Four Areas of Focus for Boosting Innovation

The Key to a Successful Transformation of the Chemical Industry

The chemical industry is in the midst of the greatest transformation in its history. The challenges described below—regarding sustainability, innovation, and growth, as well as efficiency and speed—are enormous.
The key lies in significantly increasing innovative capacity and adopting a holistic approach that encompasses both organizational and internal structures as well as the value chain—from suppliers to customers and end users—and realigns them for the future, including consideration of partner networks such as research institutions, innovation networks, and development partnerships.
The four solution areas outlined—“Bringing Innovation to Life,” “Improving R&D Performance,” “Agile & Digital Product Development,” and “Consistent Project Management” are the key areas of focus that must be addressed with high priority in order to remain competitive in the future.

1. Challenges in the Chemical Industry

With global revenue of approximately 4,000 billion euros (3.67 trillion euros in 2019), the chemical industry is one of the largest industrial sectors, alongside the construction, automotive, and mechanical engineering industries. Global growth averaged about 3.5% per year over the past five years (2014–2019), with similar growth forecasts for the next five years. This growth was driven by the establishment and expansion of the chemical industry in Asia, particularly in China, with growth rates of 4.7% (5.6% in China), while growth in Europe was 2.1% and in the U.S. only 2.3%. China’s market share rose from 24% in 2009 to 41% in 2019, while Europe’s market share declined from 27% to 19% over the same period, and that of the U.S. fell from 20% to 16%. (Source: CEFIC 2021: Facts and Figures 2021, Chart 1.1 – https://cefic.org/a-pillar-of-the-european-economy/facts-and-figures-of-the-european-chemical-industry/)

This trend will continue in the coming years, with growth rates of 5% in Asia (6% in China) and 2% in Europe and the United States. The two-decade-long shift of the large-scale chemical industry away from Europe toward countries with raw material reserves (crude oil, natural gas) and cheap energy will continue in the future. This trend will be significantly accelerated in the future by the EU’s goal of achieving carbon neutrality by 2050 (Source: European Commission: The European Green Deal – https://eur-lex.europa.eu/legal-content/DE/TXT/?qid=1576150542719&uri=COM%3A2019%3A640%3AFIN).

The transition from fossil fuels to electrolytically produced (green) hydrogen is imperative. Cheap alternative electricity for water electrolysis—generated by photovoltaic systems and wind turbines—is available in sufficient quantities only in the sunniest regions of the world. The economical production of energy-intensive basic chemicals will therefore shift to these regions with cheap alternative energy sources.

For this reason, the chemical industry in Europe and America is focusing on the development and production of fine chemicals and specialty chemicals for an ever-increasing number of new applications or products with new quality requirements, such as environmental considerations.
The need for transformation across the entire industry and throughout the entire value chain is therefore particularly great in Europe and will continue to rise sharply, driven by the pressure to reduce CO2 emissions. Companies’ capacity for innovation is becoming a decisive factor for success in global competition.

2. Challenges

2.1 Sustainability

Chemical products and materials are no longer evaluated solely on the basis of their technical qualities and cost, but increasingly also on their sustainability and environmental performance throughout their entire product life cycle. This begins with the use of sustainable, preferably biogenic and renewable raw materials, continues through production processes that do not harm the environment, and extends to the environmentally friendly application and recycling of materials after use. A paradigm shift is taking place that requires immense development efforts and, consequently, significant investment.

2.2 Innovation & Growth

Market demand is undergoing a significant shift from “synthetic products” toward functional solutions tailored to specific application requirements. Growth is driven largely by new products with improved application properties or those designed for new applications. In addition to strong application expertise, developers must possess a high level of competence and a good understanding of the structure and interactions of the products. Industrial implementation requires flexible production processes as part of a seamless, error-free supply chain.

This makes the development process multidisciplinary. Developments can only be successfully implemented by combining the expertise of application engineers, chemists, process engineers, toxicologists, safety specialists, and logistics experts. Customers, suppliers, and scientific partners must be involved from the very beginning. The complexity of development projects can only be managed through consistently goal-oriented project management.

