A new generation of consumers demand sustainability. In response, multinational corporations are increasingly integrating bio-based materials and chemicals into products as a way to market a more sustainable brand. Business savvy leaders will first target opportunities where bio-based materials & chemicals have a clear advantage over incumbents in performance, but most are stumped by where to start in the value chain. Continue reading
All eyes have been on the U.S. since Donald Trump won the election last November. So far, outcomes have been mixed: on one hand, the Dow Jones Index has witnessed a historical surge since his election win, rising from just below 18,000 to above 21,000. The U.S. Dollar Index has seen similar benefits, strengthening from just below 97 to nearly 102 in early April. While these factors play along with Trump’s campaign slogan to “Make America Great Again,” not all policy changes were welcomed and many have seen substantial criticism. Continue reading
The integration of Global Positioning Systems (GPS) with agricultural machinery catalyzed the digitization of farms in the early 2000s, enabling farmers to visualize yield variation within their fields. Since then, the definition of digital ag has evolved to include features beyond just basic yield mapping, such as variable rate prescriptions, irrigation guidance, seed variety benchmarks, and pest outbreak alerts. Decision support features abound, but the present state of the industry is fragmented. Most developers are start-ups who provide one aspect of decision support, and their solutions work in silos alienated from the rest of farm operations. Continue reading
The technical definition of impedance matching in electronics is system design such that the input impedance (the effective resistance to the flow of alternating current) of an electrical load and the output impedance of its corresponding signal are appropriately matched in order to maximize the power transfer and/or minimize signal reflection from the load. Failure to adequately manage impedance matching results in impedance mismatch, the loss of power or current, or flow; the energy of which can flow back upstream of the input to cause signal distortion, or feedback, as well as diminishing transfer of current and power. A common example of mismatch is echo in telephone or internet conversations. Opportunities for impedance mismatch occur at junctions between circuits in an overall system. Continue reading
Commoditization has been the constant story of the chemicals and materials industry since the earliest discoveries that enabled large scale material production. Historically new processes, competition, and business models have pushed the manufacture of once-specialty materials like PET, PVC, and polyolefins towards commoditization, making them cheaper, more available, and interchangeable with the competition. Today, digital technologies are causing these same changes in the materials R&D process and the process of materials selection and part manufacture. The actions and skills that underlie the materials and chemicals industry are undergoing commoditization, with major ramifications for how every material is produced and utilized, now and in the future.
Ever since the 2015 United Nations Climate Change Conference (COP21), the topic of carbon has been front and center in academic, corporate, and government circles. The general consensus, aside from a few climate change detractors like the U.S. President-elect, is that the world must significantly reduce global carbon emissions by 2030. However, no one has quite decided how to do so – the recent follow-up COP22 conference concluded with no agreement on emission reduction strategy. Much of the attention has been on heavy emitting sectors, such as the power generation and manufacturing industries. There’s been less focus on reducing emissions in transportation, even though the sector is responsible for approximately 25% of global carbon emissions – perhaps because the world’s largest automotive markets are already on the right track in emissions reduction.
Brazil is considered the Saudi Arabia of biofuels, where its more than 40-year-old policies have resulted in nearly 50% of the transportation fuel mix being made up of ethanol. The U.S. and EU have both made significant strides in carbon emissions reduction over the past 10 years through the Renewable Fuel Standard (RFS) and the Renewable Energy Directive (RED) respectively. In China, record ethanol imports have helped support progress on its National Climate Change Plan (NCCP). However, these policies have met their fair share of opposition – the food vs. fuel debate and the mythical “blendwall” – that will likely prevent biofuels from further penetrating the transportation market unless something changes.
To date, nearly all biofuel policies across the globe are driven by one metric – volume. Either there is a standard requirement for blending biofuels with their petroleum counterparts, or a country has a mandated total volume of biofuels that must be consumed in the market. However, increased scrutiny on carbon emissions has caused attention to shift from volumes to pollution. The biofuels industry will undergo a paradigm shift – a shift that California already made in 2011.
The California Air Resources Board (CARB) implemented its Low-Carbon Fuel Standard (LCFS) in 2011, which has driven a low-carbon fuels market that makes up over 11% of the transportation fuel mix in the state. During this time, it has eliminated volume targets; instead the LCFS focuses strictly on a fuel’s carbon intensity (CI) measured in gCO2/MJ on a well-to-wheels (WTW) basis – from extraction, conversion, transport, and combustion of the fuel. While today only the Golden State has adopted the standard, this approach will become a global phenomenon by 2020 because:
- Feedstock, technology, and fuel-agnostic approach opens up opportunities along the entire value chain. Today many of the policies driving biofuels focus on what the fuel is made of (corn, agricultural residues, waste oils, etc.) and what the final product is (ethanol, biodiesel, renewable diesel, etc.). Unfortunately, these regulations have incentivized specific technologies instead of the best solution. Using a fuel-agnostic approach instead promotes innovations along the entire value chain, such as the choice of power, supplemental chemicals, and even ways of transporting the fuel, creating opportunities for other types of businesses in a space that has been predominantly geared towards dedicated fuel producers.
