Implementing an innovation strategy in alignment with the business strategy
Innovation: all about products or much more? When the managers were asked to indicate the current importance of respective innovation activities in percentages, they said innovation in products accounts for 37 per cent of all current innovation activities, which will increase slightly to 39 per cent in the future. The next important area for innovation is in processes, which accounts for 28 per cent of current innovation activities and will increase slightly in the future to 31 per cent. Apart from products and processes, innovation potentials in organization and marketing are assigned similar importance currently, while innovation in organization is deemed to have less potential in the future (Figure 7). In particular the allocation of high importance to innovation in products did not come as a surprise, as products are the fundamental carrier of a company’s value proposition and subject to direct feedback from and interaction with the customer. However, it is also to be noted that radical product innovation in the chemical industry shows a diminishing trend as a whole. If we take a closer look at the brief history of product innovation in the chemical industry, it can be depicted with a bell curve. For 30 years, monomer innovation has declined substantially and cannot be seen as a realistic sustainable lever to differentiate itself in the market. In other words, taking an industry life cycle point of view, the chemical industry has evolved from its fledgling and booming stage into its current mature phase, in which incremental product innovation by far outweighs radical product innovation. Moreover, at this stage, chemical producers face fierce competition among peers as well as increasing bargaining powers from upstream and downstream players, which will urge chemical producers to take any available measure to operate all aspects of the business more efficiently. The focus on product innovation by Gulf petrochemical and chemical companies is undoubtedly legitimate, as they are still on the course of building up product portfolios downstream. Nevertheless, the declining radical product innovation in the global context in
An innovation strategy leads to a platform which guides the allocation of resources in an organization for various activities to achieve innovation targets and thereby create value and competitive advantages. A well-formulated and effectively implemented innovation strategy that is in line with a company’s business strategy can serve as a powerful means within the organization to increase innovation achievements. The managers confirmed this understanding in the innovation survey. Concerning the effective measures to strengthen future innovation in a company, implementing an innovation strategy was given an overwhelming significance by the executives. “Intensifying the collaboration with international institutions” and “establishing own research centres in the Gulf region” followed in the list. Interestingly, the traditional short cuts to innovation deployed by some other emerging countries and regions (e.g. China), such as acquisitions and joint ventures, have been rated with low importance. This might partly reflect the general target to develop the domestic economy in order to fulfil the national responsibility to create jobs instead of just owning a know-how advantage with no effect on the domestic economic structure. Although financial inputs into innovation are also an indicator of innovation activities, most respondents do not consider simply increasing innovation budgets as a meaningful way to strengthen innovation. What is worth mentioning is that “Collaborating with customers” was rated with rather low priority, following “Acquisitions”. This could be attributed to the fact that the product portfolios of the Gulf chemical players still comprise mainly commodity products which require relatively low customer interaction. However, we foresee that more customer-oriented innovation will gain popularity in the future, as a consequence of downstream integration of the Gulf chemical companies and development of more “tailor-made” products (Figure 6).
figure 6
figure 7
Implementing an innovation strategy is the key to strengthening innovation
Implementing an innovation strategy is the key to strengthening innovation
Source: GPCA Innovation Study 2011
Source: GPCA Innovation Study 2011
Please rank the three best ways to strengthen innovation in your company (1–3, with 1 being best) 36
Implement an innovation strategy 22
Collaborate with international institutes 20
Establish research centre(s) in the Gulf 17
Acquisitions Collaborate with customers Joint ventures
11
Process
11
Organization Marketing
3 10
11
Please describe in % where you see the biggest potential for innovation in your company in the next ten years: innovations in
37
Products
7
Increase innovation budget Collaborate with GCC companies
Please describe in % the current importance of the respective innovation activities for your company: innovations in
39
28 18 17
31 12 18