15 April 2011 16:27 [Source: ICB]
Chemical companies are adopting new strategies to accelerate the commercialization of innovation, bringing it to the core of their businesses
Many business organizations still see innovation as pure research and development (R&D) and tuck their innovation departments away on the periphery of the organisation.
R&D can be slow and detached from the commercial side of the business - a black hole for substantial amounts of money, and yielding few results that boost company revenues and profits.
The latest thinking on innovation, however, suggests that it should become a much higher profile, core part of business operation. According to some thinkers on the subject, innovation will be the only true differentiator between businesses as the globalized world reduces or eliminates the current variations in availability of expertise and resources.
According to Stephan Scholtissek, global managing director for growth and strategy in US-headquartered Accenture's global Resources Operating Group: "In a multi-polar world [where regions play to their strengths and compete equally] every company on the planet - for more or less the same cost - can acquire or attract customers, capital, employees, natural resources, energy, and even patents or inventions.
"In this situation, the only thing which differentiates a company is how you bring an invention to market and this is, by definition, an innovation. The market success path of the innovation makes the difference.
"This is developing today, and we see it happening in 10-15 years."
Scholtissek believes CEOs should recognize that the core of the company is no longer the existing businesses, but the innovations. "Innovators are today seen as the troublemakers; nobody wants them. Everything is laid on for the standard business to ensure it is working properly. All the effort goes into this. The most powerful board members are all working on the day-to-day business."
Companies must put driving commercial success from innovation on the board agenda as a CEO topic, rather than for someone in the research department. Scholtissek, in a new book on innovation, proposes that companies need to radically reorganize and refocus their entire business to achieve this.
"You should run your entire company as a portfolio of innovations, rather than a portfolio of divisions or functions. Look at Apple. Within years they have launched three to four successful innovations."
Scholtissek claims that huge amounts of money and time are wasted in the R&D and commercialization pipeline through inefficient organization and lack of focus.
He highlights successful examples of innovative companies from the chemical industry: Germany's Evonik and US-based Dow Corning.
Evonik has set aside a brownfield site in Marl, Germany, for what he claims is a flexible, fast approach to innovation through "Science to Business Units." A research lab is built, and if the project seems promising it is upscaled to a development and then pilot production unit.
"If it goes wrong, they scrap the entire thing and start again. You don't need a big, structured site, which is difficult to change; you have a much more project-like approach. These centers are a way to physically build this innovation process."
Dow Corning's Xiameter brand is an example of a successful business service innovation, he says, adding: "A product innovation can take many years in the chemicals industry. But service, process or business model innovations can be done significantly quickly, within a year."
Xiameter is a low-cost, no-frills, web-based method of purchasing standard silicones. Dow Corning introduced Xiameter as a way of serving customers that are not looking for a more expensive, premium, service-based approach to sales. Dow Corning planned and implemented this new business model within a year and won significant market share in a downturn, claims Scholtissek.
CHECKLIST FOR SUCCESS
AKZONOBEL OPENS UP
Dutch Coatings group AkzoNobel has pushed into process innovation, as well as products. It is testing a new manufacturing technology that is particularly suited to emerging markets such as China.
Rather than batch manufacturing, an in-line and high-speed mixing system shortens supply chains and reduces the need for tying up working capital in warehouse stockpiles.
The company's chief innovation officer, board member Graeme Armstrong, is a fan of open innovation but cautions that partnerships must be carefully tailored to succeed.
The company has a director of open innovation and has tie-ups with suppliers such as Germany-based BASF. In the coming year it wants to connect with three significant universities in the UK and US, subject to board approval.
This would be in high-end areas such as corrosion resistance, according to Armstrong.
"It's a waste of time throwing money at a university and hoping that something happens. I aim to set high goals and work side by side with academics to reach those goals. We like to say 'We'd like to do something - who is up to meeting this challenge and who has the guts to have a go?'
"Then you can get great collaborations. We're very open to the technologies that can be suggested to us."
The company is working with US-headquartered innovation consultancy NineSigma on its open innovation strategy.
Understanding customer needs is not a straightforward process, says Armstrong: "If you ask customers what they want, they'll say 'I want what you sell now, but cheaper.'
"We want to get beyond the immediate to deeper expressions of need and opportunity. We're starting with it, but I want to go so much deeper.
"Other industries are more advanced at this than the coatings sector."
DSM AIMS TO ACCELERATE COMMERCIALIZATION
Dutch materials group DSM aims to generate 20% of group turnover from innovation by 2015, up from 14% now. This is determined by measuring anything that has been generated by innovation - a new application or business model - over the previous five years. It surpassed a target of €1bn ($1.45bn) in sales from innovation by 2010, despite the crisis. In the past five years it has doubled the speed of innovation, from around 25 product launches per year when it started to 60 now.
DSM's chief innovation officer, Rob van Leen, says: "Five years ago, we launched our strategy making innovation more center stage in our corporate strategy, to make it more market-driven and to increase the speed of innovation.
"Now we want to take this to the next level in line with our four strategic pillars: high-growth economies, innovation, sustainability, and partnerships and acquisitions."
DSM's innovation-based Emerging Business Areas have been analayzed, with two being taken forward: white biotechnology and biomedical, with a target of €1bn in sales within 10 years. Personalized nutrition and specialty packaging will be put into partnerships, joint ventures or sold.
DSM is setting up new business development innovation centers, rather than R&D centers, in India and China this year. Each center will have its own budget, which can be spent on R&D sourced locally initially, or from within DSM. Key topics for these centers have not yet been defined, but these should be decided by the end of the year.Van Leen says: "We want to increase the speed of innovation further, so every two years we do an 'innovation diagnostic' which takes a look at about nine components of the innovation process. These include idea generation, project, portfolio and talent management, external orientation, and product launch. We have a small group of experts who help our top projects succeed."
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