Chemical suppliers and the wood treating industry - Innovation in buyer-supplier relationships

Transcription

1 Chemical suppliers and the wood treating industry - Innovation in buyer-supplier relationships Erlend Nybakk. 1* Eric Hansen 2 - Andreas Treu 3 - Tore Aase4 3 1 Reseacher, Norwegian Forest and Landscape Institute, Postbox 115, 1431 Ås, Norway. * Corresponding author nye@skogoglandskap.no 2 Professor, Department of Wood Science and Engineering, Oregon State University, 119 Richardson Hall, Corvallis, OR Reseacher, Norwegian Forest and Landscape Institute, Postbox 115, 1431 Ås, 4 Master student, UMB School of Economics and Business, Postbox 5003, N-1432 Ås, Norway Abstract Recent challenges to maintaining competitiveness by forest sector firms have driven strong interest in the potential for innovation to create new opportunities for competitive advantage. Suppliers are a major source of innovation for many forest sector firms, yet little research has investigated their role in the innovation process. Using a qualitative case study approach, we explore how chemical companies who produce registered enduse products for wood protection perceive innovation in the wood treating industry and how they feel that they impact innovation among wood treating firms. Our findings indicate that chemical company managers view the wood treating industry as conservative and not particularly innovative. Additionally, retailers play a special hampering and directing role regarding innovation in the wood treating industry. Chemical company managers feel that they have an important impact on innovation within their customer firms, partially because they see limited possibilities for differentiating wood products without value-added additions, such as chemical treatments. Currently, various mechanisms for coloring wood products, along with standard chemical treatments, are the focus of innovation efforts. Chemical company managers also view their role with customers as a problem solver, providing a package of benefits in the spirit of the total product concept. Finally, strong relationships between chemical suppliers and key innovative customers play an important role in creating and implementing innovations in the industry. Keywords: wood treating industry, innovation, chemical suppliers Introduction Paper A-1 1 of 7

2 The Great Recession and housing crisis have placed extreme pressure on the forest products industry (Hansen et al. 2013). Even before these events, global competition caused losses of thousands of jobs across the sector and low profitability levels in many of the surviving firms. Various levels of government around the world have introduced strategies to boost innovation in an effort to increase industry competitiveness and financial performance based on a commonly held belief and growing evidence in the forest sector literature of the positive impact of innovation on firm financial performance. Often, innovations adopted by forest sector companies originate from suppliers. Some researchers argue that this reliance on, especially equipment and instrument suppliers, may explain some of the lack of innovation in the sector (Anderson, 2006) and this tendency does not contribute to competitiveness since innovations by suppliers are easily available to competitors (Nakamura, 2003) This study is theoretically positioned within the innovation literature. The use of the term innovation has proliferated in recent decades and scholars have used multiple definitions in the literature (Garcia and Calantone, 2002). In this study, we define innovation as something new, such as a product, service, or business system, that is put into use or commercialised in the marketplace. In the last decade many innovation studies have been conducted within the wood product industry (e.g. Rametsteiner and Weiss 2006, Van Horne et al. 2006), Hansen et al. 2007, Stendahl and Roos 2008, Nybakk et al. 2011, Nybakk 2012, Nybakk and Jenssen 2012, Crespell et al. 2006, Crespell, Hansen 2008, Hansen 2010, Knowles et al 2008, Hansen et al. 2011, However, none of these describe the impact of chemical suppliers on innovation in the wood treating industry or wood industry in general. There is little research that characterizes the relationship between forest sector firms and their suppliers and how that relationship influences innovation. With this gap in mind, we chose to study the wood treating industry where we expected suppliers of wood protection chemicals to be important contributors to innovation in wood treating companies. Our primary objectives were to determine how chemical suppliers view the state of innovation in the wood treating industry and how they see themselves impacting innovation in the wood treating industry. Materials and Methods In this study, we employed a qualitative methodology for this work because the main questions under investigation were how in nature (Yin, 1994). Although often referred to as a case study approach, we emphasize that in this situation, the case is the phenomenon supplier views of and impacts on innovation in the wood treating industry rather than the sampled companies. The study attempts to identify how relationships between buyers and suppliers in the wood treating industry affect innovation. The Paper A-1 2 of 7