2.3 Efficiency & Speed

The dynamics of the markets and the rapid development of new technologies require a high pace of development for new products and materials. The time from the start of development to market launch (time-to-market) is becoming an increasingly critical factor for success. Rapid development enables the profitable marketing of new products within the existing “competitive vacuum.”

Development costs are becoming a key component of product cost calculations. Just as production costs must be continuously improved through measures to boost productivity, efficiency, speed, and—consequently—costs in development must also be constantly optimized.

3. Starting Points

The following section outlines starting points and potential solutions for the challenges described. These are based on the authors’ many years of experience and the service portfolio of 3DSE Management Consultants GmbH.

Figure 1: Challenges, Starting Points, and Areas for Solutions in the Transformation of the Chemical Industry.

The rapid globalization of the chemical industry—with production shifting closer to raw material sources and into new, high-growth markets—rapid technological development—which creates a demand for materials with new properties—and the call for sustainable products all require massive transformations and adjustments throughout the chemical industry’s value chain.
The future viability of every company depends on implementing the necessary transformations, and only a holistic approach will lead to long-term, economically viable results.

3.1 Review of Strategy and Business Models

Products, manufacturing processes, markets, applications, and ongoing development projects must be reviewed to determine whether fundamental changes or a strategic realignment are needed. The transparency gained through this analysis often leads to a strategic realignment of entire business segments. In such cases, new strategic goals must be set, and the realignment must be initiated quickly and, above all, consistently. The need for action should be described in the form of defined change projects with specific objectives and timelines. The projects are prioritized based on available resources and their expected impact on future business success.

3.2 Adjustment of the R&D Project Portfolio

Realigning strategic goals usually requires a far-reaching adjustment of the research and development project portfolio. Each project must be reviewed to determine whether it aligns with the established strategic goals.
Key questions to consider here are:

What market potential do the targeted products still have?
Do the raw materials or the application still meet the sustainability and environmental criteria?
Is it safe to manufacture, package, and ship these products?

Projects that fail to meet future requirements in one or more respects must be terminated quickly and decisively in order to free up resources for new projects with high future potential. The major challenge lies in leading and implementing the “change” from the familiar and established to the unknown and new.

3.3 Focusing Development Project Management

Following the adjustment and realignment of the portfolio, managing value creation in development takes on great importance. Development costs should be treated as investment costs and must pay for themselves. Projects must be prioritized dynamically based on the business case—that is, they must be allocated the appropriate resources and expertise. Development goals and project progress must be reviewed regularly, and goals must be adjusted as necessary to reflect new or changing market needs.

Expected revenue from new developments should be included in the medium-term revenue plan. This makes the R&D organization and its activities an integral part of the company’s core business. Directly integrating R&D activities creates the momentum necessary for a successful, innovation-driven business.

3.4 Adjustment of Production Processes

The realignment of strategic goals, coupled with a changed product portfolio, has a massive impact on production. Production lines must be adapted to the new requirements, shut down if necessary, and replaced with new ones. The investment costs are high and may become a deal-breaker for individual objectives. This must also be taken into account in the business case for development projects.

Chemical production in the future must be able to respond very quickly and flexibly to ever-changing needs while minimizing investment.

Modular production facilities: Modular production systems offer the best solution for this. A range of core components for chemical production plants (e.g., dosing systems, reaction units, processing equipment, filling systems) is available in a modular format, and the individual components can be “flanged together” as needed to meet specific production process requirements. The process control system and the measurement and control components correspond to the plant modules in a modular fashion. This allows new production processes to be set up in a very short time with low investment costs. Modular production plants are the preferred design, particularly for the rapid production of pilot-scale products for market launch. If flexibility is required not only in terms of process technology but also in terms of location, the modules are built into transportable containers and then assembled into a complete plant at the location of choice.

Another way to manage the enormous complexity of customer-specific products is through a modular formulation approach. The main components are produced cost-effectively in large quantities, and the specific properties of the various application-optimized products are adjusted by adding additives.

