The industry should never lose sight of the possibility that it can find ways to produce a better product at less cost.

by Paul Raymond

Prior to joining the paper chemicals industry, I most recently led a business selling specialty chemicals into the semiconductor industry. I have been struck by the many parallels between these two industries. Similarities include high capital costs (exceeding $1 billion per plant), the synergistic relationship between equipment suppliers and chemicals suppliers, and a relentless pursuit of higher throughput and lower costs.

Perhaps more surprising to me was the realization that many products used in the paper industry are actually more sophisticated than those I sold into the semiconductor industry. The paper industry is more technologically advanced in that it has been using nano-materials for many years and complex reactive systems are now common place.

As a business leader fortunate enough to work in multiple industries, I would like to share some of my positive experiences in value creation from the semiconductor industry that have relevance to the paper industry.

Moore's Law
In 1965, Gordon Moore, one of the founders of Intel, observed that innovations in technology would allow a doubling of the number of transistors on a chip every two years and that the speed of those transistors would increase. What is less well known is Moore's statement that manufacturing costs would dramatically drop as the technology advanced. Moore's prediction, now popularly known as Moore's Law, had some startling implications, i.e., computing technology would increase in value while actually decreasing in cost-at the same time. This was an unusual idea in the mid-60s, since building a better widget with twice the functionality usually meant doubling the widget's cost.

Unfortunately, an analogous Moore's Law for the paper industry has not yet emerged. Many producers would readily agree that innovation in the paper industry has historically been associated with increasing costs. Contrast this with the case of Intel which has consistently evolved technology, taken continuous steps to enable new capabilities, and used the principles of Moore's Law to make technologies once considered science fiction more affordable realities.

Despite end market differences between semiconductors and paper, I still cannot help but wonder if there is an equivalent of Moore's Law for the paper industry. In my days as a supplier of specialty chemicals to the semiconductor industry, driving out costs while increasing performance was expected, and we routinely succeeded.

So, how can we make this routine in the paper industry? One strength of the semiconductor industry is its high return on investment for research and development with joint development agreements being very common, allowing both partners to share in the first-to-market advantage. Of course, the first-to-market advantage varies depending on the agreement, but it always rewards both the buyer and the supplier in some fashion. Recognizing the importance of innovation has enabled the semiconductor industry to sustain a constant technology evolution with demonstrated lower costs.

Conversely, if we consider the past 50 years in the paper industry, a different story evolves. Some technology gains did occur, but many of these, such as recycling, were driven externally. The rapid conversion of acid fine paper machines to alkaline systems was another technology driven initially by external forces (the need to improve the permanence of some paper grades), although drivers behind this trend quickly became internal (improved machine runnability and production economics). In general, few papermaking technologies have been able to simultaneously increase the performance of paper, paperboard, or pulp and lower production costs at the same time—the most basic tenet of Moore's Law.

More recently, we have witnessed a long list of mergers and acquisitions followed by the consolidation and closure of paper machines, loss of technical/engineering departments, and a shrinking supplier base. My concern is that reduced innovation and a heavy focus on cost reduction have made it impossible to dramatically grow the value of paper products.

Rebalancing Act
In recent years, the pulp and paper industry has been spending a lopsided amount of time trying to reduce costs while investing very little time to increase value. If you agree with the premise that we cannot “save ourselves into profitability,” then you probably also agree that we have to explore how to work in different ways and begin shifting our basic approach to innovation. And, it cannot be just about generating innovation for innovation's sake, but rather creating new offerings and establishing new relationships that deliver both cost reductions and increased value of the final product.

We are now beyond the era of endlessly analyzing and discussing the many ins and outs of papermaking economics, or just selling chemicals to mills. We should now be driven by what more we can do with paper to improve both the sustainability and profitability of our businesses as a whole. As big as Intel is, it still believes that continued innovation and industry cooperation are more important than ever if all parties involved are to ever realize the full potential of their capabilities. The paper industry needs to develop a similar perspective if it is to survive and prosper in today's global business environment.

Paul Raymond is President, Hercules Paper Technologies and Ventures. He holds a Ph.D. in chemical engineering from the University of Texas at Austin and an undergraduate degree in chemical engineering from Rice University.

Editor's Note: Hercules Pulp and Paper Division has been renamed Hercules Paper Technologies and Ventures. The Paper Technologies group is focused solely on the paper industry, while the Ventures group will leverage the company's core competencies into adjacent high growth markets.

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