3 research was not designed for generalisability, and readers should carefully consider this fact as they explore the results and discussion below. Basic qualitative data analyses techniques were employed. In total 14 managers were interviewed. Interviews were conducted within three chemical suppliers and three customer companies. Two chemical suppliers were based in Europe, and one was based in the US. The three customer companies were from Norway, Germany, and the US. The semi-structured interviews (mostly face-to-face interview) lasted from 40 to 100 minutes. All interviews were recorded and later transcribed. The transcribed interviews consisted of approximately 144 pages of double-spaced text. The text was analysed using traditional qualitative method analyses techniques (Yin, 1994). Results Views from Suppliers. Chemical company managers see the industry as conservative, not especially innovative, and reactive rather than proactive. the industry is quite conservative, so it is not so easy to bring in new technologies into this market. European Manager, chemicals this industry is quite conservative, so customers like to do business as they have done it for the past twenty years. US Manager, chemicals Big box retailers have an important impact on innovation in the sector. Low cost/price is supremely important for these retailers and the pressure they place on wood treaters to provide low-cost products limits the ability of treaters to explore new options. I think the sawmilling industry has a huge problem retail with lots of negotiation power. European Manager, chemicals I will tell you that big boxes always want something for nothing. They want everything, but they don t necessarily want to pay for it. US Manager, chemicals This sort of pressure from customers reinforces the well-documented tendency among forest sector companies to pursue low-cost strategies rather than, for example, differentiation strategies. Recent evidence suggests some evolution by forest sector companies but many still rely on low-cost strategies and suffer from a commodity mentality. It is likely that a low-cost, production orientation has prevented industry from sufficiently investing in development of new or value added products Impact of Suppliers. Each of the chemical companies participating in this research had a strong R&D department and each utilized a structured approach to new product development. Each was actively engaged in cooperation with research institutes and universities. Given this and the history of new chemical formulations entering the market, Paper A-1 3 of 7

4 it is clear that chemical companies are major drivers of innovation in the treated wood sector. Past research has shown the forest industry to be a supplier-dominated sector where a majority of new innovations come from suppliers rather than from within the industry itself (Pavitt, 1984) Interviewees mentioned a number of product innovations, but the most current and prevalent topic was with respect to additives that color the final wood products. On the wood treating side of the industry, companies were focused on improved treatment processes as well as what the chemical suppliers could provide for product enhancements such as improved penetration, durability of a color, improved appearance, and product stability. Color is the product innovation. The new generation will maybe have something else than green. We are screening the market, so we try to adapt by adding colors. But the technology today is not good enough - Scandinavian Manager, wood treater With wood preservative products it is quite rare to have new products for the market, but once in a while we achieve that with our color paste product range. European Manager, chemicals Beyond pure R&D-based innovation, chemical suppliers see themselves as problem solvers for their customers and believe they are well-connected to the marketplace. Managers consistently spoke of their ability to bring both ideas and problems back from the marketplace into their companies and develop solutions for their customers. They referred to this ability in the spirit of providing a complete product offering to their customer, meaning a package far beyond a chemical formulation, including a variety of supporting services. So we help them solving this problem by chemical means, giving technical support, maybe also marketing and regulatory support. European Manager, chemicals "So we are definitely not just a chemical company that sells chemicals. We definitely have a full package. There are some chemicals we offer, plus a service package. European Manager, chemicals As outlined above, chemical company managers see the wood treating sector as traditional, conservative, and lacking innovation. However, each of the chemical companies that participated in this research pointed us to a customer that they knew to be quite innovative. Managers tended to discuss customers in two groups: innovative and non-innovative. you will find that are prone to innovation and there are of course some that are just price buyers. European Manager, chemicals Paper A-1 4 of 7