- Not all countries are positioned to support a biofuels industry as it is designed today. Currently the biofuels industry is driven primarily by the availability of bio-based resources. This dependence is why the U.S. and Brazil are major corn and sugarcane ethanol producers, respectively, and Malaysia and Indonesia are major palm oil biodiesel producers. Unfortunately, this model does not offer a solution everywhere. Instead, with carbon intensity as the main factor, countries can tap into their own domestic resources and expertise to drive low-carbon fuels without the limitations of today’s biofuel-centric regulatory model. This shift opens the opportunities for further adoption of natural gas vehicles (NGV) and electric vehicles (EV), and will also stimulate conventional fossil fuel innovation as increased efficiencies will also lower a fuel’s CI.
- This model will be a bridge to move future regulations and policies past the concept of fuel–based vehicles. Technical barriers still remain for widespread adoption of electric vehicles (EV), but the tipping point is coming sooner than many think. Policies today that still focus on biofuel volumes will quickly become archaic in an electrified transportation future. With certain cities, such as Paris and London, vowing to ban the internal combustion engine (ICE) altogether, CI-based policies will be the first phase of a paradigm shift that will transition the soon-to-be obsolete biofuels policies of today into a new era of low-carbon transportation policies.
With the end of the two largest traditional biofuel policies in the world on the horizon in the EU and U.S. in 2020 and 2022 respectively, all players along the transportation value chain need to adapt now to inevitable future change. Savvy corporations already gaining experience on how to operate in California’s low-carbon fuels market will be at a significant advantage as the carbon intensity phenomenon goes global.
For more information contact Yuan-Sheng Yu at YuanSheng.Yu@luxresearchinc.com
As Uber upends the taxi, general transportation, and shipping industries and as Airbnb redefines the hospitality industry, consumer-facing business model innovation is all the rage right now, with billion-dollar acquisitions, IPOs, and fast-growing businesses. Novel consumer business models are affecting nearly every way consumers engage with a product, from selection to acquisition to using the product itself, and large incumbents are taking notice. For example, Unilever recently bought men’s shaving supply delivery company Dollar Shave Club for $1 billion in July 2016, and Walmart is in the process of purchasing Jet.com, an e-commerce site which offers dynamic pricing depending on product combinations in a customer’s cart, for $3 billion. Meanwhile, Blue Apron, the pioneering food delivery service that offers pre-portioned raw ingredients and step-by-step cooking instructions, is preparing for its IPO and is coming up on $1 billion in annual revenue a mere four years since its 2012 founding. These examples highlight how business model innovation is rapidly disrupting consumer-facing industries.
Gone are the days when consumer interaction with food was simplistic, consisting of a trip to the grocery store for ingredients to cook at home or dining out in a restaurant. Behind Blue Apron’s headlines are hundreds of food companies offering new business models through either new food products (as Blue Apron does) or tools and services for planning meals, ordering groceries, and choosing restaurants, among others. These business models further evolve how consumers choose, acquire, and interact with their food. Some even add on a layer of analysis, using the customer’s inputs or purchase history to make customized recommendations (see the figure below).
Our analysis of companies with innovative food business models shows that Blue Apron inspired the launch of many similar meal kit offerings like those from HelloFresh and Just Add Cooking. These developers cater to individuals that want the experience of a gourmet meal without the effort of planning, shopping, and prepping for the meal. However, these business models are just the beginning, as companies like Feastly and EatWith offer a unique social experience paired with product discovery to provide an innovative way to eat out. These companies advertise types of cuisine by location – be it the best of Latin flavors in San Francisco or tapas in Madrid – and consumers can select their meal of choice and join other patrons at the homes of a budding chef that will prepare the meal for the group, similar to a dinner party among friends.
While clearly most of these business model innovations will not be successful, the winners are tapping into key consumer needs like emotional relationships with products, value in the experience, and the premium of convenience – attributes that cut across nearly every consumer product category. While combining the exact mix of product and experience to make the next Uber, Blue Apron, or Dollar Shave Club is no easy task, it is clear that the winning combination can lead to billion-dollar businesses in a very short timeframe.
In 2016, no word produced more fear and excitement than blockchain (besides Trump), leaving executives in nearly every industry to ask themselves whether they now need a blockchain strategy. Blockchain started with Bitcoin, has quickly moved elsewhere in finance, and is now moving well beyond. Many industry participants believe that blockchain is as revolutionary as the internet itself, and that it can solve virtually every problem in every industry. Startups, enterprises, and every hacker with a laptop are building blockchain solutions. Several venture funds have launched dedicated solely to investing in blockchain technologies. These blockchain-dedicated funds, as well as other funds around the globe, are throwing billions of dollars at blockchain startups.
At its core, blockchain is a database technology. The revolutionary element is that data is stored in a distributed fashion, on many (often thousands) of nodes, rather than in one centralized repository. Therein lies the magic: no central authority owns and controls the data and associated infrastructure. Developers are attracted to blockchain for its inherent security, data integrity, decentralized nature, and its ability to simultaneously provide both public openness and effective anonymity. In addition to the perks of decentralization, most developing blockchain solutions provide “smart contract” functionality – this means that users can program contractual terms directly into the blockchain, where they become as immutable as the blockchain itself. Smart contracts are valuable in their ability to automate settlement upon completion of terms, as well as their ability to cut out intermediaries that charge transaction settlement fees.
