Tuesday, 18 January 2011

Chemicals innovation spend holds up

Some positive news on innovation spend came my way recently. Anecdotal reports that chemical companies protected spending on innovation through the downturn were confirmed by the annual Booz & Company survey of the Top 1,000 corporate spenders on R&D.

It found that, for 2009 compared to 2008, the top publicly-listed chemical and energy sector spenders on R&D increased spend by just over 1% to $36.6bn. Healthcare, the second largest spending sector, after computing and electronics, also saw R&D spend slightly increase by $1.6bn to $113bn. Note, however, that revenues in this sector increased by 6%.

In contrast, innovation spending by the top automotive, computing/electronics and broad industrial companies was down sharply.

The top chemical industry spenders were:

Rank 2010      Company                    R&D spend 2009, $m
29                    Bayer                          3,829.1
60                    BASF                         1,949.4
73                    Dow Chemical            1,492.0
75                    Mitsubishi Chemical    1,475.9
81                    DuPont                       1,378.0
86                    Sumitomo Chemical    1,264.9
96                    Monsanto                   1,098.0
108                  Syngenta                       960.0
136                  Solvay                           773.9
153                  Asahi Kasei                   678.6

Source: Booz & Company

Overall, total R&D spend by the Top 1,000 global companies fell by 3.5% to $503bn, the first contraction, notes Booz, in more than a decade. The automotive industry accounted for fully two-thirds of the $18bn contraction in overall R&D spend.

However, revenues for the companies in the survey declined by 11% in 2009, to $13,400bn, meaning that innovation intensity (measured as the percentage of innovation spend to revenue) was up slightly, from 3.5% to 3.8%.

To protect the bottom line, says Booz, companies cut more deeply into capital expenditure, down 17.5% in 2009, and SG&A expenses, down 5.4%.

Once again, says Booz, analysis of the survey findings illustrates that there is no statistically significant correlation between financial performance and innovation spend, either in terms of total R&D dollars or R&D intensity.

What matters instead, it says, “is the particular combination of talent, knowledge, team structures, tools and processes – the capabilities - that successful companies put together to enable their innovation efforts.”

Booz believes the survey highlights the fact that to be successful in innovation, companies need to excel in a number of critical innovation capabilities. These it describes as: “the ability to gain insights into customer needs and to understand the potential relevance of emerging technologies at the ideation stage; to engage actively with customer to prove the validity of concepts during product development; and to work with pilot users to roll out products carefully during commercialisation.”

Many companies, it notes, are generally happy with the earlier stages of innovation – but many struggle to introduce their products into the market. “Clearly there is a substantial gap between most companies’ ability to create innovative new products and their ability to successfully take them to market.”

This is certainly true in the chemicals arena, where over recent years many innovative products have struggled to succeed and have eventually been abandoned, often after huge investments. The polymer area has a particularly rich graveyard of buried products.

It’s an area that the chemical industry will need to address as it continues to invest more and more in innovation. But at least it can draw some credit for not stepping back from the mark during the recent difficult years and maintaining spend and even increasing innovation intensity. 

See the full Booz & Co article on the survey here

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