5 So I would say when you are talking about a customer innovation standpoint, you got 85% of them, they are just waiting on us to bring them something. Then about 15% of them, there is good communication and they are trying to think ahead of the game. US Manager, chemicals It is with those more innovative customers that the chemical companies develop especially close relationships. The building of trust over time with these key customers translates to a situation where the customers are essentially facilitators of innovation development and implementation in the industry. You build trust obviously when you are developing these relationships and they are more willing to be our guinea pig when we have a new product. US Manager, chemicals So we help them solving this problem by chemical means, giving technical support, maybe also marketing and regulatory support. They may also get a reduced price to act as a test customer. European Manager, chemicals Although big box retailers were seen to limit innovation in the industry because of their sharp focus on low price, a US manager described a situation where the retailers drove innovation by demanding a more stable product. Ironically, the big box retailer, instead of going to its supplier of treated wood, went directly to the chemical company seeking an improved product. Conclusions As indicated in earlier research, our findings show that suppliers to forest products manufacturers play an important role in the innovation that takes place in their customer companies. In the context of our work, the suppliers were important for both product and process innovations. Generally, chemical company managers saw the wood treating industry as conservative and rather non-innovative. This doesn t paint a strong innovation-focused future scenario for the wood treating industry. However, the customers interviewed during this study were outliers, clearly pushing the envelope with respect to developing innovations. In fact, one of the customer companies had recently hired an innovation manager, a rare thing in the forest sector. Big box retailers, because of their intense low-cost focus, were described as a bit of a villain in the marketplace, discouraging innovation by their customers. Chemical company managers were clear in their description that it was exceedingly difficult for treating companies to reap any rewards from big box retailers on the innovation front. Still, examples were cited where the retailer went directly to the chemical company seeking specific product improvements. Accordingly, retailers can also be a strong force for innovation in the sector. References Paper A-1 5 of 7

6 Anderson, F A comparison of innovation in two Canadian forest service support industries. Forest Policy and Economics. 8(7): Crespell, Pablo, Chris Knowles, and Eric Hansen Innovation in the North American Sawmilling Industry. Forest Science. 52(5): Crespell, Pablo and Eric Hansen Work Climate, Innovativeness, and Firm Performance: In search of a conceptual framework. Canadian Journal of Forest Research. 38(7): Garcia, R., Calantone, R., A critical look at technological innovation typology and innovativeness terminology: A literature review. Journal of Product Innovation Management. 19, Hansen, E The Role of Innovation in the Forest Products Industry. Journal of Forestry. 108(7): Hansen, Eric, Heikki Juslin, and Chris Knowles Innovativeness in the Global Forest Products Industry: Exploring New Insights. Canadian Journal of Forest Research. 37(8): Hansen, E., E. Nybakk, L. Bull, P. Crespell, A. Jélvez, and C. Knowles A Multinational Investigation of Softwood Sawmilling Innovativeness. Scandinavian Journal of Forest Research. 26(3): Hansen, E., Nybakk, E. & Panwar, R Firm performance, business environment, and outlook for social and environmental responsibility during the economic downturn: findings and implications from the forest sector. Canadian Journal of Forest Research 43: Knowles, Chris, Eric Hansen and Steve Shook. 2008b. Assessing Innovativeness in the North American Softwood Sawmilling Industry Using Three Methods. Canadian Journal of Forest Research. 38(2): Nakamura, M., Nelson, H., and Vertinsky, I Cooperative R&D and the Canadian forest products industry. Managerial and Decision Economics. 24(23): Nybakk, E. (2012). Learning Orientation, Innovativeness and Financial Performance in Traditional Manufacturing Firms: A Higher-Order Structural Equation Model. International Journal of Innovation Management., 16(5), 28. Nybakk, E., P. Crespell and E. Hansen. (2011). Climate for Innovation and Innovation Strategy as Drivers for Success in the Wood Industry: Moderation Effects of Firm Size, Industry Sector, and Country of Operation. Silva Fennica, 45, Paper A-1 6 of 7

7 Nybakk, E. and J. I. Jenssen. (2012). Innovation Strategy, Working Climate, and Financial Performance in Traditional Manufacturing Firms: An Empirical Analysis. International Journal of Innovation Management, 16(2), 26 pp. Pavitt, K Sectoral patterns of technical change: Towards a taxonomy and a theory. Research Policy. 13(6): Rametsteiner, E. and G. Weiss Innovation and Innovation Policy in Forestry: Linking Innovation Process with Systems Models. Forest Policy and Economics. 8: Van Horne, C., D. Poulin, and J.M. Frayret Innovation and Value Creation in University-Industry Research Centres in the Canadian Forest Products Industry. Canadian Journal of Forestry Research. 42: Van Horne, C., J.M Frayret, and D. Poulin Creating Value with Innovation: From Centre of Expertise to the Forest Products Industry. Forest Policy and Economics. 8(x): Yin, R.K., Case study research: Design and methods. Sage Publications, Thousand Oaks. Paper A-1 7 of 7