Page 2: Creating a strategy
Modern business organisations live or die according to the strategies they formulate. Strategies are the frameworks which define the direction a company is moving in. Strategy is concerned with setting out the core products and services that form the heart of the organisation, the markets the organisation will operate in and the key resources required to put strategy into practice.
Since its foundation in 1926, ICI had been a major producer of commodity chemicals. In the past 25 years, this market has become increasingly difficult to operate in because competition is fierce, prices are subject to wide cyclical swings and profits have been reduced. In recent years, prices have become global and advantage has passed to American companies with large home markets and low energy costs, and Asian producers with growing markets and less pressure for large profits. When the economy is booming, it is possible to sell commodity chemicals profitably. However, in a recession, losses are almost a certainty. Successive Chairmen of ICI have each spent time considering how best to restructure the organisation. A major problem was that as soon as an area of competitive strength was identified, rivals quickly moved into this market and depressed prices for everybody (a classic feature of competitive markets). This occurred in titanium dioxide, explosives and advanced materials for use in high performance cars and aircraft - a series of products which ICI saw as winners but for which the competition moved in very quickly.
Another problem for ICI was that it had a relatively small home market to rely on - in comparison with rival US and German companies. If you have a very large home market, then you can make good use of economies of scale to give you a competitive edge in selling in world markets. Unfortunately however, Britain accounts for just 2% of world chemicals demand. The solution was to carve out a position of supremacy in high value added sensory perception products. This is where ICI was to place its resources in the late 1990s.
ICI aimed to change its cost base and achieve real productivity improvements. At the same time, it wanted to make the company more international (i.e. less concentrated on its traditional markets with countries that were formerly part of the British Empire). In business terms, ICI was seeking to reposition the group - restoring and building on its respected science base, establishing a powerful position in all the key growth markets and following a customer focused approach, capable of creating sustainable value.