Germany’s Covestro is well-known for its focus on combining innovation and sustainability, with new products such as polyols produced from carbon dioxide demonstrating that the approach is successfully paying off.
But the company has now broadened its innovation strategy from a simple focus on new product development. Its approach now includes a focus on new business models and digitisation as well as implementing a philosophy that includes every employee as an innovator. Looking back at the foundations of Covestro’s business in the 1950s and 1960s shows that it was based on research and development of new molecules, manufacturing processes and applications.
Also, according to Hermann Bach, head of innovation Management and Commercial Services of Covestro, that is still the core and foundation of the company’s innovation strategy.
He says that effectiveness and efficiency of research and development (R&D) is about innovation inspired by sustainability, aligning with the . “This will give us a more sustainable business and it is also where the growth and margin opportunities are.”
He highlights the example of the general energy market which grows at the same rate as GDP. However renewables, such as windmills, grow at far higher rates. Covestro is developing polyurethane (PU) resins for windmills with prototypes being evaluated for wind blades. Also of note is the lighting market which grows with GDP, in contrast to the low-energy LED sector which performs much more strongly. Covestro is working on encapsulating materials from polycarbonate (PC) which work as heat sinks in the light fittings.
“Aligning R&D with UN development goals makes sense for growth and profitability as well as supporting our environmental and societal goals,” says Bach.
R&D spend is around €350m/year, including customer advisory, and is focussed on core areas of PU, aromatics and aliphatics, as well as PC. The aim is to improve performance in current applications and find new ones with a focus on sustainability as well as high margins and profitability.
Covestro’s focus on looking at CO2 as a building block for creating chemicals with a much better carbon footprint has yielded results. It is now producing polyols for flexible foam with 20% CO2 content. Other projects have already achieved contents of over 40% in the lab. Potential products include precursors for rigid foam and elastomers. The company is also willing to license the technology. Bach adds: “We are looking at bio-sourced raw materials, for example our lab team has found a way to make bio-aniline at good economics and with a better footprint. We are also looking at lightweight composite materials. We have just launched some carbon fibre reinforced composites out of PC.”
Covestro has implemented a new strategy, consistent across all regions, to speed up innovation by reducing cycle times in product and application development.
Three years ago the company introduced the uniform Stage Gate innovation process in all regions and businesses. Ideas move swiftly through a cycle of scoping, business case, development, pre-market and market-launch. The process is market and marketing-led. “Now we can compare all Covestro projects around the world because they are done in the same way. We screen out projects we do not think serve a market need way earlier than before,” says Bach. “And we are checking things which can delay market launches much earlier. It is a rigorous process to reduce cycle times in R&D.”
MORE THAN JUST R&D
A second theme for Covestro is that innovation is about more than classic R&D. The board believes there is a lot of potential in non-R&D innovation and is investing a lot in digitisation.
The company is spending heavily to digitise as many of its internal processes as possible. It sees a lot of scope for improving production efficiency through predictive maintenance. Just one major production facility might have 5,000 sensors but today only a fraction of the data they produce is being analysed effectively. “If we can use more of this data and advanced analytics we should be able to widen operating windows and reduce downtime,” says Bach.
Digitisation will play a greater role in manufacturing, supply chain processes as well as financial transactions. Significant investment in improving customer digital experience is taking place with upgrades to web, mobile, search, and customer service interactions.
Covestro is taking lessons from the business-to-consumer sector where digital marketplaces like Amazon are offering convenient new ways of marketing and purchasing. In April it signed up with China’s Alibaba B2B platform.
NEW E-COMMERCE PLATFORM
During 2018 Covestro will launch a new e-commerce platform for chemicals. This will be for customers who want to purchase in a fully digital way for products they know very well and where there is no need for technical service. The plan is to also offer the platform to other chemical companies so it becomes a proper digital marketplace.
Those of us who have been around the chemical industry since the 2000s will remember the first wave of online chemicals marketplaces of the dotcom boom, most of which were not a great success. Perhaps those early innovators were too early for the sluggish business-to-business sector. According to Bach: “We are now more comfortable with doing business digitally and that is a major behavioural change. When I think about China and Asia where markets are quite fragmented – I think e-commerce platforms make a lot of sense.”
Covestro is developing the platform with its customers who say they are interested in it. “We are experimenting with this: if it can be done we want to do it,” adds Bach.
The third major theme of Covestro’s innovation strategy is that everyone is an innovator everywhere, every time. Bach wants to foster this way of thinking and to engage with all employees.
“Innovation is a bottom up process, not top down. You can let innovation happen by providing the right resources, environment and culture, but you cannot make it happen.”
Covestro has started to celebrate innovation more, with prizes in all regions and all parts of the business. They are focussed on everyone – from someone in a lab or on a factory floor to people embedded in a business process.
“We are driving the idea that we are 16,000 innovators: innovation is at the heart of this company and it is also part of everyone’s job,” says Bach.
START-UP CHALLENGE, IDEATION
Last year Covestro launched its Start-up Challenge with the winners being revealed in early 2018. An ideation platform allows people to pose a challenge to the entire Covestro community. It is also training senior management on innovation leadership.
“Failure should be a source of learning and not something to be punished. You never know where a good idea will come from,” insists Bach.
The winning team of Covestro’s Start-Up Challenge
Meanwhile, February 2018 saw Covestro announce the winners of its first innovation Start-Up Challenge.
The competition, which began in July 2017, was open to all employees who were encouraged to enter ideas which then underwent web-based votes and screening by managers who picked the top 25 ideas. Owners of these suggestions then had to form teams consisting a CEO, CFO, chief technology officer and chief marketing officer.
The six winning teams then attended a three-day boot camp to prepare them for presenting their concepts to Covestro’s board of management. The winning team (pictured) now gets a budget of €1m plus a year, full time, to develop and test the concept. If successful, it will receive funding to take it through the next steps towards commercialisation.
According to innovation excellence manager Lorenz Kramer, who helped organise the challenge: “Feedback was that people valued the transparency of the process. The people who pitched to the board and didn’t win still valued the process and said they will aim to improve next time round.”
Bach adds: “This is how venture capitalists work – they provide money and time to advance the idea to the next milestone. After the year is up we will check if the idea is still promising enough and if key hypotheses have been tested.”
The process will repeat late this year or early next.