CEOs and other top executives in the Gulf petrochemical and chem ic al industry acknowledge that innovation will play an im portant role in their companies. Intensifying competition and expansion in the scope of products and the geography requires the Gulf chemical players to drive innovation to unleash their employees potential in the new competitive landscape. How ever, on their way to a more innovative culture, they have iden ti ed insufcient access to qualied human resources and inad equate innovation infrastructure as the main hurdles to inno va tion for the chemical industry in the Gulf region. In the fu ture, innovation is said to top the agenda of the Gulf petro chemi cal and chemical companies, with strong focus on prod uct and process innovation. The executives share the view that the most effective measure to strengthen innovation in their or gani zation is to implement an innovation strategy.
to satisfy. Chemical companies need to understand customer needs much better and faster to outperform competition. The need to address sustainability targets related to pollution, global warming and resource scarcity has also imposed greater pressure on the chemical industry to produce products in a more environmentally friendly and efcient way. Since the advent of the petrochemical and chemical industry in the Gulf region in the 1980s, the edgling industry has demonstrated a stunning compound annual growth rate of more than 12 per cent. With benets from feedstock advantages still prevailing but not being carved in stone forever for all projects, the Gulf petrochemical and chemical companies will have to prepare for ercer international competition with the respective need to diversify their production coming from base chemicals into more value-driven products downstream. How do executives in the Gulf petrochemical and chemical industry perceive the role innovation can play in this context? Do they consider innovation as a powerful means to combat their challenges? How do they plan to power innovation in their organization? 85 per cent of managers in the major Gulf petrochemical and chemical companies consider innovation as one of the most important factors for their companies With these questions in mind, supported by Stratley, GPCA conducted an innovation survey in November/December last year for the Gulf chemical industry. More than 20 major Gulf petrochemical and chemical companies participated in the survey, mainly with direct and insightful feedback from CEOs. The innovation survey suggests that a vast majority of the companies consider innovation to be imperative to keep them competitive in the market. As important as it may be perceived, the current innovation status and accomplishment is yet to reach a higher phase: even though establishing a proper innovation strategy is perceived most critical to developing a deeply rooted innovation culture, most companies do not have a concrete innovation strategy in place with only few exceptions. The corporate executives also raised the possible reasons which might well hinder innovation in the Gulf petrochemical and chemical industry, such as insufcient access to talent and inadequate innovation infrastructure. Furthermore, only a few companies generate patents in the region, which indicates that Gulf petrochemical companies have a long way to go to achieve measurable innovation. In addition, the com monly shared view is that innovation in the Gulf petrochemical and chemical industry will mainly focus on product and process improvement.
It is the innovation in new products, technologies, approaches and concepts which steered the advancement of the well-being of society. Although innovation in the chemical industry may not seem as visible as innovation in industries closer to consumers, innovators in the chemical industry have transformed almost every aspect of modern life. When it comes to innovation in the chemical industry, it is largely technological advancements being referred to, such as synthetic rubber found in modern car tyres or affordable drugs that greatly prolong life expectancies or increase life quality. For the purpose of this study, however, a broader denition of innovation is applied, also used by the OECD, which denes innovation as the implementation of a new or signicantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations (it is a continuous process that involves multiple aspects of rm activities). Innovation is the fuel of corporate longevity. It endows resources with a new capacity to create wealth Peter Drucker The emergence of new global economic trends and the development of the chemical sector in terms of industry life cycle require companies in the chemical industry to adopt innovative solutions to solve problems in the new competitive landscape. Firstly, globalization has involved almost every chemical company in the global value chain, which offers lavish opportunities as well as increasing competition. In this context, innovation acts as a catalyst to trigger the potential of human capital and to integrate resources in a company to deliver superior products and services. Secondly, todays customers are better informed and harder
OECD, 2005 The Measurement of Scientic and Technological Activities: Guidelines for Collecting and Interpreting Innovation Data: Oslo Manual, Third Edition Source GPCA
gure 2
Only a few companies have an innovation strategy in place Source: GPCA Innovation Study 2011
gure 1
Innovation is and will remain important Source: GPCA Innovation Study 2011
If so, is it implemented? In ten years, how important will innovation be to your company?
