Joerg Hellwig is Chief Digital Officer of LANXESS, a Cologne, Germany, based specialty chemicals company with annual sales of €6.8 billion. (LANXESS was spun-off from Bayer AG’s chemicals division and parts of its polymers business in 2004). Hellwig is leading LANXESS’ digital transformation initiative and all related activities, directly reporting to the CEO. His focus areas include championing new business models, which led him to create CheMondis, now an independent global online marketplace for the chemicals industry. He is also responsible for the digitalization of production, the introduction of new tools and systems throughout all value chains, the use of advanced analytics such as artificial intelligence, to increase the speed of development and sustainability and for leading the company’s cultural transformation program to support the skill and talent necessary for the transition to a digital organization. Before taking over the CDO role, Hellwig held a number of global positions at LANXESS and Bayer AG and also worked in India for Reliance Industries. He recently spoke to The Innovator about how and why LANXESS decided to build a platform business for the chemicals industry.
Q: When did LANXESS start its digital transformation?
JH: LANXESS was spun out from Bayer, which was founded 150 years ago and pretty much invented chemistry as we know it. Our goal is use new technology combined with our deep domain knowledge to improve today’s chemical business. There is no chronological order when it comes to digital transformation. We started about three years ago and decided to focus on all parts of the business at the same time. When it came to marketing and sales it was normal for us to think about offering our products to customers on our webpage but I quickly realized that this was not the right thing to do. The chemical industry is central to all other industries and customers never buy just one product from one supplier, they buy from four, five or six suppliers. If I place my products on my web shop then every customer has to go to many other web shops to be supplied, which makes it difficult for them, so they won’t do it. That is why we started thinking about building a chemical B2B marketplace that would allow customers to source everything they need via one platform. We looked at what was on the market. Options created by chemical producers were not true platforms, they were in a way only web shops. And there were platforms out there run by techies that had beautiful technology but it was obvious they had no knowledge of the chemical industry so we thought ‘why don’t we do this?’ There was a very, very early understanding that no competitor would join if the platform was not independent from us and that it would not be possible to block players from joining the platform if we wanted to create value for our customers. If you are market driven you understand that if it is good for customers, then it will be always good for you in the long run. That is why we made the decision to create CheMondis, which means the world of chemistry, as an independent platform for the industry
Q: How did CheMondis get started?
JH: The first thing CheMondis did was sign a contract with a technology company, writing the first codes for the platform. I had a lot of strange interviews with these coders while trying to explain our industry to them. I have been in this industry for decades and I thought the techies were asking some very stupid questions. Ten months later I began to understand that this digital way of thinking was a big advantage. It was good we did not copy our analog way of doing business. We created a new digital platform and added all the domain knowledge we had into this and created CheMondis, a company, separate from LANXESS. CheMondis made sure to comply 100% with cartel rules and regulations in Germany and the EU and also consulted a specialty law firm to get their opinion about future regulations for the platform business. We ended up with a set-up which is more strict than what the existing laws require. I stepped down and hired a managing director from the outside to replace me. Today CheMondis has roughly 40 employees. Only two of them had a history with LANXESS. They had the courage to leave LANXESS because they wanted to be part of this new company and were convinced about this new business model. Everybody else came from the outside. CheMondis hired chemists who have experience working in chemical factories or in distribution, digital marketing people who worked for other B2B platforms and techies, including UX designers. It is a very diverse group of people from 15 different countries. The working language is mostly English, and they have hired a lot of women which is still pretty unusual for a tech company in Germany. It is a good sign that the world is becoming more diverse and we are proud to be a driving part of it.
Q: How do you market the platform?
JH: My managing director and his people started using digital tech and social media to promote the platform and they also used traditional ways of doing business like calling people, going to trade shows and visiting potential clients. This increased interest but at first none of the players in the chemical industry would put their entire product line on our platform. Many decided to test it with a product or a small product line or with some leftover stock. They told us they were testing other platforms at the same time so there was an intermediate period during which we had a lot of registered companies doing a limited amount of business with us. After a while suppliers started telling us that they were convinced that our platform was the best. At the same time there was an immediate interest from our customers. They told us ‘this is something we have been waiting for.’ It is also a sign of the demographic changes in the industry. The new heads of procurement at chemical companies are in their 20s and don’t even know what a fax machine is so there was a pull effect with customers asking suppliers ‘would you please put your products on this new platform?’ The suppliers now realize that the platform is a connector that allows business to take place 24/7, offering big advantages, especially in the efficiency of handling transactional data. By the end of February 1,500 companies had registered on the platform, there are roughly 46,000 products for sale and we have had over 8000 transactions via the platform since we started tracking sales in November 2018. Each order is usually in the four, five or six digits so in 2019 we had a turnover of more than €200 million.
Q: In what ways do the methods of working at CheMondis differ from that of LANXESS?
JH: CheMondis works in sprints and scrums. There are stickers on every wall that ask ‘how are we doing against our KPIs?’ They have very agile working methodologies, which requires them to be very disciplined. The MD and his management team do a tremendous job in guiding the company, driving technology and deciding ‘this is the priority for the next 24 hours and these are the priorities for the next five days.’ They work on improving the platform every day.
Q: LANXESS is a publicly traded company. Given shareholder pressure for results how difficult was it to convince the C-Suite to do something completely new that -at least at first -could not be measured with traditional KPIs?
JH: It all starts with the CEO. The CEO has to have the vision and courage and drive to be able to say ‘we are successful right now but we strongly believe the world is changing so to be able to stay alive in the new world we have to invest into something without knowing for sure whether it will pay off.’ Our CEO was completely behind it because he understood that CheMondis is disruptive and a great tool for change. It reflects the future of the chemical industry and if we want to be successful, we have to start changing now. Not everyone in the company was convinced. Some said ‘why should I go on a platform? I already have strong relationships with my customers.’ Many said, ‘show it to me, convince me that it works.’ It has been push and pull. There were small successes month by month and now business managers are convinced. No one is in a position to say ‘I will not do this’ but we will have a hybrid system for a while in which we have business on the platform but we also continue to take orders by fax machine. More and more customers are changing and doing business on the platform, so we have an advantage as we were the first to have understood this and change our processes internally to be more data centric and digital.
Q: Many large corporates are considering adopting platform business models. How would you advise them?
JH: Use your domain knowledge and make sure your platform is independent from your company. Independence is very important, otherwise you are just pushing the platform to optimize your own business and not to bring value to the industry. Use technology, be utterly curious about it! There is so much technology out there. Don’t always be a guinea pig for something new but, on the other hand, have the courage to test things that are fairly new because the digital part of our world moves fast. Speed requires courage. I don’t like the phrase ‘failure culture.’ Nobody likes to fail. Internally we have a saying. ‘You never fail, you either succeed or you learn.’ In the tech world every code can be rewritten or torn down and rebuilt in 24 hours. We are proud that CheMondis is number one already in the Western world in its category but we are conscious that if we don’t continuously improve someone else will take over as number one so there needs to be a constant push to change and to optimize. This is what the tech industry and the digital part of the world have taught us. Finally, always remember: You are on a huge learning journey when starting [a platform business model] and therefore you need to get out of your usual corporate comfort zone every day.
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