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Business

Bayer crop science unit speeds IT revolution, sees ChemChina as longer-term player

FRANKFURT, Germany -- Bayer's planned $66 billion takeover of U.S. seed giant Monsanto marks the latest wave in a sea change at the German company's agricultural subsidiary under CEO Liam Condon.

Bayer CropScience, the world's second-largest agrochemical company, is developing a new business model based on harnessing information technology to deliver solutions to customers. Condon, who took the reins at Bayer CropScience four years ago, plans to invest 200 million euros ($224 million) in digital farming by 2020. He recently sat down with The Nikkei to discuss the company's strategy, as well as ChemChina's agreement to acquire Bayer rival Syngenta.

Q: Recently, Bayer has focused on digital farming. How has digitization affected your business so far, and how will it affect it in the future?

A: I guess on the one side we can talk about technology, but what's maybe also interesting is talking a little bit about how we set up digital farming and how it changes how we work. That's the interesting part.

We see digitization in two areas -- it impacts everything, but there are two areas where we think there is truly disruptive potential. One is the whole topic of life science, which is more the R&D part, where we talk about connecting all of the available data internally and externally and then interpreting that data with data scientists, developing algorithms and giving recommendations to farmers. This is one area where we have data infrastructure on the one side, and on another a new target group of employees, whom we call data scientists. In the past we had IT people, but they were looking after infrastructure and not interpreting data. Data scientists are very important.

Then on the other side we have digital farming: how this affects the farmer in the field. Here the goal is to be able to get to a very granular level and help farmers to take smarter decisions, more precise decisions, and basically help them to understand which seed [to use] for which part of the field, which crop protection product when exactly and, ideally, in an automated way in real time.

That requires a lot of data, and a lot of ability also, to develop algorithms based on agronomic knowledge. We are investing in both areas. We have computational life science in the R&D function and the digital farming function run by Tobias Menne, and the idea is to move from a input-based model, developing herbicides and pesticides, more toward an output-based model, selling a solution, like a disease-free wheat or even yield guarantee to a farmer. That's the concept we have in place.

Q: How do you develop that business?

A: The way we set up digital farming is what I'd call a corporate garage startup. Like in the old days, the best companies started out in a garage, and we have within our company basically a startup. This was the first big decision: Do we do it inside or outside the company? We decided to do it inside the company, because we felt then it would be easier to help to convince the rest of our organization of the importance of digitalization.

If it's outside, people will just be doing what they have always done and won't notice that we have been disrupted. So we have our own team within our company that works across functions, and this team -- [led by] Tobias Menne -- reports directly to me, to make sure that they can make fast decisions. In a big company, usually, decision making is sometimes a little bit slow because there are many levels of hierarchy. With a digital team, it's very fast. Tobias just has to ask me, I say "yes" or "no," and they move. It's very quick. They work differently from how we normally work in a big company like Bayer.

In a German company, each department has monthly meetings, and everybody comes in for a day. The digital young folks, they don't want to do this. Every day, it's all open space. They come in for 10 minutes in the morning, quickly discuss what are the key things they want to make progress on, then have an end-of-the-day get-together -- what did we learn today, what can we make better tomorrow. Every day we constantly develop forward and without these big, long and unproductive meetings.

So it's a different way of working. And one other element in that context which I think is interesting: As a life science company we used to develop products that take 10 years. We do things in a very fixed manner. The regulations are also very clear and fixed, and it takes a long time. We only bring a product to the market when it's 100% ready and perfect. With a digital product, we have the idea of getting the product on the market as quickly as possible, even though it's not ready, so that users can work with it, figure out all of the things that won't work and give us feedback so we can quickly adapt. And using customer feedback, we constantly develop the product. The product life cycles are every three to six months. We have products on the market that have been developed within 18 months. This is very different.

It's a different mindset for a company to be willing to give something to a customer that isn't perfect, let them test it, give us feedback, and then we improve. Overall there are a lot of changes, at the end of the day to the products we offer to our customers, but it also changes the way we work internally.

Q: Do you think many employees in Bayer can deal with this new method?

A: The reality is, everybody in their private life does this. If you book a holiday, you book it online. In the past, nobody did this. Now everybody does it. Shopping is online.

Q: Silicon Valley can deal with this easily ... but it's not usually the case in Europe or Japan.

A: The difference is, we don't have a problem with the level of engagement. We have statistics on this -- best of class, engagement level is super high. People are absolutely willing to work exceptionally hard because they believe in what they are doing.