5 13 3 3 0 12 2 Early implementation stage 2 Yes
Almost
gure 4
Quality of infrastructure is rated low Source: GPCA Innovation Study 2011
How do you rate the quality of infrastructure/institutions in the Middle East to successfully drive innovation?
1 4 7 6
gure 3
Obstacles to innovation: human resource & quality of educational system Source: GPCA Innovation Study 2011
gure 5
Limited momentum in R&D activities and patent generation Source: GPCA Innovation Survey 2011
What are the obstacles when creating an innovation culture within your company?
Human resources competency Low quality in national educational system Limited nancial budget No obstacles 2 3 4 2 1 0 3 1 1 1 No comment 13
How many innovation centres/facilities does your company maintain in the Middle East?
3 4 10 3
4 No
15 Yes
gure 6
Implementing an innovation strategy is the key to strengthening innovation Source: GPCA Innovation Study 2011
gure 7
Implementing an innovation strategy is the key to strengthening innovation Source: GPCA Innovation Study 2011
Please rank the three best ways to strengthen innovation in your company (13, with 1 being best)
Implement an innovation strategy Collaborate with international institutes Establish research centre(s) in the Gulf Acquisitions Collaborate with customers Joint ventures Increase innovation budget Collaborate with GCC companies 3 10 11 7 11 11 17 20 Products Process Organization Marketing 22 36
Please describe in % the current importance of the respective innovation activities for your company: innovations in
37 28 18 17
Please describe in % where you see the biggest potential for innovation in your company in the next ten years: innovations in
39 31 12 18
line with the need to outperform other early entrants in terms of efciency requires the Middle Eastern players to take supplementary measures to optimize innovation results, such as shifting part of innovation efforts to other activities of the value chain. It might seem somewhat negative and pessimistic to arrive at this conclusion, though it is still important to acknowledge the trend and take actions accordingly. When product innovation becomes increasingly challenging, what are the best ways to leverage the existing resources to achieve results through innovation efforts? As the OECD denes (Figure 8), innovation is to be seen as a facilitator that connects various parts of company activities. This fully reects our experience and our attitude to how innovation should be viewed and used in pursuing overall company targets. Product development may always be a natural addressee for innovation means, by the same token, the awareness that all other activities in a chemical company can also be optimized through innovative measures resulting from effective holistic innovative management will have to develop over time. That being addressed, what areas other than products could be looked at? To get an idea for the Gulf petrochemical and chemical companies, we asked leading executives how they assess the importance of different competencies for the overall success of their companies: to achieve optimal results out of innovation efforts, it is important to identify critical competency areas for the organization so that innovation efforts can be allocated to such areas. As a result for the Gulf region, more than half of the company executives consider marketing & sales as the top critical factor to the success of their companies. Supply chain competency has been rated slightly lower as the second most important factor to success. R&D competency is rated as the third most important factor for the companies. This survey has revealed insights concerning the innovation status in the petrochemical and chemical industry in the Gulf region. Driving Innovation in the industry is no doubt on the agenda already. The question remains when this awareness will be put into clear action and which measures will be chosen to drive innovation forward. The survey suggests that the Gulf chemical companies relate innovation primarily with products and processes hence leaving signicant potential in the event that this view will be broadened to reach also other key competencies. In that moment the challenges of talent scarcity will become even greater.
