BUSINESS F O C U S Mitsubishi revamps its R&D strategy to encourage development of novel technologies with market potential.
MITSUBISHI CHEMICAL AIMS AT BREAKTHROUGH Struggling giant bets its future on products featuring completely new technologies JEAN-FRANCOIS TREMBLAY, C&EN HONG KONG
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ITSUBISHI CHEMICAL ILLUS-
trates many of the changes now taking place in Japanese research. Over the past two years, under the guidance of Greek-American George Stephanopoulos, the company has restructured its R&D organization and set new directions stressing interdisciplinary research. In doing so, the company is betting that commercialization of products featuring new technologies will turn it into a winner. Mitsubishi Chemical has been mostly stagnating since it was created in 1994 out of the merger of Mitsubishi Kasei and Mitsubishi Petrochemical. The firm has reported either annual losses or tiny profits until March of this year, when it announced a record loss of $370 million, or the equivalent of 2.5% of annual sales. Although it is the largest olefins producer inJapan and basic chemicals account
for most of its sales, Mitsubishi derives most of its profit from pharmaceuticals. For a few years now, its management has realized that the merger did not deliver much benefit. In February, the firm took the unusual step of appointing as president and CEO Ryuichi Tomizawa, who was previously an executive vice president at subsidiary Mitsubishi Pharma. Last month, it unveiled a new strategy detailing the businesses it wants to be in and how it will get there. ONE OF THE MOST uncommon moves by Mitsubishi Chemical, a firm that the magazine Nikkei Business described recently as one ofJapan's most conservative companies, was to appoint Massachusetts Institute of Technology professor Stephanopoulos as its chief technology officer (CTO) two years ago. During his tenure, which ended last
summer, Stephanopoulos centralized strategic R&D decisions, set new guidelines for how Mitsubishi should select what to research, and instituted a system of generous bonuses for researchers coming up with valuable patents. Stephanopoulos remains a member of Mitsubishi's board and visits the company once a month. Stephanopoulos agreed to join Mitsubishi after a plea made in person by Akira Miura, a former Mitsubishi Petrochemical executive who in 2 0 0 0 was chairman of the company Stephanopoulos says that, though unexpected, his appointment to a senior post in the company was the culmination of a long relationship. And because he was invited into the company rather than forced on it, he says he never had difficulty making himself heard. Stephanopoulos' relationship with Mitsubishi goes back to the 1980s, when the company joined a research consortium Stephanopoulos was coordinating from MIT. Subsequently, he visited the firm several times, even arranging for some of his students to intern at one of its petrochemical complexes. In 2000, before becoming CTO, he chaired a committee advising Mitsubishi Chemical's semi-independent Institute of Life Sciences on what its research priorities should be. Stephanopoulos is a chemical engineer and consultant for chemical firms. He specializes in process systems engineering and has significant experience in technology management through his involvement with M I T ' s Leaders for Manufacturing program, which is a joint undertaking of the Sloan School of Management and MIT's School of Engineering. Explaining why Mitsubishi did not hire a company insider for the C T O position, he says few people—inJapan or outside— have had the opportunity to combine both scientific knowledge and management expertise. Expertise in systems design, he muses, is the "most natural scientific or engineering exposure for someone who wants to do management later on." In managing systems, he says, one manages from an optimization point of view, a control point of
Interdisciplinary research with outside organizations can help to develop technology platforms. 16
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view; one must diagnose, think of safety, and in the end, generally deal with complexity "Of course, managing a human organization brings a whole new host of issues," he adds. Upon becoming CTO, Stephanopoulos said at a press conference that his new employer got "an A-plus for its latent R&D capabilities, but a C-minus for its ability to bring revolutionary technologies to the market." An illustration of the company's leadership in certain fields is that theJapanese translation for the phrase life sciences was established by Mitsubishi Chemical. Stephanopoulos implemented several tangible and cultural changes during his tenure. Most important, he says, was to "link technology to business"—that is, to make researchers consider the market applications of what they do. Traditionally, corporate scientists in Japan have performed academic-type research. "From the very beginning, I talked about the business model," he recalls. "We will not do any research without the concept of a business model." His second initiative, based on a more complicated but almost equally important concept, was to build a "seamless innovation process in R&D"—an organization "where you can innovate, in a continuous and natural way" The aim is to repeatedly come up with highly differentiated products based on unique technology platforms. TECHNOLOGY PLATFORMS, he explains, are "integrated sets of many technologies, many elements."These basic elements are obtained as a result of past research efforts by the company, collaboration with universities or national laboratories, or even the licensing of intellectual property from other companies. The platforms are used to generate an array of products sharing the same basic technology Mitsubishi, for example, has begun to mass-produce fullerenes. Using the seamless innovation process, it hopes to turn them into battery components, drug delivery vehicles, elements of composite plastics, or other products. Interdisciplinary research with outside organizations can help to develop technology platforms. This explains why the company set up the Mitsubishi Chemical
erate concrete results for several years. But some of them will start delivering results sooner, he predicts. One example is Frontier Carbon, a fullerene joint venture with Mitsubishi Corp., which holdsJapanese and European patents for structural fullerene materials. Stephanopoulos says Frontier is in active negotiations with more than 100 Japanese companies for a "variety of applications that others cannot even imagine." The manufacturing technology is based on Mitsubishi Chemical's carbon black process, he says. In January, Mitsubishi also launched a genomics-based research company named Zoegene, after the Greek word for discovery. The company, Stephanopoulos says, is already in full operation, and he expects it will generate income within one year. Based on "unique technologies that we have acquired," Zoegene performs target identification and drug design. A third new venture markets nonviral gene delivery platforms. During the summer, Stephanopoulos asked to return to the U.S. and resume his professorial duties at MIT. Being in Japan, he says, was becoming hard on his family His wife is a software systems engineer and president of Sigma Group Inc., a family enterprise, and his son studies chemistry and chemical biology at Harvard University Stephanopoulos still advises the company on its R&D directions and other management matters. Despite the hardship, he says that his two years inJapan were "the most exciting part of my life." When Mitsubishi's management asked him to join the firm, it believed that Mitsubishi Chemical could not change without outside influence. Although the job of reforming Mitsubishi is not over— the company has hundreds of subsidiaries in unrelated businesses — Stephanopoulos has had a profound influence on the way the company conducts R&D. Mitsubishi still faces the challenge of figuring out what to do with its considerable petrochemical business in Japan. In two years, import tariffs on petrochemicals will come down, opening up high-cost Japan to full-fledged competition. But unlike two years ago, Mitsubishi faces the future with hope and a sense of direction. •
Center for Advanced Materials at the University of California, Santa Barbara. The center focuses on advanced functional materials and solid-state lighting and displays. Academics from different disciplines participate in various research projects, the targets for which are set by Mitsubishi. It's easier to set up research alliances with universities in the U.S. than in Japan, Stephanopoulos says. But he also established a consortium to study organic electronic materials and devices at Kyoto University. Although there is a tradition in Japan of companies collaborating with individual professors, a more complex arrangement in which a group of companies conducts research with professors
SYSTEMATIC Stephanopoulos engineered Mitsubishi's new approach to R&D during his two-year tenure as chief technology officer. from several departments is extremely rare. It would be of little use to Mitsubishi to build technological superiority in markets that do not exist yet if it cannot survive in the short to medium term. The company, after all, is struggling just to break even with its existing businesses, several of which it is selling or has sold already. Stephanopoulos admits that many of the research initiatives set in motion during his tenure will not gen-
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