Driving Innovation in the mature
   Packaged Gases Market

   John Irven
   Director of Technology

© 2008 Air Products
Number # 1 in
                                        Electronics
                                        Helium
         ...
Air Products - some examples of
    our businesses




                            Helium MRI scanning
                   ...
Air Products Global business
    PG ~$1.0bn within a $30bn Industrial Gases market




                                   ...
Gases Supply chain Old model                  New agent model
                                                            ...
Size of the innovation challenge in Packaged Gases cylinder
    business - no new products in decades !


                ...
So what were the key strategic
    initiatives ?


    1.    Embed technology in business & strategy, linked to defined
  ...
Strategic initiative # 1
    Embed technology in business strategy


       Integrate technology
       into the business
...
Strategic initiative # 2
      Demand differentiated offerings
                                                           ...
Strategic initiative # 3
     An integrated process & cross functional approach

      Cross-functional and cross-regional...
Strategic initiative # 4
     Drive VOC at all stages

        Stage-Gated process with VOC at all stages
        Understa...
Strategic initiative # 5
     Manage the Gate 4 & launch aggressively

                               Gate 4
             ...
Strategic initiative # 5
      Manage the Gate 4 – understand/optimise the process


     Heading to the Gate 4 decision, ...
Strategic initiative # 5
     Manage the Gate 4 – understand/optimise the process


      CI role mapping
      Transition...
Strategic initiative # 5
      Manage the Gate 4 – understand/optimise the process


     Marketing & Sales
        – The ...
Strategic initiative # 6
     Tools & metrics – Air Products & PG
     ‘Make-good’ predicted v actual                     ...
Strategic initiative # 6
      Tools & metrics – AP corporate
      metrics
                                              ...
Strategic initiative # 6
     Tools & metrics – Packaged Gases ‘make good’
                                               ...
Applied to practical
       examples

       Open, closed and ‘mixed’ innovation
       models

© 2008 Air Products
3

                                                                      4
                                               ...
Partnering:
       The Spectrum of Engagement
                                                                            ...
PG Innovation initially using our
      internal technology base – but…..
          We have very good internal cross-funct...
Examples of innovation using partner
     development & manufacturing
     1      Internal + external technology base
    ...
2         Technology in-sourcing                                               © 2007 Air Products



          – innovati...
3 - outward technology licensing

           To non-competitors in non-competing
           territories



           To c...
4 Technology spin-out / licensing Inergen® –
breathable fire extinguishing gases & systems

       Fires require < 15% O2 ...
The future-what’s next ?
     Idea collection from wider sources
                                                         ...
Balancing the portfolio risks
        High




                                                   Positioning options     ...
Key lessons learned for successful innovation
 1. A strategy for the business
    – ‘Lead don’t follow’, with
      Innova...
Dow Corning
Chemical Industry




