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E-Commerce and Adding Value

In Y2K, we “came to the mountain” on the role of the Internet in the adhesives business. What started out as Internet hype around dot-coms taking over the specialty chemical industry, ended in the realization for many that it is very difficult to find an Internet model that addresses more than just supply-chain transactions and sending out material safety data sheets and product-selector guides.

Specialty businesses that require consultative selling and technical service need to have a collaborative rather than a transactional Internet model. Determining what this Internet business model looks like and then implementing the model are big challenges for 2001 and beyond.

Another major business activity in Y2K was trying to “capture value.” The industry’s customer base is focused on price. As an industry, we have been unsuccessful in obtaining value for most of our adhesive offerings. Customers want lower prices and supply-chain efficiencies. The customer no longer perceives servicing as differentiation or value adding.

The continued flurry of merger and acquisition activity does nothing to “capture value.” When two companies are merged, the hopeful net effect is a lower-cost, more-efficient operation. This is achieved, in part, by eliminating duplicate activities and personnel.

I believe that acquisitions and mergers actually stifle innovation and product-leadership differentiation. An acquired company will be adverse to risk until the dust settles. “I’m not sticking my neck out to promote something different with my new management. What if it fails?” The acquiring company often spends too much time dealing with merger activities – like getting two accounting systems to talk to each other – rather than focusing on innovation.

The reason we have difficulty “capturing value” in our industry is because, for the most part, we do not bring value to our customers in a way they recognize as something they are willing to pay a premium for. It is our responsibility to challenge our perceptions and paradigms, and fight our way out of the morass we are in by creating truly innovative, differentiated products and business models that will serve us well into the new millennium. Some suggestions on how to accomplish this are:

Work closely with your raw material suppliers. Reach beyond the arms-length relationship that usually exists. Many major suppliers have a wealth of industry and end-user knowledge.
Go downstream to your customer’s customers to determine what they perceive as a critical value for your offering. Take an end-user marketing or sales manager to lunch. Talk about their applications. Join their trade associations, go to their trade shows, and put on adhesive seminars for their technical and marketing people.
Finally, add to the R&D budget instead of cutting it when times get tough. Sure, short term you can save some money, but most R&D projects take a year-plus to come to fruition. By cutting the budget, you are losing the flow of new products you will need when the cycle improves.