Process Intensification (PI): The development of new production processes involves using equipment with high “efficiency,” featuring significantly improved space- and time-based performance. Examples include microreactors and more effective catalysts on new support materials. PI reduces capital expenditures and minimizes space requirements, for example by integrating the technology into existing plants to increase production. At the same time, it reduces the safety risks associated with large reactors.

3.5 Life Cycle Assessment of the Processes

Life cycle assessments of products are becoming increasingly important. A good life cycle assessment is becoming a key marketing argument and is often a prerequisite for the acceptance of a solution. Products manufactured in a non-sustainable manner will no longer be marketable in the medium term, just as is already the case today with products that have toxic properties.

It is still unclear which standards will be used for life cycle assessment. A precise assessment of production processes is necessary to obtain the data required for a life cycle assessment that complies with these standards. Life cycle assessment also serves the internal goal of reducing raw material consumption, emissions, energy consumption, and so on. In some industries, a product’s carbon footprint is important, but this is part of the overall life cycle assessment—which is arguably more important in the chemical industry.

3.6 Adjusting Raw Material Procurement Logistics

The use of certified “green” raw materials is increasingly becoming a marketing selling point. As a result, demand for biogenic raw materials is rising sharply, leading to supply bottlenecks. The use of recycled products requires precise specifications and rigorous analytical monitoring, which can only be achieved with a logistics chain designed for this purpose. Recycled products offer the potential for a circular economy and for reducing the cost of raw materials.

3.7 Digitization of Development

Consistent use of the opportunities offered by digitalization makes it possible to meet the immense challenges of product and process development.

In product development, simulations can significantly reduce the number of tests required. This shortens development time and lowers costs. A great deal of data—most of which has been collected over a long period of time, primarily from the production environment—can be statistically analyzed to identify opportunities for process optimization. Access to technical literature and patents is digital, selective, and fast.

3.8 Building an Intellectual Property (IP) Portfolio

A company’s edge in know-how and expertise is shrinking due to simplified and global access to knowledge. Patents and intellectual property (IP)—which have come to play a greater role worldwide and are increasingly respected—can significantly extend that knowledge advantage. In this context, it is important to build a strategic patent portfolio within a specific technology field. Sporadic individual patents are less suitable for maintaining a knowledge advantage because they can be circumvented. In addition to protecting a company’s own know-how, patents also enable access to the know-how of others through the exchange of IP rights—a practice that has long been common in high-tech sectors such as electronics.

A leading position in a technology field can only be maintained with a sound patent strategy. The costs must be carefully weighed against the benefits. Patents are valuable only if they can be enforced in all relevant markets worldwide, which entails high costs. These costs rise significantly as the patent ages. The value of patents increasingly lies in the possibility of patent cross-licensing. This indirectly creates a “development consortium” among the technology leaders in an industry segment. Even the largest and most innovative companies are unable to develop all products, processes, and technologies on their own.

3.9 Opportunities for Mergers, Acquisitions, and Alliances

Mergers, acquisitions, and alliances pool expertise and resources, often resulting in significant synergies. This is the only way to gain access to high-tech sectors. However, they must align precisely with the company’s technology strategy and must not be undertaken opportunistically or haphazardly. The integration of partners, in whatever form, must be very well prepared with a view to close collaboration, both at the corporate culture level and at the process and organizational levels.

4. Areas of Solution

3DSE is the leading independent management consulting firm for innovation and R&D in Central Europe, with offices in Munich, Linz, and Vienna, as well as partner companies in Paris. Since its founding in 2001, the firm has successfully completed over 800 consulting projects with more than 60 international clients in the automotive, aerospace, defense, transportation, industrial, electronics, health tech, energy, and chemicals sectors. The goal is to optimize and transform R&D in a way that drives results. Working closely with clients, the firm develops sustainable and future-oriented solutions by leveraging cross-industry best practices and internal expertise. To achieve this, it combines outstanding expertise in innovation and R&D with superior transformation capabilities.

In the chemical industry, our consulting focus is on global competitiveness and growth through innovation—primarily through the development of new products for existing and new applications, as well as new and alternative business models. Other key areas of focus include increasing organizational flexibility, collaborating with partners and technology networks, as well as fostering a culture of innovation and enabling more efficient and faster development.

