Innovation: Key To Chemical Industry Success

Stefan Guertzgen

The chemical industry is essential to our world economy, and innovation sits at the heart of it. New technologies have paved the way for future growth and are becoming essential to the success of chemical businesses. These innovations, which span from research and development to business processes, customer relationships, and knowledge, have led to cost reductions and increased productivity, making the chemical industry a $797 billion enterprise that supports nearly 36% of the U.S. GDP.

When evaluating chemical companies today, we look at more than just annual sales. We dive deeper, recognizing the importance of customer relationships, knowledge and intangible assets, and unique skills or knowledge. We are finding that intangible assets such as patents, employee knowledge, brands, and data are increasingly defining what value means for chemical companies, and business strategies are in turn focusing on how to innovate to make these areas even more successful.

The two main categories of research are basic and applied. Basic research refers to an original investigation for the advancement of scientific knowledge, whereas applied research usually uses the knowledge from basic research to accomplish a specific objective.

Investment in research and development involves allocating resources and can involve a high degree of risk, because there is no guarantee of return on the investment. Successful innovations, however, could have a 20-30% return. R&D spending usually includes research in the sciences, engineering, design and development, and prototype processes and products, which are the driving force of continued competitiveness in the business of chemistry. Today, most chemical companies allocate 2-3% of their sales towards research and development.

Successful innovations from the research and development standpoint usually take into account time to market and time to value, both of which are critical in today’s world of rapid product commoditization and increasing competition from emerging countries and markets. Companies need to reimagine their objectives and start considering new business models, focusing more on outcomes and services than on products.

In addition, companies should reimagine their business processes. They should consider leveraging open innovation platforms and crowd-sourcing new ideas and concepts. They should look at simulating new product and formulation properties instead of running comprehensive and time-consuming lab trials. Furthermore, existing intellectual property should be repurposed and sustainability, compliance, and quality-assurance aspects should be embedded into each and every process step – from product or service idea to product end-of-life. Keywords or concepts here include cradle-to-cradle and circular economy. Also, a smooth handover of recipes to manufacturing, and integration of pilot production campaigns into S&OP, should be part of the overall approach to faster innovation.

The bottom line is that innovation and learning are critical to the success of any chemical firm. To achieve peak success, you need a transformative IT and business process platform that provides research and development departments with the necessary agility and speed to develop innovative products, solutions, and services that stay ahead of competition while still controlling costs. With this strategy, companies can create additional value for shareholders.

Innovation has become a long-term driver of future financial performance and value creation, and it can provide enormous competitive advantage for companies. Because innovation is at the heart of the chemical industry, it has become crucial to growth and achievement. Today, investment in research and development is a necessity rather than an option.

Have you started looking into the value digital transformation can bring to your company? If not, start your journey now and establish the right platform and roadmap for transition.

About Stefan Guertzgen

Dr. Stefan Guertzgen is the Global Director of Industry Solution Marketing for Chemicals at SAP. He is responsible for driving Industry Thought Leadership, Positioning & Messaging and strategic Portfolio Decisions for Chemicals.