Innovation has always been important to chemical companies, but a recent Accenture report says it will be even more critical in the coming years. Why is that?
There are a number of “megatrends” that are reshaping society and business, and these will drive the need for greater innovation in the chemical industry. For example, the scarcity of some resources and a growing interest in sustainability will increase demand for renewable energy sources and electronic vehicles, creating opportunities for new chemical products. Growing populations and increasing affluence in emerging markets will drive a need for things such as longer shelf-life packaging and new food-preservation technologies. The list goes on.
In a changing world, innovation is increasingly important to business in general, and the chemical industry’s products are a big enabler of innovation across industries. So the need for innovation is not only growing—we also have to be thinking more broadly about innovation.
What will it mean to “think more broadly about innovation?”
For one thing, chemical companies will need to pursue more disruptive innovation. That means exploring entirely new ideas that may be unrelated to their current products or even make current products obsolete—before somebody else does. They will also need to “think beyond chemistry,” which means that they will need to pursue innovations in areas such as processes and delivery. They might, for example, integrate their systems with those of their dealers, distributors and manufacturers to provide those partners with customized ordering and services.
Accenture believes that this trend toward total solutions will lead to a digitally enabled “outcome economy” where companies will compete on the ability to provide outcomes, rather than products. Thus, a chemical company might provide seeds, fertilizer and pesticide to offer customers a guaranteed yield on a given area of land. Digital technology is key to this because it makes it possible to identify, measure and target customers’ desired outcomes.
How can chemical companies position themselves to succeed with this broader approach to innovation?
They will need to move beyond the traditional approach to R&D, which is usually a carefully defined, linear process conducted by an R&D department that works more or less on its own. Instead, companies will need “connected innovation,” which breaks down internal silos to include more areas of the organization, and also forms external links with alliance partners, universities, customers and customers’ customers. R&D will need to move from being an isolated function to being the center of a web of flexible partnerships that collaborate to expand and accelerate innovation.
Innovation is not restricted to the R&D function, of course. Chemical companies should also consider new business models that can take advantage of the megatrends mentioned earlier. For example, resource constraints are likely to create a growing interest in the circular economy where the traditional “make, use, dispose” approach is replaced with one that prolongs the use of natural resources and reduces waste.
What will these business models look like?
The right business model will depend on the company and its situation. In general, however, companies should focus on models that offer greater resilience in the face of change. By resilience, I mean being able to do things like make rapid decisions to rebalance the company portfolio when markets shift, anticipate future customer needs, and scale up or down smoothly as the business changes.
To enable new business models, chemical companies can look at acquiring peripheral and niche companies that have unique technologies, services or sales channels. They can also form partnerships outside of the industry in order to tap into stronger marketing and customer-relationship expertise—and find partners to help deliver total “outcomes.”
Delivering innovation is clearly a growing challenge, as well as a growing mandate. How should companies get started?
It’s a good idea to really explore digital technology. It’s a powerful enabler of so much innovation, and its importance is only going to grow. In addition, companies should recognize that these new approaches to innovation don’t have to be embraced all at once. In terms of building an innovation ecosystem, for example, a company might want to start with investments in partner companies or by collaborating on focused innovation incubator centers, and build out from there. In any case, companies should get started on planning a path forward, because in an age of accelerated innovation, it’s very easy to be left behind.