                                                            Party
                      ...
Thank you



© 2008 Air Products
Biographical sketch

           Professor John Irven MA, PhD, CSci, CChem, FRSC
           John Irven is Director of Techn...
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  1. 1. Driving Innovation in the mature Packaged Gases Market John Irven Director of Technology © 2008 Air Products
  2. 2. Number # 1 in Electronics Helium Hydrogen A ~$10bn industrial gases & special chemicals company Diversified markets & geographies in 30 countries, 50% outside USA © 2008 Air Products © 2008 Air Products 2
  3. 3. Air Products - some examples of our businesses Helium MRI scanning Cryogenic liquid, space Cryogenic Air Separation Electronics, analytical Cylinder packaged gases Hydrogen fuelling 3 © 2008 Air Products
  4. 4. Air Products Global business PG ~$1.0bn within a $30bn Industrial Gases market Regional & Technology Centres Countries where we operate or partner Cylinders and packages to users in many industries 4 © 2008 Air Products
  5. 5. Gases Supply chain Old model New agent model Customer On-site Bulk Cylinder Direct Retail Production Gases Fill Distribution Distribution Best 1.5x % x% x% 2x % >4x % Performer OROI 100,000s customers, transaction intensive commodity business Old Business model - Strategy New Business Model - Strategy No real opportunity for change If we don’t change we die Supply chain dominated Refocus on high value ‘retail end’ Operations & distribution focused Use new agent distribution model Target cost reduction in filling & Cost reduce, but drive profit growth distribution by differentiated offerings Low profit expectations High profit expectations ‘Lead don’t follow’ 5 © 2008 Air Products
  6. 6. Size of the innovation challenge in Packaged Gases cylinder business - no new products in decades ! Compressed gases supplied in heavy metal cylinders 1900 2000 KEY FEATURES : KEY FEATURES : •Cylinder •Cylinder •Cylinder Valve & Cap •Cylinder Valve & Cap •Compressed Gas •Compressed Gas The only change had been the colour of the paint…... 6 © 2008 Air Products
  7. 7. So what were the key strategic initiatives ? 1. Embed technology in business & strategy, linked to defined market segmentation 2. Demand differentiated offerings, ‘lead not follow’ 3. An integrated process and cross functional approach 4. Drive VOC at all stages of development 5. Manage the Gate 4 and launch aggressively 6. Use tools & metrics to support the culture change Best practices have fed into our corporate wide “Innovate” process 7 © 2008 Air Products
  8. 8. Strategic initiative # 1 Embed technology in business strategy Integrate technology into the business programs and strategy Link to market segmentation & selection To ‘Lead not follow’ the market 8 © 2008 Air Products
  9. 9. Strategic initiative # 2 Demand differentiated offerings Party Perfect Built-in -purification Customer Integra medical Integra welding Helium balloons Int eg rat ion 50 ℓ 200 bar‘Conventional wisdom’ - value 2 + 2 = 4 New opportunity - value 2 + 2 = 5 ! Reduced size/weight BIP – 1st to change Incorporate functionality & safety to capture value, and the paradigm meet ‘VOC’ needs for light, easy to use packages 9 © 2008 Air Products
  10. 10. Strategic initiative # 3 An integrated process & cross functional approach Cross-functional and cross-regional participation in strategy, planning and prioritisation in a steering team – Technology/ R&D – Marketing – Operations, Engineering, Supply chain Use staged development pipeline, with gatekeepers from key functions R&D Group + Dev Group + Commercial Group Rank & select ideas by financial impact & risk analysis Introduction Ideas Development All aimed at avoiding the ‘NIH’ issue 0 Gates 4 10 © 2008 Air Products
  11. 11. Strategic initiative # 4 Drive VOC at all stages Stage-Gated process with VOC at all stages Understand customer and market need, recognising ‘unmet’ or unstated needs with a truly innovative offering Commercialisation Development Prototype Feasibility Concept Ideas $ ‘Voice of customer’ Gates ’ VOC at all stages i s ce ch ps 0 ps 1 l s 2 3 lots 4 tion a ia pi c cho ear m o u t r l is fa to res eam gr ia at s c es et t r cu s EM d tr e r s vey oi ar k es Fo e r/O iel m sur ‘V m lu m F st o & Va u st o Cu C 11 © 2008 Air Products
