Since Dr. Bernd Elser began leading Accenture’s chemicals and natural resources strategy practice in 2011, momentous change has swept across the chemical industry. Demand for clean energy transitions and enterprises implementing circular economy practices have introduced entirely different sets of business processes, while market volatility has significantly impacted the industry in recent years, impacting the speed at which products reach consumers.
As chemical companies contend with these challenges, modern IT solutions are quickly becoming a necessity in the industry. Given the new sets of processes and standards, legacy ERP solutions are not equipped to enable organizations to overcome current hurdles. As the industry has changed, the technology processes chemical companies once relied on simply have not kept up.
However, automation presents exciting opportunities for chemical producers. These solutions can dramatically reduce manual processes, cutting down on time-intensive labor and enabling employees to focus on value-added tasks. To enable automation, enterprises’ cloud ERP platforms are collecting and processing huge swaths of data. Breaking data out of costly silos is a critical focus for enterprises running automative processes and angling to embrace innovation through digital transformation.
Dr. Elser and Accenture are keenly focused on designing automation processes and helping customers embrace the full value of cloud ERP. Accenture helps its clients with SAP S/4HANA transformations and even provides complementary technologies.
In conversation with ASUG, Dr. Elser discusses the importance of an intentional cloud ERP and how to effectively lead through digital transformation and embrace automation.
This interview, which you can also download, has been edited and condensed.
Q: What is your assessment of the current state of how chemical and natural resources companies are doing in embracing modernization initiatives that combat issues related to fragmented supply chains and outdated ERPs?
As always, industries move at different speeds. If you look at chemicals, one-quarter to one-third of the companies have moved into a modern, digitized, cloud-based platform with all the advantages that brings along. It’s amazing to see in chemicals that there was a clear preference to break with all the legacy ways of working — like heavily customized systems which are hard to maintain and hard to update — and move toward standard processes.
If you look at other industries, there’s more hesitancy to break with these heavily customized processes. Very often, there are risks; degree of change is very often cited. They move slower, but also not with that ambition to truly transform, reinvent and change existing ways of working. If you look at mining and metals, they’re the first movers who have really made that step. There’s still work to do to transform these companies and make sure that they’re not losing their competitive advantage.
Q: Do you see that competitive spirit as one of the reasons that leaders are so ahead of other industries in their thinking around digital transformation initiatives?
The chemical industry is famous for innovations. Look around at foams, colors, plastics, insulations. If you go back 100 years, it was all about innovating molecules, then finding new applications for existing molecules, then optimizing processes. But all these innovation waves somehow plateaued. It became harder to innovate.
Completely untapped is the pool of digitization, extracting insights from data. There’s a completely new set of competitive advantages in this ability to innovate. That’s why companies are so eager to tap into that pool and break with the legacy approaches, in which they couldn’t access data because of siloed operations. They haven’t been able to work end-to-end because processes run over multiple systems.
That’s the next level of competitive advantage and why there’s that big push towards a break with legacies. The gold standard is to pick certain areas to innovate and then also invest in analytics, AI, and generative AI to make sure that you extract full insights from data.
That might be specific to the chemical industry. If you look at mining, there is still immense value to be found there; you can get the lucky drill and hit an ore reserve no one’s found before, right? There’s still the opportunity to differentiate and succeed without that level of excellence–or excellence in a different area, to be precise.
But, here too, the picture is changing if we look at the challenge for the energy transition to produce nickel, copper, and all these new energy materials. You’ve got 2% or 3% copper in what you drill and dig out. Extracting that 2% or 3% is important. And again, you’re talking then about a chemical process, wherein process optimization uses data analytics to extract as much copper as possible from basic ore.
That’s a big challenge, and it’s why we will see more change and willingness to invest into data, digitization, digital core, and a proper end-to-end integration.
Q: In working with leaders across these sectors, when you’re thinking about outside of the industry-specific challenges, what business issues do you see within organizations that complicate these initiatives to move towards digital transformation, modernization of tech stacks, and process reinvention?
If you start discussing this in a client workshop, you will get a very long list: technology-related issues, legacy restrictions, data migration interface limitations. Then you’ve got all the process issues and ways of working that need to be changed. You’ve got people, skills, and change management issues. From my perspective, that is a very long list.
Unfortunately, there isn’t a single root cause, a single complication. But in the end, it requires the experience and the tools and methods to, first of all, structure the program in a way that these very foreseeable and well-justified complications are addressed in a proper way.
What’s also often underestimated is that positive spark. If you create excitement in the beginning, that you can take the company through to the next level, that there’s a benefit for the individual as well, that is very often a game changer, which cuts through that long list of complications, challenges, or roadblocks, creating positive momentum.
Bring in people to work on the change. Make them not “someone who needs to be changed” but “an integral part of change.” These are the accelerators — the catalysts, in chemical terms; the positive sparks — to make sure that we are not only not seeing complications, but that we are also seeing the benefits of change for the company and for the individual.
Q: When you’re thinking internally about what works for companies, how do you see leaders balancing what to prioritize within a business transformation?