A lot of work is driven by processes. A lot of our processes are built around the fact that it's a regulated industry -- things have to go sequentially in a certain order. You can't do things always the quick, flexible, digital way. Not everybody can or needs to adapt in their work because otherwise we wouldn't be able to develop all the molecules that we develop.

But the thing is, we need some folks in our company who are digitally adept, and they need to work closely with others who are working in a more sequential way and make sure they can benefit from each other.

Q: You expect that Tobias directly reports to you. Bayer acquired Canadian and German IT companies. Was that also the case when Tobias wanted to buy such a company?

A: Yes. We talk regularly and say what we need, look at options, and he makes a recommendation. We run through it with our finance team and make sure that everything with the company is OK. We don't just buy it, we make sure it's OK. Then it's a relatively quick decision to move ahead. We don't need a year to take that decision.

Q: How do you create an ecosystem in the agriculture industry? Do you have to create new partnerships? How do you describe your business model or ecosystem?

First and foremost, we have a clear strategy which gives us the direction. Then we look at the possible best partners to achieve these goals we want to achieve. We look at strategic partners, and we have a group dedicated to alliance management which just looks at strategic partners. They look at who could be best suited to work with us, willing and able to work with us, and then we make a decision for a certain partner. Usually, per area, it is one strategic partner. This is on the global, strategic level.

Then we also have regional, local partners. For example, in Japan, we would also have regional partners, and then the local management can decide distribution. In Japan we don't take this decision at a regional or global level -- this is only taken in Japan. But sometimes there will be a partnership that has a global impact. For example, from an R&D point of view, we work with some Japanese companies who are very innovative. Sumitomo, Nichino, many companies that we work with are very productive from an innovation point of view, with new crop protection active ingredients.

Often, we will in-license, do deals with them, access their technology, and we will bring this technology then to other markets around the world. The contact is usually made locally, but the impact is then global. It's always a mix, but first and foremost we look for strategic partners -- not too many, very select. There are core partners, and then there are more local collaborations, which we allow local management to decide because it would have become too complicated to manage all that from HQ.

Q: Many agriculture companies have announced mergers and acquisitions lately. What's the idea behind it, and why do many companies rush into consolidation?

A: I do think it's strongly related to productivity within R&D. I moved from health care to crop [science] in 2012, and when I started one of the first topics we talked about was industry consolidation. It's not new. The reason why people were talking about it was that productivity in the industry has been going down ... versus the previous decades.

There are also entirely new technologies and technology platforms opening up which also require additional investment. Advances with molecular biology, systems breeding, the whole data science -- there are many, many new areas where, in order to be really competitive, you need to invest, at a time when productivity is going down anyway. So it's very difficult to manage that with these long-term investments.

With that, I think a lot of companies have been looking at how they can ensure that they have critical mass across technologies, to ensure the innovation output. I think this is the main driver. The reason is, of course, that industry productivity is going down because regulations are becoming stricter and stricter. It's simply taking longer and becoming more expensive to develop products. There are actually few companies that can afford to do the R&D that's required. At the end of the day, regulating authorities are setting the standards higher and higher, to ensure food safety for everybody, which is good. But the result is then also that fewer and fewer companies can actually invest in the necessary amounts to ensure innovation. That's something which society has to be aware of and accept. It's a consequence. If you constantly set the bar higher, not everybody can then play.

Q: ChemChina agreed to acquire Syngenta, a big Bayer competitor. In other industries, Chinese companies have sometimes disrupted the established order by selling cheap products. On the other hand, ChemChina is a rich company and can afford to invest in R&D. Do you think ChemChina will be a big threat to Bayer?

A: I'm less concerned, maybe because of my experience in China. I expect a company like ChemChina will take a rather longer-term approach. I think it makes sense for China to be investing in access to modern technology; this is one way of doing it. Another is that if Bayer is bringing that technology to China, there are different ways. But I think it makes sense for China to be investing in modern technology, and I think the Chinese, in my experience, have been doing things with a longer-term view.

With that, I wouldn't see a situation where ChemChina would immediately try to change everything at Syngenta. They would probably break the Syngenta model. So they will probably manage that at arm's length and look and observe how well Syngenta is doing and see where they have synergies. But I think they will have a longer-term perspective, and that's a good thing in an industry where you need a long-term perspective, where it takes you 10 years to develop a product.

Interviewed by Nikkei staff writer Takayuki Kato

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