  12. 12. Strategic initiative # 5 Manage the Gate 4 & launch aggressively Gate 4 Launch & Development commercialisation Gate 4 determines move into commercialisation Business Plan Tied to mandatory Business & Launch plans Targets baked into our – Plan & commitment process, regional marketing & sales budgets – individual and team appraisals for accountability – “Innovate” make-good tracking Driven and supported by senior business executive & team Linked to market-communications & branding strategies 12 © 2008 Air Products
  13. 13. Strategic initiative # 5 Manage the Gate 4 – understand/optimise the process Heading to the Gate 4 decision, & post Gate 4 ‘Launch’ An Environment of : • Intense Communication & change • Commitment ! • Hand-Over and Changing RACI ‘How to’ – optimise effective transfer to the market – industrialise the product So that the offering becomes part of our ‘standard’ portfolio in a sustainable way as soon as possible 13 © 2008 Air Products
  14. 14. Strategic initiative # 5 Manage the Gate 4 – understand/optimise the process CI role mapping Transition from ‘end development’ to ‘routine’ development routine Commercial R&D Group Dev Group Group Transition Transition Ideas Development Introduction Standard Gates 0 4 activity Development proven with field trials Concept/ Feasibility/ Prototype/ Development Launch/commercialisation Launch plan 14 © 2008 Air Products
  15. 15. Strategic initiative # 5 Manage the Gate 4 – understand/optimise the process Marketing & Sales – The (Central) Launch Manager Role – Linking Strategic & Tactical marketing to Sales Engineering & Operations – Use ‘Pilot Field trials’ pre-Gate 4 – Management Of Change (MOC) Best Practice Procurement & Supply Chain – Supplier/partner engagement – ‘open innovation’ Knowledge management – Training & skills development – Build Manuals, Procedures & documentation 15 © 2008 Air Products
  16. 16. Strategic initiative # 6 Tools & metrics – Air Products & PG ‘Make-good’ predicted v actual Air Products Corporate Portfolio Number of new offerings through 120 35 Gate 4 over time 30 100 Predicted impact of offerings in Impact benefit (normalised) 25 pipeline 80 Number gate 4 pa 20 # ideas in each stage 60 Predicted Actual Gate 4s p.a. Times in each stages 15 40 – Development cycle time 10 – Product life cycles 20 5 Customer loyalty 0 0 99 00 01 02 03 04 05 19 20 20 20 20 20 20 Year 16 © 2008 Air Products
  17. 17. Strategic initiative # 6 Tools & metrics – AP corporate metrics Forecast Impact of Completed Gate 4 Projects (2000-2005) 20.0 Cumulative Impact of projects Predicted impact in pipeline 04 15.0 03 05 10.0 Impact (MM$) 02 01 5.0 0.0 0 20 40 60 80 100 120 140 160 0 5 10 15 20 25 30 35 -5.0 Number of Projects Project Number 17 © 2008 Air Products
  18. 18. Strategic initiative # 6 Tools & metrics – Packaged Gases ‘make good’ New Revenue 160 SRLD 140 Experis 120 Home Medical Medical 100 Normalised basis Licensing 80 Oxy DA 60 Acetylene (DMF) Carbon Black Linx Gases/Inframix 40 Party Perfect 20 Heligas / Ballonium 0 BIP 05 01 03 Maxx C P& FY FY FY 07 FY Integra Welding Year 18 © 2008 Air Products
  19. 19. Applied to practical examples Open, closed and ‘mixed’ innovation models © 2008 Air Products
  20. 20. 3 4 Inc jvs 1 2 © 2008 Air Products Using © 2008 Air Products 20 external resources to supplement internal R&D and commercialization efforts
  21. 21. Partnering: The Spectrum of Engagement acquisition joint venture joint manufacturing acquire do nothing minority equity strategic alliance wait joint development watch license search contract research attract high low © 2007 Air Products Degree of Commitment & Difficulty in Decision Making 21 © 2008 Air Products
  22. 22. PG Innovation initially using our internal technology base – but….. We have very good internal cross-functional core competencies and expertise but we do not – have large scale R&D in welding & fabrication – we do not make in-house: • Cylinders • Valves • Gas delivery systems • Small liquid delivery systems So we leverage our internal capabilities through external technology base, partnering with Universities, TWI (The Welding Institute), Manufacturers We jointly design to our ideas and requirements, aiming to own the IPR Partners research, develop and manufacture to our proprietary designs 22 © 2008 Air Products
  23. 23. Examples of innovation using partner development & manufacturing 1 Internal + external technology base Customer Integra welding Int eg rat ion 50 ℓ 200 bar‘Conventional wisdom’ - value 2 + 2 = 4 New opportunity - value 2 + 2 = 5 ! Reduced size/weight Incorporate functionality & safety to capture value, and meet ‘VOC’ needs for light, easy to use packages 23 © 2008 Air Products
