Former and New Chief Strategy Officers (CSOs) x Analyst

In order to propose such solutions, I think it is necessary to identify not only apparent issues but also the latent issues of your customers. For example, the Mitsui Chemicals Group has standardized materials such as ADMER™ and TAFMER™, which can be used as raw materials in resin compounds to provide a variety of solutions. I believe that such a wide range of solutions will create high value added. Providing such diverse solutions requires a deep understanding of your own products, customer needs, and social challenges. Digital transformation (DX), which is part of the Basic Strategy, also seems to be a major tool to this end. How will you accelerate your efforts for issue identification going forward?

Since we are a chemical materials manufacturer, there is no other way but to start with materials to identify our customers’ issues. So we should be able to find a way to solve issues through conversation with the customers while actually showing them our materials. For this to happen, it is important to thoroughly share information throughout the company. Even if we as the Group have a product that can solve a customer’s problem, we will not be able to effectively propose it to the customer if the employee who makes the proposal only understands the products he or she is responsible for. Therefore, our next step is to break down the barriers between the sectors in order to make proposals that appropriately showcase all of our Group’s products and technologies at the right place and time.
One of the initiatives to accelerate this shift is our plan to open a co-creation space called “Creation Palette YAE™” in October 2024. We will explain the Group’s history and set up a display of all kinds of products in this space where our employees and R&D staff members communicate directly with customers to explain our products. This will strengthen not only our employees’ understanding of the products but also their ability to listen to customers’ issues and make proposals.
In addition, we have been holding a business contest since fiscal 2023, in which our Group’s affiliates participate. This is an opportunity to explore needs and issues on a global scale while leveraging regional-specific knowledge from our affiliates as well as feedback from our customers. It also serves as a platform to improve the sense of unity within the Group while generating many business ideas.

I have high expectations for your various ongoing initiatives to build solutions-based business models. The next challenge will be to consistently generate reasonable profits from these efforts. Just because you have many ideas does not mean that you have gained trust from society, unless you are able to generate appropriate profits. When a business does not have a sufficient level of ROIC, it means that it has invested in excessive management resources. In other words, I believe that as long as you have a business that has gained trust from society, you will naturally be able to achieve a sound ROIC. How will the Mitsui Chemicals Group work on developing a “profit-making mechanics” going forward?

As the Business Sector President of the Basic & Green Materials Business Sector, I often feel very concerned about the topic you have brought up. Our key initiative going forward will be in green chemicals. The number of both projects and products have been growing steadily, including the introduction of bio-based hydrocarbons. However, it will take some time before green chemicals become profitable. It can be said that we are currently in a transitional phase, so from a long-term perspective, it is more important to take on challenges in various directions and have customers recognize our achievements. To this end, we will continue to make investments where necessary.

I agree with Mr. Yamada that the value of social contribution of our products can be measured by profits they generate. If our product’s value is recognized by customers, it will naturally make profits. In existing businesses, it is essential to set appropriate prices that are commensurate with the value perceived by customers. However, we have not yet fully achieved this. In terms of new businesses, we are currently introducing a system to map the market size and profit ratios and evaluate the business feasibility of ideas generated at NBIC. Moving forward, we believe that this system can be expanded to apply to development undertaken by each business sector.
In terms of management systems, the business sectors perform valuation of each of their businesses annually to promote thorough ROIC management.

It is wonderful that you have adopted ROIC as a performance indicator because return on sales (ROS) alone is not a perfect measure in that it does not reflect the total asset turnover ratio. In order to improve ROIC, it is important to know how to best use the two polar-opposite methods: either increasing the value added of products and raising prices to a level that exceeds total costs including the cost of capital, or decreasing total costs through a mass production approach.
As for contributing to solving social challenges, I believe that ROIC will naturally exceed WACC if your solutions are truly sustainable. Otherwise, it means that the solution is not suitable for commercialization, or perhaps the solution will not develop into a business because its value is not yet recognized by society. From this standpoint, how do you sort out businesses and allocate management resources to those with higher viability?

What is important in classifying businesses based on ROIC is to spread such ideas not only among the management but also among each and every employee. By breaking down the ROIC tree to understand how day-to-day operations are ultimately linked to our corporate value, we can make more accurate evaluations and judgments. Going forward, we will be taking two approaches to ROIC analysis: one from a management perspective and the other from a more grassroots perspective.
By adopting such a grassroots approach in collaboration with the Human Resources Division, we expect that highly engaged employees will positively impact those around them, which will help achieve the ideal expanded reproduction of education.

I see you are also catalyzing change in your human resource strategy—how fitting for Mitsui Chemicals, a company known for its excellence in catalysts!

As Mr. Izawa mentioned, it is very important to formulate strategies based on your strengths and areas of expertise. With this in mind, I would like to ask frankly: Is the Basic & Green Materials business really a strength of the Mitsui Chemicals Group, and is it worth pursuing?

The Basic & Green Materials business has two fields: basic materials produced by crackers, and derivatives. The reorganization of the basic materials field is currently a topic of discussion within the industry. In our Group, we are narrowing down necessary basic materials by working backwards from derivatives, while also collaborating with other companies to reduce costs.
For derivatives, we are currently restructuring the business by addressing economic security issues while using the equity spread as an indicator and focusing on product lines that surely exceed this benchmark.

Crackers are mainly used to produce basic materials, which are commodity chemicals, but for their derivatives, in some cases, certain brands are essential products for customers that cannot be substituted. Going forward, while keeping a close eye on such products, the industry will create collaborative communities to operate crackers, whereas each company will continue to supply derivatives by leveraging their own strengths. Our crackers are the culmination of technological advancement thanks to our company’s significant history, so we must be careful not to disrupt this chain of technology, which includes our human resources.

As we go more asset-light, we are often made aware of new value in our products through dialogue with our customers. When new value is recognized by them, it is necessary to reflect it in our pricing. Going forward, we will need to be bolder in our decision-making in order to optimize the entire business. This will involve classification of businesses based on ROIC and the implementation of appropriate pricing policies.

To facilitate such decision-making, I think you need to further refine the risk management system. What is your opinion on that?

You are right, Mr. Yamada. That is why we strengthened our risk management system in 2023 in order to exhaustively identify risks in terms of both threats and opportunities on a Group-wide basis. Specifically, we established the Risk Management Committee and appointed each officer in charge as a risk owner, thereby creating a bottom-up structure to identify risks. Until recently, risks had been viewed as the responsibility of management and ESG-related divisions, and considered tacit knowledge among business sectors, but going forward, it will be necessary for the whole Group, including frontline staff, to take ownership of risks, list them out, and manage them as explicit knowledge. As the new CSO, I take it as my responsibility to involve the entire Group in this initiative.