Although almost everyone in the chemicals industry considers research and development (R&D) to be the primary engine of innovation and growth, R&D investment has been stuck at about 2.5% of revenue for the last 15 years.
If that sounds like your company, you may want to raise your investment. A recent series of interviews with R&D directors at many leading chemical companies suggest that the industry is on the cusp of some major, disruptive changes.
A number of R&D leaders at top chemical companies reported that they see four important trends in the immediate future that could disrupt the entire industry — digital technologies, demand for more sustainable products, new ways of working and talent shortages.
Handle those four trends well, and you could create new kinds of competitive advantage. But, get any one of them wrong, and your firm could easily slide into irrelevance. 
Right now, R&D leaders face a variety of questions:
- Do we know how to minimize or accelerate physical laboratory activities?
- Do we have the means to collaborate internally and externally so we can take full advantage of the kind of advanced modeling technologies that can accelerate development?
- Are we doing enough advanced process engineering to create more sustainable operations?
- Have we incorporated sustainability metrics into project management?
- Have we defined which activities can be performed remotely? How should we measure remote workers’ productivity?
- Have we thought about how we can use our company’s purpose to attract and retain younger (Gen Z) talent?
Four megatrends
Many of these questions will only be resolved over time, through trial and error. However, interviews with R&D executives and analysis of the new technologies they are trying to implement lead us to believe there are several things that can be done right now to prepare research teams for a productive future. A good place to start is considering the following megatrends:
- Digital technology. One of the most exciting possibilities we are seeing now is in automated product development. By using artificial intelligence (AI), R&D teams will be able to significantly accelerate the development process, through pattern recognition and analysis, on a scale that the human mind would have difficulty grasping. Already, one consumer company is using the technology to develop organic ingredients with which it hopes to replace the petroleum derivatives it uses in most of its cleaning products today. Other companies are hoping they can substitute virtual regulatory trials for minor real-world product changes, such as minor flavor adjustments.
- Sustainability. Chemical processing firms today are pursuing sustainability in three ways. They want to create more sustainable offerings. Many are also responding to investor demands to create more sustainable production processes. Others, meanwhile, are looking at creating better metrics for managing the production process, including a new system of research stage gates intended to keep research projects focused on delivering a positive sustainability impact.
- Ways of working. The growing popularity of remote work has opened many interesting options for recruiters, but it’s also created challenges. For instance: how do you compensate workers fairly if their coworkers work on a job that has less flexibility?
- Talent gap. Young workers today don’t just want a job, they want a purpose. Many will only sign on with an organization that is pursuing a purpose in which they believe in. Executives say that having a clear, positive story is an increasingly important part of recruiting Gen Z. But firms aren’t just looking for motivated workers. Chemicals companies also need more people with unusual levels of expertise. As one executive told us, “What’s really difficult is securing talent with dual domain knowledge,” such as engineering and data analytics. Various companies are considering organizing their own apprenticeship programs to make up for technician shortages.
To improve retention, some large companies are setting up ways for existing employees to take on multi-month assignments outside their core areas — rotations in which companies can build new skills and networks and keep workers engaged. These rotations also create additional flexibility to accommodate employees who need extended sick leave or parental leave.
A fresh start
From its beginnings, the modern chemicals industry has astonished the world, transforming every aspect of human life. Now the industry is being called to meet a new set of challenges. As difficult as some of these challenges might seem, we are confident after our recent interviews with R&D leaders that the industry will rise to them. ♦
Edited by Mary Page Bailey
The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.
Author
Frank Jenner is the global chemicals & advanced industry leader at EY in Mannheim, German (Glücksteinallee 1, Mannheim 68163). Jenner has over 25 years of extensive experience in supply chain process modeling and design, value chain management and synchronization, organizational change management, business improvement initiatives and transformational excellence in the process industries. He was the Founder and Chief Executive Officer of J&M Management Consulting AG, a pan-European market-leading enterprise based in Germany with 320 employees in 14 offices across Europe. He earned a Ph.D. and M.S. in chemical process engineering from the University of Cardiff, Wales. He also holds a B.S. in chemical process engineering from the University of Applied Science in Mannheim, Germany.