Given the immediate opportunities for and threats posed to financial services organizations, finance is the leading arena for blockchain innovation; however, developers have begun applying blockchain to solve problems for many other use cases. The power industry is leading the charge, having emerged as an early non-finance test-bed. Blockchain has the potential to disrupt power for several reasons: the power value chain relies on a plethora of cumbersome trading and clearing systems to support complex markets, opening the door for a leaner distributed system that can cut out middlemen and lesson associated fees. Furthermore, units of power and energy are a strong fit for smart contracts, as they are concrete and discrete, and meters can feed directly into blockchain logic. A few forward-thinking companies like LO3 Energy and Volt Markets have already deployed blockchain as an enabler of peer-to-peer electricity trading, as well as for the issuance of renewable energy credits (RECs).
Blockchain is now making inroads into supply chain use cases, where companies like Skuchain are digitizing and automating clunky processes for international trade – in an October proof-of-concept, Skuchain digitized a letter of credit between Wells Fargo and Commonwealth Bank of Australia, which enabled Brighann Cotton to sell a cotton shipment from the United States to China. The two banks set up a smart contract on behalf of the buyer and the seller, then put a GPS unit on the physical shipment in the ocean freightliner. When the GPS unit reported that the shipment had arrived at the port in Qingdao, Skuchain’s system automated a payment transaction from Wells Fargo to Commonwealth Bank.
Healthcare is another promising industry for blockchain – Deloitte is exploring blockchain for electronic medical records, noting a pain around patients who move to new countries frequently and have trouble corralling records from years of previous medical care they’ve received. One group is experimenting with the concept of leveraging blockchain to create a more decentralized medical system, where record ownership and control moves closer to the patient, rather than the medical enterprise.
A robust blockchain value chain is assembling, full of vertical solution providers, horizontal platform developers, a handful of core infrastructure enablers, and enterprises who are developing products or contributing code to other projects. As a result, even when blockchain becomes an attractive approach, assembling the best supplier network is no easy feat.
Blockchain has the potential to be transformational, but just as with any new technology, excitement about blockchain is far ahead of utility. The opinions around blockchain range from viewing it as industry-transforming to a promising option for only a few specific use cases. The truth is somewhere in the middle: blockchain is a promising development that will provide many valuable solutions, but it is dangerous for stakeholders to take a “blockchain-first” approach, one in which they throw blockchain at everything – the right approach is to start with problems, and to apply blockchain where other methods have failed and where blockchain makes the most sense. This is a common risk whenever new technologies garner hype and press, and many venture groups and industry stakeholders will waste precious time and money getting sucked into inappropriate blockchain projects.
For more information contact Isaac Brown at Isaac.Brown@luxresearchinc.com
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
First year physics students are often shown a dramatic illustration of Galileo’s law that all objects near to earth fall at equal acceleration regardless of the object’s weight. In the experiment shown below, the projectile is fired at the precise moment the monkey releases its hold on the tree in an effort to avoid the projectile. Students are initially astonished to find that no matter the initial velocity of the projectile aimed at the monkey, it always hits its target- the monkey, albeit at different heights and times, following a downward arc.
This demonstration of kinematics is, I think, an apt metaphor for the way that a supply chain is configured to target and hit a particular market. This is especially true for mature or maturing markets where the primary concern is to always stay focused on hitting the established target market. This is problematic in today’s markets where the market (monkey) fluctuates, and especially so in declining ones.
Upstream participants in long, distributed supply chains such as chemical commodity manufacturers are at a particular disadvantage since they often reside far from market action. It is only after years of effort and experimentation, that they become exquisitely tuned to markets, only to see them begin to fall in volume and/or value. Hence the natural interests in new technologies like the industrial internet of things; anything to collect data more quickly in order to (hopefully) respond more nimbly.
However, this might not be the first, best question to ask. Does gathering more information more quickly in a market that is overall declining the best strategy for a manufacturer/supplier? There could be cost savings to be had of course, but does it better position you to respond to the vicissitudes of the market itself when there are longer and more complex cycle dynamics at play?
The challenge of course is that these same supply chain partners were critical to other markets our client serviced. Rather than risking long term and crucial relationships, one potential path suggested was to involve their partners. Chances are, they are just as consternated and anxious as well, and seeking answers. Innovation need not and indeed is not, solely found in disruption. By far, most innovation occurs in the development and application of knowhow and expertise. Our recommendation was to have our client reach out to their supply chain neighbors to discuss how together they could find a more unified and rapid solution for this mutually important market. This was, surprisingly, found to be novel to our client; they had always viewed them as mere suppliers and not sources of innovation and collaboration. Together they could approach the market in the stance of a unique solutions provider rather than just one of many vendors.
Your supply chain can be a tremendous source of innovation, if you are willing to shift your framework perspective. When was the last time you spoke to your supply chain partners about innovation?
For more information contact Kevin Pang at Kevin.Pang@luxresearchinc.com