The key approaches relevant to the chemical industry are listed below and explained with examples.

Figure 2: Four areas of focus for boosting innovation.

4.1 Turning Innovation into Reality

Chemical companies can drive innovation through a variety of approaches. These include the Innovation Cell (an intensive workshop for generating “breakthrough solutions”), innovation qualification, user-centered ideation, corporate incubators, and a high-performance innovation engine:

Innovation Cell: Developing groundbreaking solutions for high-risk, high-impact business challenges, applicable to product, business model, and organizational innovations; enhancing team performance; and fostering a sustainable culture of innovation.
Innovation Training: Behavior-oriented innovation management training, Innovation Cell training and certification, and Design Thinking training—available for specific target groups or for a broad audience.
User-Centered Idea Generation: Direct support for innovation projects and organizations through customer and trend research, technology identification, user validation, and the facilitation of co-creation workshops involving companies, customers, and partners.
Business Incubator: A foundation for radical innovation; identifying high-potential areas for innovation; implementing a regular “Innovation Cell” approach to develop promising business opportunities; and providing support for scaling businesses and building innovation ecosystems and infrastructure.
Innovation Engine: Definition and implementation of a high-performing and productive innovation function within the company, including innovation strategy, the innovation funnel, portfolio management, innovation methods, innovation governance, and innovation culture.

The following section presents sample projects, along with their respective objectives and approaches, as well as the results achieved.

Project: “Innovation Engine – Innovation Approach and Organization”

Goal & Approach: Introduce a systematic and goal-oriented approach to innovation featuring faster decision-making processes, embed the culture of innovation, and foster a shift in behavior across all areas of the company to make the best possible use of employees’ potential. Ensuring profitable and sustainable growth by overcoming future challenges and capitalizing on opportunities.
Result: Tailored innovation management with a focus on corporate strategy and scalability. Employee training, validated innovation processes and methods based on initial innovation projects, including prototyping.

Project: “Innovation Cell – Product, Process, and Digitalization Innovations”

Goal & Approach: To foster a company’s innovative capacity in order to increase long-term returns in a market with low margins; to define a strategic automation plan to ensure high customer satisfaction and technological sustainability; and to form a project team to drive continuous innovation.
Result: A short-, medium-, and long-term innovation portfolio for digitalization and automation. Development of an agile implementation plan for the highest-priority strategic innovation project. Support for the project teams through to product launch and coaching on innovation methods.

Project: “Strategic Implementation – Revenue and Growth for New Products (Business Unit)”

Goal & Approach: Increase the share of revenue from new product launches to 30% over the next 3 years; ensure an 8% growth rate; and optimize processes, organization, tools, culture, customer interactions, and interfaces between sales and production.
Result: 6 breakthrough projects, including organizational, process, product, and service solutions, along with a 3-year implementation plan. Cost-benefit analysis projecting a 12% increase in revenue, along with improved efficiency and speed, and the development of new business areas.

4.2 Improving R&D Performance

The following approaches hold promise for improving R&D performance: R&D performance evaluation, R&D strategy development, R&D portfolio management, R&D reorganization, and R&D transformation.

R&D Performance Evaluation: Evaluation based on best practices, “health check,” and monitoring; implementation of an R&D dashboard; preparation of an R&D performance report, including the identification of effective measures.
R&D Strategy Development: Developing a vision and mission, strategic positioning with a strategic plan, creating an implementation plan, and developing a location strategy.
R&D Portfolio Management: Establishing a process for R&D portfolio management, optimizing and streamlining the R&D portfolio, and managing the R&D portfolio.
R&D Reorganization and R&D Transformation: Conducting a potential analysis and competency screening; preparing a process and value chain analysis; designing the R&D workflow and organizational structure; conducting stress tests and evaluations; and providing training in transformation management.

You can find sample projects below.

Project: “Adaptive Project Portfolio Management”

Goal & Approach: Implement a standardized cross-BU portfolio management system, including KPIs, processes, governance, roles, and tools. Ensure comparability and aggregation into a corporate portfolio; enable cross-BU resource allocation; and transform the leadership culture surrounding decision-making.
Result: The standard portfolio management process was implemented at the business unit and corporate levels. There was an increased focus on the top 20 projects, and 15% of R&D resources were allocated to support these top projects. This led to higher-quality decision-making and greater awareness among leadership.

