Chemical companies once had distinct market segments with quite predictable volumes and sales expectations, but this has drastically changed because customer behavior has evolved. The automotive industry, the distribution and packaging sector, and the construction industry are under intense pressure due to sustainability requirements and fierce competition by Chinese companies and start-ups. Customers of chemical companies must address these factors in many ways—one of which is fulfilling the demands for better services and products. quicker, with new business models. By definition, these companies cannot be innovative and successful without innovative solutions by chemical partners, which means the chemical industry remains very strong. However, customers are becoming more particular about which chemical companies they work with. As a result, chemical companies have to compete harder and must rethink innovation strategies and processes, streamline new product development, embrace modern innovation governance methods, and implement new technologies to remain competitive.
Our new E-Guide, "How to succeed in the global market: The path to profitability for chemical firms," offers insights on how to innovate, operationalize, and optimize your chemical business in face of worldwide competition. Download it now
Rethink innovation strategies and processes
Chemical companies must accelerate and integrate their development and production processes. In the past, chemical companies could spend years being innovative, but this is now a thing of the past. Today, the market (as opposed to science) drives more and more the strategies, new business models (delivery models) are demands, the ecosystems change rapidly, sustainability and digitization change the paradigm.
The innovation clock ticks fast. New balances of short versus long term have to be found. Chemical companies can no longer advance with an old-fashioned mentality, with bureaucratic processes, a signature culture, and gaps between production and R&D. Companies should redesign their processes with a view to flexibility, speed, and differentiation. Small and fast versus slow and fat.
The processes should be based on modern governance methods, where clear mandates, objectives, rights, and obligations dictate each role. I often compare it to a football team: a player doesn't need approval before making a decision on the field. They understand what’s expected of them and have the trust of the coaches to execute.
Streamline new product development and portfolio alignment
We know from experience what good, lean new product development processes look like and what information is necessary to support portfolio decisions. In practice, portfolio decisions should be continuous because portfolio management will become more volatile in unpredictable times. At one time, chemical companies held portfolio meetings bi-annually, but today these meetings are weekly. Therefore, new project management methods must reflect the increased importance of flexible portfolio management for chemical companies. Projects should always be ready for change and continuously rethink their business cases.
The common idea that agile processes are the best way forward ignores the fact that agile project management has nothing to do with cross-functional new product development and portfolio management. The days of project management—agile or otherwise—being disconnected from top-level business planning have passed. Also, agile projects can result in low-quality products. The fact is you need good staff to develop superior products. I see a great deal of negative energy surrounding agile processes, and from my perspective, engineers should use the methods which best suit them and make them successful.
Development teams need to deliver the required products, features, formulas, and equipment to their internal customers—namely the commercial part of the organization -- in time, and predictable.
Incorporating innovation governance in chemical companies
To be fast and flexible as an organization, the need for precise coordination is growing. Using the football team analogy: Every player has a job to do and is responsible for a specific area of the field. The entire team, staff and players, knows this and is trained to respond constantly to new situations in practice. Similarly, a chemical company should be organized and trained to operate as a "system".
Lean innovation governance is necessary for chemical companies to survive in a highly competitive and volatile market. In today’s business climate, organizations are less hierarchical and more like a network of functions and disciplines. Each person has a specific role, and innovation governance defines those roles, so everyone clearly understands what they are supposed to be doing and when to do it. Further, a sound innovation governance framework should define data ownership and reliability for each of the functions.
Within a governance framework, everyone works together in a coordinated manner, based on a clear set of rules, mandates, and obligations: business management, sales, marketing, product management, product engineering, manufacturing engineering, and a series of supporting functions such as quality assurance.
Think of it as a system of promises, requirements, and mutual responsibilities. By adhering to stringent but lean innovation governance guidelines, chemical companies can ensure flexibility, reduce time-to-market, while still delivering high-quality products.
Accelerating innovation with technology
To support cross-functional coordination and portfolio alignment, chemical companies need to coordinate hundreds of data elements. To collect and maintain them, you need a system, a database. Enterprise innovation management system helps to carry out the various functions and preliminary work in a transparent and coordinated manner, so you know who is doing what and when they are supposed to do it. The system should help companies to make urgent adjustments if necessary and to see their effects.
I am often asked what role artificial intelligence (AI) can play in decision-making, and there is certainly a number of possibilities. One example is the use of AI to record business intelligence based on both internal and external data. Another example is IoT, where people can reuse collected data to improve production and product management with intelligent algorithms based on machine learning techniques. However, AI alone won't help companies transform quickly—as you need the right governance frameworks to ensure more efficient innovation processes.
Portions of this blog originally appeared in a Q&A with Huub Rutten in Chem Manager.
Chemical companies remain in high demand, and those making innovation more accessible for customers will grow their market share. This requires a new way of operating. Learn more by downloading the E-Guide “Chemical Innovation Management: The Path to Profitability in a Global Playing Field That Isn’t Always Level.”Download Your E-Guide Now