Cracking the labor productivity conundrum in the chemical industry

In brief

• Chemical industry labor productivity has stalled because new tech investments haven't been matched with updated approaches to labor.
  
  
• Flat productivity means companies lack the talent to meet rising sustainability-related demand. Talent shortages will compound this challenge.
  
  
• To drive future growth, companies must reinvent roles and reshape the workforce to adapt to new technologies.

Green economy, golden opportunity

As the world transitions to a low-carbon economy, chemical companies face a golden opportunity to drive growth: Demand for sustainability-related products is predicted to increase from $340 billion in 2023 to $570 billion by 2028.ⁱ This represents an increase of approximately 70%, with a compound annual growth rate (CAGR) of 11%.

The surge in demand encompasses both sustainability-enabling products, such as materials for wind turbines and solar panels, and products involving sustainable manufacturing, such as bio-based products or goods made from recycled materials.ⁱⁱ These products play a role in helping chemical companies and their customers meet sustainability commitments, net-zero targets and the UN Development Goals.

Meanwhile, demand for traditional products is also set to grow by more than $500 billion by 2028, with a CAGR of nearly 3%.ⁱⁱⁱ

The challenge: stagnant labor productivity

To capitalize on this growth opportunity, however, chemical companies must first overcome a significant hurdle: Labor productivity, measured as revenue per full-time equivalent (FTE), has stalled.

Chemical companies’ productivity has remained flat for more than a decade, which essentially means that they are unable to meet additional demand and increase revenue as they lack the talent for growth.

Across the industry, revenue per FTE has improved by less than 1% per year during the last 15 years^iv. This lackluster level of labor productivity is surprising, given that chemical companies have invested up to 6% of annual revenues^v in new plants, better equipment, digital technologies and continuous improvement.

Across 15 years, this substantial investment has provided a significant upgrade of chemical assets and plants. However, despite these improvements, labor productivity has remained disappointingly low.

Chemical industry trails other asset-intensive sectors

Meanwhile, other asset-intensive industries have made progress on the productivity front.

The paper, steel and motor vehicle industries have achieved roughly three to four times higher labor productivity gains compared to the chemical industry.^vi And other sectors have achieved even greater improvements. Frontrunners such as the cement, utilities, mining, and oil and gas industries have attained five to six times greater labor productivity improvements than the chemical industry.^vii

Forecasted talent shortages create a perfect storm

Looking ahead, stagnant labor productivity is likely to become an even bigger challenge for chemical companies as two pressing issues converge.

First, chemical companies will be swept by waves of retirement, as around 30% of employees in the industry are 50 years of age or more and due to retire within the next decade or so.^viii

Second, there are shortages at the other end of the talent supply chain, as student enrollment declines in key disciplines for the chemical industry such as engineering and business. For example, looking at historically important talent pools for the chemical industry, between 2013-2022, engineering degrees awarded dropped 12% in the US^ix and engineering enrollment dropped 37% in India.^x The decrease means chemical companies will face challenges recruiting the skills they need and replenishing the retiring workforce.

How to crack the labor productivity conundrum?

Other asset-intensive industries have demonstrated that capital expenditures can be converted into greater labor productivity, so what do chemical companies need to do differently to achieve the same or even better results?

The reality is, even though chemical companies have invested up to 6% of their annual revenues in new technologies and equipment,^xi approaches to labor have remained largely unchanged. Consequently, new plants operate in much the same manner as their older counterparts, with minimal improvements in automation and efficiency. Likewise, in support services and corporate functions, there’s little indication that investments in digitization, automation or robotics have enhanced labor productivity.

Ultimately, technology alone does not automatically lead to greater labor productivity. In parallel, companies need to reinvent roles and reshape the workforce to adapt to tech advancements. Furthermore, chemical companies must reconsider their recruitment and training strategies to accommodate rising demand for new skill sets in areas such as gen AI, data science, engineering and other relevant fields. This comprehensive approach is crucial for boosting productivity and mitigating the impact of the retirement wave.

The good news is that chemical companies already have the technology they need to increase labor productivity and address talent challenges.

Looking ahead: the impact of new technologies

Technology is advancing at an exponential rate, providing new opportunities. However, most companies struggle to effectively implement and absorb these changes. As chemical companies explore new technologies—including AI, automation and gen AI—they must continue to reshape roles, skills and organizational structures to fully benefit from them.

For example, companies can provide training and restructure work to allow gen AI to take on the routine tasks that largely occupy the chemical industry’s workforce today. This shift can enable employees to focus on more creative and meaningful work.

At a broader level, gen AI has the potential to revolutionize work and workflows across the entire value chain. Our research indicates that gen AI will affect about 31% of working hours in the chemical industry through automation or augmentation.^xii This large potential is likely why 97% of leaders in the chemical industry believe that gen AI will positively affect their company’s market share in the next three years.^xiii

A critical turning point

As experienced employees retire and the talent pool shrinks, it won’t be possible for chemical companies with stagnant labor productivity to thrive—and especially to capitalize on rising sustainability-related demand. The bottom line is that realizing labor productivity potential will be decisive for business continuity and future growth.

Organizations can ill afford to continue relying heavily on transactional and manual work. It’s time for chemical companies to seriously address labor productivity to capture the advantages of current and future technologies. From the board-level down, prioritizing reinventing roles and reshaping the workforce to adapt to technological advancements will be essential to driving growth and prospering in the next chapter of the chemical industry.

Sources

_{ⁱ Accenture Research analysis of data from market reports, Oxford Economics. Note: Chemical market based on Oxford Economics chemical sales in real US$: 2023 US$4.4T, 2028 US$5.2T, difference US$800B}

_{ⁱⁱ Accenture, “Where’s the money in sustainability for chemical companies?”}

_{ⁱⁱⁱ Accenture Research analysis of data from market reports, Oxford Economics. Note: Chemical market based on Oxford Economics chemical sales in real US$: 2023 US$4.4T, 2028 US$5.2T, difference US$800B}

_{^iv Accenture Research analysis of 79 companies publishing full 15-year data, Capital IQ, revenue as reported in local currency, excludes fertilizers}

_{^v Ibid.}

_{^vi Accenture Research analysis of 257 companies publishing full 15-year data, Capital IQ, revenue as reported in local currency}

_{^vii Ibid.}

_{^viii Accenture Research analysis based on chemical company reports and news releases}

_{^ix American Society for Engineering Education (ASEE)}

_{^x All India Survey on Higher Education (AISHE) conducted by the Department of Higher Education in India}

_{^xi Accenture Research analysis of 79 companies publishing full 15-year data, Capital IQ, revenue and CAPEX as reported in local currency, excludes fertilizers}

_{^xii Accenture, “Work, workforce, workers: Reinvented in the age of generative AI”, chemicals cut}

_{^xiii Ibid.}

_{^xiv Ibid.}

_{^xv Accenture, “Reinvention in the age of generative AI”}