Project: “R&D Performance Monitoring”

Objective & Approach: To establish and pilot a cross-company R&D performance monitoring system, including a methodology for identifying effective improvement measures.
Result: R&D Performance Monitor, including the top 10 KPIs (“vital few”) for managing R&D productivity, efficiency, speed, and innovation rate. Pilot report, integrated into top management committees, including responsibility for systematically deriving R&D optimization measures.

4.3 Agile & Digital Product Development

In the field of agile product development, the top solution components are strategy and product backlog management, agile scaling, agile transformation, and agile training and coaching. In the field of digital product development, effective solutions include an R&D digitalization strategy as well as the implementation of virtualization, modeling, simulation, and the application of artificial intelligence in the product development process.

Strategy & Product Backlog Management: Consistent alignment and management of strategy, product roadmap, product vision, and development team backlog. Developing a product implementation and release plan, holding iterative and synchronized meetings, introducing prioritization techniques and tools, and providing visualization and reporting.
Agile Scaling: Designing and implementing a scaled agile process organization tailored to the specific needs of the company. Introducing an agile role model and appropriate methods, and providing coaching and support to key roles during implementation.
Agile Transformation: Assessing the status of the company’s agile transformation/change, defining the strategic goals and vision of the agile organization. Designing solutions in the areas of products/services, processes, organization, and development culture; planning and supporting the implementation of the transformation, including change management and communication.
Agile Training & Coaching: basic agile training and agile simulations (individual teams / scaled to 3–25 teams), agile role coaching and agile role support (e.g., Agile Coach, RTE), interim staffing for agile roles.

You can find sample projects below.

Project: “Flexible and Agile Organizations”

Goal & Approach: Flexible allocation of R&D resources for new technology and product development projects; rapid project launch and/or termination; optimization of innovation processes; organizational and cultural changes; competency development; and leadership.
Result: Core R&D processes (portfolio management, project management) were adapted to enable an agile setup; agile working methods and culture were implemented in 15 development projects, resulting in faster time-to-market and increased productivity, as well as regular customer involvement.

Project: “Optimization of R&D Controlling”

Objective & Approach: To improve and redesign processes, responsibilities, and tools for R&D planning and project pipeline management, R&D performance reporting (product & technology), and controlling.
Result: Concepts and solutions, a 2-year implementation plan, and an R&D performance report (including KPIs) were implemented, leading to significantly increased transparency and manageability.

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Building expertise and providing support in the management of development projects are key drivers in R&D. This includes rolling out new procedures, processes, and methods across the board or optimizing existing approaches.

PM Training Development & Certification: Delivery of basic and advanced training courses in project management and requirements management. Design and piloting of company-specific training and certification programs, including train-the-trainer programs.
Project Management Implementation: Establishing a Project Management Office (PMO) and implementing project management in development projects. Setting up and launching requirements management, conducting risk management, and preparing for and conducting design reviews.

In the following completed project, our project management support led to increased productivity and faster project progress.

Project: “Implementation of Standardized Project Management for R&D Projects”

Goal & Approach: Designing and operationalizing the project management process . Defining and training key project roles to implement the new management process. Ensuring and supporting the operational implementation of project management practices in projects. Facilitating the change process related to the new work model and culture.
Result: An understanding of new projects, management processes, practices, responsibilities, and changes has been established; areas for improvement have been identified through team feedback; and plans for implementation and strategic development have been made.

5. Summary

The four areas of focus outlined—“Bringing Innovation to Life,” “Improving R&D Performance,” “Agile & Digital Product Development,” and “Consistent Project Management”—can help address and successfully navigate the transformation of the chemical industry. A company-specific assessment of the listed areas of action and the tailoring of solutions are necessary to achieve maximum impact within the context of the respective business model and existing organization. In doing so, value creation through processes and structures must be viewed and transformed holistically, taking into account corporate culture and the ability of employees and leadership to adapt to change.

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