they are mass produced – including ones that could not readily be used on-site in traditional construction. For example, a start-up called Pureti is working with prefab building developer Sustainable Holdings to apply photocatalytic coatings that help clean indoor air, providing an attractive value-added option to building clients.
Finally, in the realm of new business models, chemical and material companies that would normally only ship chemicals by the railcar are considering novel approaches like services. The fertilizer supplier Yara deployed its “N-Sensor” technology to provide farmers with more precise information on how much fertilizer they needed to apply in each area – leading to less fertilizer usage and savings of €50 to €100 per hectare. Despite deliberately selling less of its core product, Yara increased market share in terms of hectares served and boosted margins – and perhaps most critically, succeeded in disrupting its own business before some other company disrupted it for them.
Global secular trends like digital transformation, shifting consumer demographics and demands, and energy and commodity transitions aren’t going away, and the traditional technologies, products, and business models that chemical and material companies have relied on for decades aren’t going to be as successful at capturing value in the future. Turning to new material and design paradigms, capitalizing on emerging industry trends, and experimenting with business model innovation will be critical for these companies to continue to flourish.
For more information contact Michael Holman at Michael.Holman@luxresearchinc.com