Innovation in the Chemical Industry

Unfortunately, no good characterization of technological innovation specifics in the chemical industry has been provided in the literature so far. Technological innovation processes in the chemical industry in comparison to other industries are mainly characterized by three different aspects:

  1. Technological: Product and process innovation in the chemical industry is science-based,[1] comprising a large proportion of research rather than development.[2] A specific feature characterizing chemical systems is that they are highly coupled and cannot be easily broken down into smaller modules, making their optimization a highly complex multidimensional problem.[3]
  2. Market structure: Depending on the process step of material flow covered in the chemical industry different amounts and types of technological innovation are possible. In the base chemicals segment processes are often very energy-consuming making technological process innovation predominant while potential product variations are rather limited.[4] In contrast, in the fine chemicals sector search for promising candidates from the infinity of potential product variations is the primary technological innovation target.[5]
  3. Industrial setup: The industry is characterized by high automation, mirrored in a large amount of tangible assets for production and comparatively few employees. However, the degree of this automation depends on the magnitude of production of the particular product.[5]

The combination of these characteristics of technological innovation and industrial setup make the chemical industry rather unique, influencing not only innovation processes but also amount and risk structure of innovation projects.

Time and success of product innovation in the chemical industry
Innovation success in the chemical industry
Source: Adapted from Miremadi et al.[6]

Since research and development activities alter the resource basis of knowledge and potential intellectual property, technical innovation is an integral part of corporate strategy. Furthermore, given the average duration of research and development processes in the chemical industry, technical innovation also becomes an inherently strategic undertaking. An overview of time frames, success rates and profitability of product innovation projects is given in the figure above.
In summary, corporate strategy in the chemical industry is coined by several common industry features:

  • High investments due to economies of scale especially for the earlier material processing steps,
  • Crucial technical process know-how (patented and not patented),
  • Long product development times with high research proportion due to the unique features of technical development in the chemical industry,
  • Long product life cycles (coinciding with long development times) with demand depending on often volatile customer applications and industries,
  • High regulatory standards for product and environmental safety, and
  • Time-consuming and expensive registration and approval processes.

In view of these topics, technical innovation in chemical industry firms is at the very core of their strategy, the particular content of which will be highly dependent on the specific market (sub-)segment within the chemical industry. Several strategic decisions on innovation have to be made in each company as basis for its operational activities. One fundamental choice is the choice of the level of research and development activities. The proportion of more fundamental research as opposed to product development is another strategic decision with impact on technological innovation as well as risk structure of the innovation portfolio. An additional issue to cover is, whether research activities should primarily be performed internally or externally, the answer to which depends on the technological dynamics and the corporate context. Decision on research fields and projects therein can sometimes even comprise emergent strategies. The particular field of research and development or in other words the technological innovation direction is usually determined by the market sector of the respective company determining the technical requirements as well as by a firm’s development capabilities.

Footnotes

  1. Pavitt, K. (1984). Sectoral patterns of technical change: Towards a taxonomy and a theory. Research Policy, 13(6), 343–373. https://doi.org/10.1016/0048-7333(84)90018-0.
  2. Arvanitis, R., & Villavicencio, D. (2000). Learning and Innovation in the Chemical Industry. In M. Cimoli (Ed.), Developing Innovation Systems: Mexico in a Global Context (pp. 189–205). Continuum.
  3. Marques, J. M. C., Martínez-Núñez, E., & Hase, W. L. (2020). Editorial: Application of Optimization Algorithms in Chemistry. Frontiers in Chemistry, 8. https://www.frontiersin.org/research-topics/9088/application-of-optimization-algorithms-in-chemistry.
  4. Achilladelis, B., Schwarzkopf, A., & Cines, M. (1990). The dynamics of technological innovation: The case of the chemical industry. Research Policy, 19(1), 1–34. https://doi.org/10.1016/0048-7333(90)90032-2.
  5. Leker, J., & Utikal, H. (2018). Management Challenges in the Chemical and Pharmaceutical Industry. In J. Leker, C. V. Gelhard, & S. von Delft (Eds.), Business Chemistry: How to Build and Sustain Thriving Businesses in the Chemical Industry (pp. 3–30). Wiley-Blackwell. https://doi.org/10.1002/9781118858547.ch1.
  6. Miremadi, M., Musso, C., & Oxgaard, J. (2013). Chemical innovation: An investment for the ages. McKinsey & Company.