As growth slows in traditional markets, chemicals executives may be tempted to extend their reach into exciting new markets. Jason McLinn, a partner in Bain's Industrial Goods & Services practice, shares how investing to outperform in a company's core can deliver stronger results than running with the pack in new specialties.
Read the Bain Brief: In Chemicals, Great Strategy Beats Great Markets
Read the transcript below.
JASON MCLINN: In developed countries, growth has slowed in a lot of the chemicals categories. And so a company might want to enter a hot new market, but it's often harder to be successful than they originally anticipate. Or by the time they get there, the market may have cooled off. So Bain research shows that investing in your core business leads to better results than expanding too quickly into adjacencies.
In most industries, only one or two companies earn 80% of the profit pool. And in the chemicals market, we see winners emerging from all different sectors and with all three main strategies—being the lowest cost, having the best products, or delivering great service. So put simply, it's more about what you do than where you do it which matters.
Among the top chemicals performers, they focus on three things: their capabilities, their customers and their resources. They use hard metrics to measure their capabilities relative to competitors, to understand where they're ahead or where they might be lagging. They identify the profitability of their customers so they know who to focus on and deeply understand their needs. And they align their resources and their investments around that strategy while minimizing any distractions.
Investing to outperform in core markets proves more rewarding than chasing after exciting new ones.