There are two aspects to that. Often, we’re talking about substantial investment from a company perspective. Often, the perceived trade-off is to either invest in the new plant or in digitization, in a digital core, SAP S/HANA, you name it.
From my perspective, it’s not an either/or. We all know that if you extract better insights from data, you can run your demand planning more effectively. Have clarity on the value case: that digitalization impacts core business parameters, like output, quality, winning additional demand and additional customer orders in the market. Having that clarity takes the whole value case to a more comprehensive perspective. That’s the first aspect.
The second aspect is there are obviously many initiatives in flight. It’s easy to look at initiative after initiative and say, “We’ve got too many initiatives.” Completely underestimated are the benefits you can create if you combine these initiatives in a synergistic way. For example, if you want to drive cost efficiency, you’re often starting with insufficient automation, and there’s still a major effort required to extract data. If you digitize and create a digital core, you see business benefits on the other side.
Q: Accenture has worked with SAP to create industry-specific capabilities within SAP S/4HANA, for the chemicals industry. Can you explain what those capabilities entail, how that work has been undertaken, and what that does to compound and accelerate the effects of digital core and digitization?
It’s been easy, in the past, to think about ERP systems as approaching resource planning as a back-office system, and to believe that all back-office processes are the same. This is misleading; if you take a closer look, it becomes very obvious that they’re very industry-specific processes. Also, the rigor with which one must manage these processes differs very much between companies and industries.
Think of a shipment of a hazardous or explosive good. Given specific requirements for each shipment, such as that they have Material Safety Data Sheets (MSDSs) or EU REACH SDSs, much work is required to make that industry- specific. If you look at what is required to steer a company in a given industry in a differentiated way, it always comes back to specific areas that have influence.
In chemicals, plant availability is vital. If one piece breaks down, it may bring a standstill to the old plant. That means predicting availability, and predicting unplanned downtime, is an extremely specific challenge for the chemical industry. This is why those leaders focus on plant maintenance and the functionality related with plant maintenance; it’s a big issue. Other industries have dealt with this challenge, but it’s not that critical if you’re not in an asset-intensive industry.
If we look at what’s happening in the steel industry, we used to have iron ore and coal, and we used to produce steel in a blast furnace. We did that for 2,500 years. Now, we bring in circular solutions; we use scrap steel and electric arc furnaces. All of sudden, your whole material flow changes. You get a wide mix of scrap metal, which you have to analyze to make sure that you get the right steel qualities. You’ve got a completely different inbound logistic and different material handling quality management; a typical inbound logistic module would not cover that.
We need industry specificity to make sure that each area fits the needs of a company, but also that each area provides the opportunity to build competitive advantages, to differentiate and extract additional value.
Q: When you think about and you talk to organizations in these sectors that are moving ahead with SAP S/4HANA, what do you advise them to focus on? What do you see as those factors or best practices for success?
From my perspective, it’s easier to have that as a technical discussion. In simplified terms, SAP ECC is running out of maintenance, so there’s a need to move to a new platform. But that simplified response completely misses the opportunity.
There are the opportunities to differentiate and create value in both the existing business and the future business. Thinking about future-readiness, I mentioned steel. If you know that you will have to migrate towards electric arc furnaces, managing scrapped metal, and more, it gives you a completely different perspective of what’s required in the future than to simply say, “I need to technically upgrade.”
The whole value case, to put it very bluntly, is critical. The value case for today’s business must also encompass the future value and future requirements to support the business. Once there is clarity on that, typically, it provides a lighthouse to steer your transformation and clear guardrails to then go in and solve for all the required transformation. There are technical aspects to this. But, very often, transformation also requires changes in ways of working and changes in skills.
Get clarity on the change, and link the value to the required changes on the level of individual SAP users, so they can predict their role and how it will evolve. Invest and double down in these areas to train the people, to onboard them, to make sure that they use the full new functionality and extract the value.
Getting that link from value into required changes on the people side, also linked to that change for SAP user roles and changes in technology, those are the three magical components that make up a recipe for success.
Connect with Dr. Bernd Elser on LinkedIn.
Q: In looking at sustainability as a potential value driver for companies, in addition to a required change, what should business leaders be thinking about?
Often, if you talk about sustainability, everyone thinks about regulation, greenhouse gas, gas prices, and new reporting requirements. What is completely missing for people, though, is that this is what consumers are asking for. They have a clear and increasing preference for sustainable and environmentally friendly products. What is also amazing to see is that their willingness to pay for those products is increasing.
That means there’s a fundamental market opportunity out there. And if you look into all the customer industries- --for metals, mining, and chemicals—all of them have their commitments out there. All of them have product development, product innovation pipelines, which address all these consumer preferences. These are the companies best suited to provide the product and also substantiate their claims of sustainability. Bringing proof to that means that, for each product, you need to have the greenhouse gas footprint, the product carbon footprint, the toxicity footprint, etc. You need to be able to track that throughout the value chain.
