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Driving Innovation in the mature
Packaged Gases Market

John Irven
Director of Technology

© 2008 Air Products

Number # 1 in
Electronics
Helium
Hydrogen

A ~$10bn industrial gases &
special chemicals company

Diversified markets & geographies
in 30 countries, 50% outside USA
2

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

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


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’

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…...

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


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


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


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


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

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


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



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



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


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


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


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


Applied to practical
examples

Open, closed and ‘mixed’ innovation
models


3

4
Inc jvs

1

2

Using © 2008 Air Products
20 external resources to supplement internal R&D and commercialization efforts

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
Degree of Commitment
&
Difficulty in Decision Making

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


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


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

3 - outward technology licensing

To non-competitors in non-competing
territories

To competitors in non-competing territories


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

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


Balancing the portfolio risks
High

Positioning options Stepping Stone options
->
Technical uncertainty

Platform launches
->

Scouting options
Low

Enhancement launches

Low -> Market Uncertainty -> High


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

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

Thank you


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.


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