  24. 24. 2 Technology in-sourcing © 2007 Air Products – innovation in the supply chain smallest Customers largest Cylinders Cylinders Packs Dewar Cyl Packs Minitank liquid Bulk Bulk liquid tanks ASU On-site exchange “ full for empty” “Refillable on site” “Refillable on site” CryoEase CryoEase Brings the benefits of bulk Small tank refilled on customer site supply to a smaller customer 25 up to 2,000 litres 24 © 2008 Air Products jv with CryoServices UK
  25. 25. 3 - outward technology licensing To non-competitors in non-competing territories To competitors in non-competing territories 25 © 2008 Air Products
  26. 26. 4 Technology spin-out / licensing Inergen® – breathable fire extinguishing gases & systems Fires require < 15% O2 environment to extinguish People also ‘self extinguish @ < 15% O2 BUT if we add ~ 3 % CO2, we stimulate the breathing reflex and can survive < 15% O2 Use a 52% N2/ 40% Ar/ 8% CO2 mixture with correct gas density When blended into air, it reduces the oxygen level to < 15% to extinguish fire, maintaining 3% CO2 for a breathable mixture Gas extinguishes combustion, but people can survive Safer than Halon in electrical, computer system protection 26 © 2008 Air Products © 2007 Air Products
  27. 27. The future-what’s next ? Idea collection from wider sources MacMillan matrix Better assessment/prioritisation tools Scoping Stepping – Different ‘incremental’ v ‘step Options Stones out’ Technical Uncertainty – DDP, ‘MacMillan’ & risk Platform Scouting analysis Launches Options Improved idea selection Incremental – related to strategic marketing Expansions and segment analysis Forward-looking metrics Market Uncertainty Reduce cycle time through – Improved project management – CI & lean techniques – Relate to life cycles 27 © 2008 Air Products
  28. 28. Balancing the portfolio risks High Positioning options Stepping Stone options -> Technical uncertainty Platform launches -> Scouting options Low Enhancement launches Low -> Market Uncertainty -> High 28 © 2008 Air Products
  29. 29. Key lessons learned for successful innovation 1. A strategy for the business – ‘Lead don’t follow’, with Innovation and technology at the core 1 Product 2. Business & Technology Leadership: doing the right things Innovation & Technology – Engagement, People, culture & Strategy for the cross functional teams business 3. Portfolio steering team Idea-to-launch: – strategic & tactical decisions Climate, System: 2 VOC Stage Gate® 4 Culture, teams 4. Idea to launch system & leadership – Idea selection, Stage Gate®, Innovate business & launch plan @ Gate 4, continuously improve & simplify Resources: commitment – do what needs to be done (no & Portfolio silos) Management Choose most appropriate approach, whether internal, external, jv, licensing within ‘open innovation’, with voice of 3 the customer at the core 29 © 2008 Air Products
  30. 30. Dow Corning Chemical Industry Party Perfect Freedom HOS Linx Integra Gases O2-DA Integra OxyWalker Maxx Welding Medical BIP Gases Heligas Best gas supplier award Externally recognised 7 30 © 2008 Air Products © 2008 Air Products
  31. 31. Thank you © 2008 Air Products
  32. 32. Biographical sketch Professor John Irven MA, PhD, CSci, CChem, FRSC John Irven is Director of Technology for Air Products, Packaged Gases Group, where he is responsible for the global R&D and innovation of new products, processes and applications in industrial gases technology. A particular area of focus is on gases for welding and fabrication processes, as well as applications across Electronics, Specialty and Helium gases businesses. Before joining Air Products, John read Natural Sciences at St. John’s College Cambridge, worked for the Plessey Company on Electronic materials and semiconductor processing, and Standard Telecommunication Laboratories on optical fibre technology, in which his PhD is based. He is a chartered scientist, chartered chemist, and Fellow of the Royal Society of Chemistry, and is visiting Professor in Chemistry at Queen Mary University of London. He chairs the TWI (Welding Institute) Cambridge Research Board activities on welding and fabrication, and is member of EPSRC, and RSC solid state committees. New products developed by John’s team have received a number of external recognitions, including two UK Queen’s Awards for Enterprise, Innovation, the inaugural ECN Dow Corning Chemical Industry new product innovation award 2004, and endorsements from the UK Chartered Institute of Marketing and TUV Germany. He has over 60 published papers, 25 patents, and has presented a number of invited talks at scientific meetings, as well as on the topic of Innovation. 32 © 2008 Air Products
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