There is a huge opportunity out there, fundamentally driven by consumer preferences, but that also brings a whole new set of requirements for how you manage enterprise data, for your openness towards other industries, and for your ability to provide transparency into your products and processes. It’s a huge opportunity for companies that also are willing to disrupt, to a certain degree, the ways of working and the existing technology base to make sure they’re in a position to capture that opportunity.
Q: What do you advise for organizations looking to optimize their ability to integrate SAP S/4HANA with other systems and maximize the value of that investment?
From my perspective, there’s a fundamental change. Typically, you would design with the ambition of a technology being future-ready. Unfortunately, I think that’s not possible anymore. External volatility and uncertainty always require that you adapt your functionality, that you bring in new functionality.
From a regulator and customer preference perspective, if you look at the last couple of years, there was a huge evolution with customers asking for what end consumers are interested in: for footnotes, ingredients, and visibility across the value chain. The whole concept that you can design your enterprise architecture in one go, and get it right in a year or two years, is not possible anymore.
The whole concept of having a digital core with satellites around it—with the flexibility to add functionality, to replace a satellite, to optimize the satellite and to be more agile and flexible in responding to new requirements and new business needs---I think that will make the difference. That will also basically enable responsivity to fast changing growth opportunities, to changes in competitive pressures, and—last but not least—to customer needs and preferences.
Q: When you’re thinking about the possibilities in the cloud, what excites you the most about the opportunities to unlock?
If you look at all our experience from 30-plus years of overseeing implementations in chemicals, plus the same amount of time in mining and metals companies, there’s a common theme: 50% of the value is based on better insights and data for decision making. You get your hands on 70% of your enterprise data; all of a sudden, you can manage all the challenges in a better way.
You can use your data to predict demand and increase your forecast accuracy. That means you can set better inventory levels. You can reduce your network and capital. You can be smarter in pricing, value-based pricing, and dynamic pricing. That’s not feasible if you’ve got siloed data.
Q: When we’re talking about circularity and moving towards a circular economy, what else will be required for these business leaders within their transformations to achieve that vision of a circular economy?
As always, if you talk about sustainability, there are different elements to get right. One is circularity, from a material flow perspective.
For a steel producer, to produce the steel end-of-life cycle, you’ve got scrap, which you can reuse the scrap and bring back in. This already shows us that you need visibility and tracking across the full life cycle—of what the use is, to whom you’re selling it—transparency into the end of life point, and the ability to close it from a logistics perspective.
This shows that the networks, and your frame of managing, extends way beyond the boundaries of your individual company. That means partnering with other companies. That creates a new openness, but also a requirement for new data exchanges. That’s number one.
Number two is everyone is asking for a net-zero product. That means the abilities to optimize your energy consumption and to optimize your production processes are critically important. Again, we are talking about price resource planning. You can break them down into bill of materials, online tracking of energy consumption, batch- based greenhouse gases, etc.
The third element is the requirements of the future, and the ability to integrate new requirements in an agile way—not having another 10 people with exit sheets trying to calculate impact. I think that will make an enormous difference going forward.
Q: What else excites you around companies looking to reinvent right now?
If you take a very sober look at the situation of chemicals, metals, mining, and forest products, 80% is transactional work. Only 20% is truly differentiated, value-added, insightful work. If you then overlay what percentage of data is actually used, depending on how positive and bullish you are, it’s something between 10% and 20%. If you take these two data points, what does the future look like?
We will aim to automate all the transactional work, digitizing it, but this means that we will have to transform 80% of today’s work. And, on the other hand, we have to extract insights from 80% of the data we are not even tapping into right now.
If you look at that from a business perspective, the challenge of tackling 80% of transactional work, and of unutilized data, that path is emerging clearly. That’s why I think leaders in the industry are so eager to jump on that and say, “This is exactly what I want to do. I don’t want to have my people do repetitive, transactional work that needs to be automated and digitized. On the other hand, I want them to learn new skills and be able to work with all the advanced technologies to make sure I extract the full insights from my data, and ideally also all the insights from my business network, so that I can really build these circular business networks, that I can win the demand out there from consumers preferring sustainable, environmentally friendly products.”
Vision is very key; as always, it’s a time-based competition, so speed is of utmost importance. The one who will have these capabilities in place first will have significant competitive advantages. What is also important is—in the end, from our perspective—reinvention in a couple of dimensions. One is getting your data right. Second is getting your ERP to work correctly with workflows right. Third is the ways of working, the roles, organization structures.
We are still fully committed to technology-based transformation. Even if you change ways of working, roles and organizational structures, you will only tap a minor share of the overall value; and people will still do transactional work if you don’t automate and digitize the work. The digital core of cloud-based data and digitized workflows is a critical enabler to get the whole transformation going.
Q: Is there anything that we haven’t talked about yet that you would like to mention?
There’s always that fear that these SAP S/4HANA migrations are lengthy and never-ending transformations, based on the experience of ERP migrations 10-15 years back, where it would take four years or more to get something done. If you’re clear on your value case, and if you’re clear on what you want to do, if you’re clear on the changes of individual people, there are new ways of implementing that, so that you get it done in two or three years, avoiding a lengthy journey.
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