INSIGHT: DSM developing the innovation drive

06 October 2006 17:08  [Source: ICIS news]

By John Baker

DSMLONDON (ICIS news)--Innovation is a key priority in the European chemicals sector, spurred on by increasing global competition and stimulus from regulators seeking to boost the EU’s under-par performance. But innovation is not easy and it takes a concerted and strategic effort to boost performance.

DSM last year bit the bullet, as part of its Vision 2010 strategy, and is increasing R&D spend and boosting its innovation culture to make itself an ‘intrinsically innovative’ company.

The Vision 2010 strategy is intended to help DSM build on its strengths, focusing on three main areas: market-driven growth and innovation; increased presence in emerging economies; and operational excellence. Extra resources are being put into R&D and innovation to improve practices and capabilities.

An 'innovation center' has been established under the leadership of Rob van Leen as chief innovation officer, and has been in operation since April.

It brings together several units, including DSM’s corporate technology management, its intellectual property, licensing and venturing activities and its business incubator, which focuses on new emerging businesses.

The centre is also home to DSM’s four emerging business areas (EBAs): white biotechnology, speciality packaging, personal nutrition and biomedical materials.

Van Leen explains that the centre “will support the achievement of... an extended technology base, an improved innovation process (by 25-30%), an innovative culture and the establishment of long-term growth platforms - the EBAs.”

DSM will step up its venturing and technology licensing activities - both inwards and outwards - and take a more agile approach to intellectual property, to maximise value creation, he says.

The initiative has made a good start and DSM is on track to achieve its target of €1bn/year ($1.3bn) of sales from innovative products by 2010.

Commenting on the €1bn target, van Leen explains that the performance materials and nutrition divisions of DSM will each provide an added €400m/year of sales by 2010, with the balance coming from pharma, industrial chemicals and the first contributions from the EBAs.

Van Leen, who joined DSM in 1987, adds that the €1bn target was ambitious.

“From the historical track record, it can be deduced that €500-600m additional sales would be generated if the company continued doing what it was doing. This implies a new and stretched goal, he says.” The added sales will also generate “above average profits”, he asserts.

DSM calculates it will need 10 to 20 successful innovations in nutrition and 50 such products in performance materials to reach the €1bn goal. The EBAs are not expected to contribute much to sales until post-2010.

“The whole idea of the innovation drive is to become an even more intrinsically innovative company”, he says.

DSM will lift its R&D spend by €30m, rising to €70m, a year over the next five years to support the added effort. Currently R&D is running at €290m, about 4% of sales. It will also recruit 250 new personnel to support the innovation effort.

Another element in the innovation boost is a more aggressive acquisition strategy. DSM intends to spend 15% of capex - €75m/year - on new business development to accelerate growth and help fill the innovation pipeline faster.

Recently, the company bought Crina, a pioneer in the development of plant extracts for use as feed additives. Just last week it paid $18m for the remainders of Swedish start-up Lipid Technologies Provider it did not already own. It first invested in LTP in 2003. Van Leen says that more M&A opportunities are currently being explored.

DSM in not alone in boosting its innovation potential with such a systematic approach. Dow Corning in the US and Degussa and BASF in Europe also spring to mind. And it is clear that innovation is not just about putting more bucks into R&D to get a bigger bang.

Successful innovation is about corporate culture and taking more risks with developments; being prepared to back start up developments and to buy in technology when speed is of the essence.

DSM has made the strategic commitment – and set a measurable target. That 2010 deadline is not that far away.

By: John Baker
+44 20 8652 3214

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