Hence HR development as well as sourcing should be high on the agenda as soon as possible. GPCA is planning to conduct a series of innovation studies in the upcoming years to follow up the progress of the industry in this matter. As the global nancial situation shows instability, particularly since the second quarter of this year, the prospect of the macroeconomic situation in the next years and the demand situation in the chemical industry is clouded with uncertainty. While other major global chemical players are preparing for a possible downturn, Middle Eastern counterparts could seize the opportunities arising, such as gaining access to highly qualied talent pools in other regions, thereby acquiring competency to revamp their organization to an innovative culture. During downturns, companies mostly shift their focus to cost-cutting measures to realize bottom-line optimization, which in most cases results in a temporary cessation of innovation investments. How would the Gulf petrochemical and chemical companies prioritize innovation in this situation? As mentioned earlier, innovation could happen anywhere in the organization, be it an innovative idea to provide new products and services, an innovative marketing solution for an existing product or even an innovative cost-cutting approach in the supply chain management. Answers to the above questions still remain to be seen in our next upcoming innovation studies. We believe the innovation survey will not only enable the company executives to have a benchmark against their peers in the region but will also serve as a reference in terms of in novation status to various stakeholders in the Gulf petrochemical and chemical industry.
gure 9
Competencies in marketing & sales are the most important to success Source: GPCA Innovation Study 2011
gure 8
OECD innovation model Source: OECD; Michael Porter value chain analysis, Stratley analysis
Please rank the importance of the following competencies for your companys success in the next ten years (1 8, with 1 being most important)
No. 1 No. 2 No. 3
Marketing/sales Supply chain Finance R&D Procurement/sourcing Recruiting Corporate portfolio Finance 0 2 4 6 8 10 12
Marketing/sales
Business practice Workplace organization External relations Innovation Inbound logistics Operation Marketing&sales Services 1 2 3 4 5 6
12
13
Recruiting
R&D
Acknowledgement We would like to thank all the companies that have participated in the survey. Without the valuable input from high-level executives in the Gulf petrochemical and chemical industry, this survey would not have been able to be carried out successfully. Thank you! Disclaimer The sample of the survey comprises the leading petrochemical and chemical companies from all GCC countries. More than 75 % of the participants were either President, CEO or both of their companies. The remaining participants were high-level executives with direct responsibility for innovation in their companies. Hence the survey reects a rather complete picture of executives view of innovation in the segment of leading Gulf petrochemical and chemical companies. However, beyond this, i.e. small and medium-sized chemical companies in the Gulf region, the results of this survey cannot automatically be applied. About Stratley Stratley is a leading advisor for the global chemical industry. Ofces are located in Cologne, Hamburg, Dubai and Shanghai. With its presence in the UAE, Stratley aims to reach the leading Arab and foreign companies as well as authorities potentially participating in the regions future development. Our advisory activities include work at group and business unit level as well as for in-house services. At group level, we help to develop corporate strategies, e.g. in order to identify new investment options or acquisition targets. Further areas are denition and implementation of companies organizations to position them well them for future opportunities. At business unit level, company-specic marketing and sales strategies are one focus area, the denition of successful product portfolios another. In its Dubai ofce, Stratley works with an international team combining rst-class chemistry expertise, strategic know-how and intercultural competency. About The Gulf Petrochemicals and Chemicals Association The Gulf Petrochemicals and Chemicals Association (GPCA) is a dedicated and non-prot making association serving all its members with a variety of data, technical assistance and resources required by the petrochemicals and chemicals industry. GPCAs mission is singular and specic in that it intends to support the growth and sustainable development of the petrochemical and chemical industries in the Gulf in partnership with its members and stakeholders and be both a sounding board and a meeting point for debate and discussion. It is the rst such association to represent the interests of the industry in the Middle East and it has brought a major dimension to its task by creating both a forum for discussion and a place where likeminded people can meet and share concepts and ideas. Since its inception in March 2006, the GPCA has earned the enviable reputation for steering the regional industry towards a whole new level of co-operation and raising the standard in terms of common ground interests. Additional information is available at www.gpca.org.ae
authors
Oliver Gawad Partner at Stratley, based at the Dubai ofce o.gawad@stratley.com Sven Fischer Project Manager at Stratley, based at the Dubai ofce s.scher@stratley.com Xiangmei Cui Business Analyst at Stratley, based at the Cologne ofce x.cui@stratley.com 14 All rights reserved. No part of this document may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of Gulf Petrochemicals and Chemicals Association or Stratley AG. 2011 by Gulf Petrochemicals and Chemicals Association and Stratley AG.