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Back to Basics for R&D

Posted on November 16th, 2017 by in Chemicals Industry News and Analysis


The chemical industry is beginning to spend more on basic research again, in the search for step-out innovations. In part, this is being driven by a need to improve returns from innovation efforts, and in part it is being stimulated by the need for advanced materials in areas such as batteries, electric vehicles, 3D printing, space exploration and satellites, robotics, electronics, and the like.

Paul Bjacek, principal director and lead of Accenture’s chemicals and natural resources strategic research, points to the impression that there has been no new blockbuster inventions over the past three decades. A good part of the reason for this is that there has been a shift in innovation strategy to focus on customer-led applications development, leading to incremental advances.

However, innovation introductions have not stopped in the past few decades. Basic chemical manufacturers have focused on rolling out new process technologies as opposed to the more visible, branded, new products.

In recent years (from 2012-14), more US chemical companies (37%) have reported making new innovations in processes for basic chemicals than for specialty chemicals (24%), and in introducing new services – albeit a slight lead in this instance.

But, “a change might well be coming in new products”, he notes. “There was a big push for high-performance engineering thermoplastics (ETPs), for instance, in the 1980s, fuelled by the Cold War and the Strategic Defense Initiative as well as high oil prices.”

Automotive makers looked to plastics for lightweighting options in models such as the Pontiac Fiero and General Motors’ Saturn. As a result, there was a boom in ETPs, “which might just be coming back”, asserts Bjacek.


“Many of today’s mega-trends are pushing the need for polymer and battery innovation – to improve transport efficiency through fuel and energy savings, in aviation and aerospace – to improve products such as drones and satellites – and in the military area, where spending is increasing.”

“A return to an emphasis on basic research will bring exciting times for the industry,” he notes. “Over history, new materials have found or created new possibilities, rather than the other way around.”

Recent figures back up Bjacek’s thesis.

Although the numbers can fluctuate from year to year, looking back in five year increments, in 2015, US domestic chemical company (excluding pharmaceuticals) spending on basis research as a share of total R&D spend rose to 10%, a level not seen since the peak ratio of just under 12% attained 30 years previously, in 1985. In the intervening period spend on basic research slipped to a low of less than 8% of overall R&D spend in 2005.

The figures show the same effect in US industry overall (see chart). “We seem to be in a new environment going forward,” says Bjacek.

R&D spending-1

With basic research, of course, comes the issue of longer payback times on R&D investment. “These can typically be 7-15 years, and even 20 years”, he explains. Whereas application developments can make a return on investment in just 2-3 years. But the effort is worth it. Research carried out by Accenture on 69 chemicals companies using data from Thompson Reuters and Capital IQ, show a strong correlation between a company’s overall performance and two factors: its R&D spend as a percentage of sales (on a five-year average), and the relative index of citations of its patents.

The higher companies score in each of these metrics, the more likely they will sit in the upper most quadrant in terms of financial performance. Many high performers are larger scale, more diversified chemical companies and have an advantage finding applications of new inventions across businesses.

Another trend that has emerged is the amount of R&D activity outsourced to third parties by chemical companies. Outsourced spending had been on a rising track in the 1960s to 1980s. In 2013, the proportion of US company R&D spend performed by third-parties rose to a high of around 5.5%.

A certain part of this spending is to outsource routine tasks. However, sometimes outsourced R&D can be disconnected from internal R&D. Companies must ensure stakeholder linkages and communication channels with partners are strong. Digital solutions, such as shared resource networks, can help integrate the contributions of various partners.

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All opinions shared in this post are the author’s own.

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