DSM shift further focus to innovation

07/10/05 DSM has announced a new strategy program for the next five years. The strategy will build on the foundation of the current Vision 2005 program through which a successful shift of DSM’s portfolio to specialty life science and performance material products and more stable and higher earnings were realized. The new strategy program, which has been named Vision 2010 – Building on Strengths, focuses on accelerating profitable and innovative growth of DSM’s specialties portfolio.

DSM said it aims to generate up to EUR 1 billion of sales from innovation by 2010. Eleven existing innovation programs in the field of nutrition, health and performance materials will be strongly accelerated. DSM also selected four specific Emerging Business Areas that optimally combine expected societal and technological trends with DSM’s current market strongholds and technology positions. They are Biomedical materials, Specialty packaging, Personalized nutrition and White (or industrial) biotechnology. Teams will be formed to combine know-how of participating business groups with smaller new business development acquisitions in an open innovation model. The Emerging Business Areas will add to existing innovation programs and prepare for market needs beyond 2010.

To boost innovation, significant additional resources will be made available. Some 250 FTEs will be added in dedicated, business-driven innovation teams. On average EUR 50 million per year (EUR 30 million in 2006 increasing to EUR 70 million in 2010) will additionally be spent on innovation. About 15% of capital expenditures will be allocated to new business development investments. The innovation infrastructure in DSM’s main research centres will be upgraded.

DSM also wants to further grow the specialty content of its portfolio. The definition of specialties has been sharpened and DSM will expand the business with product and application leadership (specialty leadership). Organic growth will be complemented with selective acquisitions in the field of nutrition and performance materials. By 2010 DSM wants to have grown its specialties portfolio to 50-60% of sales, coming from 40% under the new definition.

The internationalization of DSM’s asset base and workforce progressed rapidly under the Vision 2005 program and will be intensified in the coming years. Identified opportunities in selected emerging economies in combination with the desire to create a better balance between sales by origin and sales by destination, led to the decision to step up growth efforts significantly in promising emerging economies. For China, where DSM has been highly active over the past years, DSM expects sales to double to USD 1 billion by 2010 (today: ~ USD 500 million p/yr). Under Vision 2010, geographic implications will also weigh more heavily in DSM’s acquisition strategy.

Profitable growth via leadership business, innovation and geographic growth should lead to an underlying sales growth rate of 3-5% per year (including small acquisitions and new business development) under an assumed economic scenario and increasing over time within this bracket.

Over the recent five years DSM has successfully introduced and implemented Operational Excellence programs. Major focus so far has been on standardization of business processes in manufacturing, order fulfilment, finance and costing and ICT-infrastructure. These programs will be further extended to include more parts of DSM’s business portfolio. New initiatives are envisaged in purchasing and prospect-to-order/pricing excellence processes. DSM will also continue to consistently look at productivity improvement in its businesses.

Opportunities can also be found when looking at sustainability. As the number 1 in the chemical industry sector of the Dow Jones Sustainability Index, for the second year in a row, DSM has a leading position. DSM wants to put significant effort in eco-efficiency and a gradual increase of renewable resources as raw materials for its products. The Emerging Business Area White biotechnology will aim to fully exploit the potential that the use of biotechnology offers in terms of new products and cleaner and more cost-efficient industrial processes. Here, sustainability and profitability go hand in hand.

In order to maximally leverage the capabilities between the business groups, the current organizational model will be aligned with the Vision 2010 strategy. Pharma activities will be grouped in a new Pharma cluster and the activities of DSM Nutritional Products and DSM Food Specialties will be combined in a new Nutrition cluster. Performance Materials and Industrial Chemicals will remain as clusters. Innovation will be anchored at cluster level, and DSM will also establish a DSM Innovation Centre at corporate level (headed by a Chief Innovation Officer who will report to the Managing Board). This organization will support innovation in the businesses. The Innovation Centre will lead the Emerging Business Area programs and the corporate licensing, venturing and intellectual property activities of DSM.