Russell Reynolds Associates: Rethinking Innovation Leadership in the Chemical and Process Industries

Innovation has always been at the heart of the chemical and process industries (CPI), creating competitive advantage and building new revenue streams. It has played a vital role in transforming CPI companies and, in turn, has allowed these companies to transform the range of their clients’ businesses.

Yet CPI is changing: Products are becoming increasingly commoditized, putting downward pressure on pricing, in a general context of accelerating digitalization of the value chain. In response, leading CPI companies have started to renew their focus on innovation and rethink their strategies. To learn more, we interviewed executives across Europe and the United States to talk about innovation challenges and requirements from a talent and company-culture perspective. Our survey revealed the following key points:

1. Innovation is a growing strategic priority; however, this innovation is still primarily product and process related, as opposed to a focus on new solutions, services or business models.

2. CPI companies have made significant changes in innovation leadership over the past five years, primarily to upgrade their innovation skills and to fill specific gaps.

3. Innovation accountability in CPI still lies mainly with functional executives, in particular the chief technology officer (CTO) and the chief innovation officer (CINO) rather than the chief executive officer (CEO). In fact, CEOs only rarely assume direct responsibility and accountability for driving innovation.

4. Risk aversion among C-level executives is the single most important hurdle for successful innovation, with unsupportive corporate culture and a lack of leadership skills not far behind.

5. Innovation teams perceive themselves as overwhelmingly weak in some of the competencies they see as critical for the future, such as challenging the status quo. Innovation leaders still mostly come from within internal company ranks, and the vast majority are from within the CPI industry. Yet the industry today also seems to be opening up to the idea of hiring talent from outside.

6. CPI companies in Europe believe their innovation teams are more effective at generating innovation than at implementing it, while North American companies believe they are stronger at implementing.

Chemical and process industry companies have historically transformed both their own and their clients’ businesses through innovation. Yet increasing commoditization and resulting competitive pressure on the industry on the one hand and the accelerating adoption of digital technologies on the other are mandating a renewed and revised focus on this well-known topic.

Some chemical and process companies have responded to the industry’s increasing commoditization by becoming pure-play commodity businesses, focusing on cost cutting to keep margins healthy. Yet many have worked to maintain margins and build market share by innovating to add new specialty products to their portfolios. They have taken steps to increase the research and development (R&D) budget change their innovation strategy and, in particular, bring in new innovation talent.

As the paradigms of innovation are changing, we are witnessing a growing talent shift, with CPI companies hiring both internally and externally to fill their innovation leadership roles. As this trend continues, senior industry leaders need to increasingly reflect on the type of talent they should be looking for, where to find it, and how to recruit and retain it. More broadly, they should determine how to establish the appropriate cultural, leadership and competency frameworks to nurture this future innovation talent.

Read the full report here.