Technological and Organizational Innovation in Chemicals and Related Products

Abstract

This paper is an historical review of the interaction of organizational and technological change in the chemical, agro-food and pharmaceutical industries. These sectors have at various times had strong linkages to each other, through ownership and technology, such that they have been described collectively as 'the chemicals and related products industry'. Convergence such as this and subsequent divergence are among the organizational changes examined in this paper. Specifically, we focus on mergers, acquisitions, de-mergers and divestments as the mechanism by which such changes have taken place in the boundaries of the industry and its firms. Another important organizational change is also mentioned here, though it is analyzed in more detail elsewhere, namely the increasingly networked nature of the innovating firm and the increasingly distributed nature of the innovation process, also a significant aspect of the changing face of the chemical industry. We trace the developing strategies of chemical and related products firms in response to increasing costs and declining returns to effort in R&D, declining demand for its products, and globalization of production, markets and R&D itself. These strategies were initially to diversify into, or increase their reliance on, higher value-added areas such as drugs, agrochemicals, designer crops, speciality chemicals, advanced materials and catalysts, with an increased R&D focus on the life sciences. This trend interacted with the appearance of biotechnology and subsequently of new techniques of product discovery, design and screening based on IT and biotechnology, and of genomics, proteomics and bioinformatics. We argue that the chemical and related products industry has reinvented itself as, firstly a life sciences industry and a more traditional chemicals and materials industry, and then by a further division of the life sciences industry into agro-food and pharmaceuticals. Meanwhile parallel, demand-oriented strategies have included location of R&D in the business units of multidivisional firms, with a central R&D unit for longer term exploratory research; mergers and acquisitions that secure a stronger footing in countries that represent important markets to the firm concerned; acquisitions by agrochemical firms of seed and plant-breeding companies; and acquisitions by pharmaceutical companies of US prescription management companies.