This document discusses strategies for driving innovation in mature markets. It summarizes Air Products' initiatives to push the boundaries of innovation through six strategic initiatives: 1) Embedding technology in business strategy; 2) Demanding differentiated offerings; 3) Using integrated cross-functional processes; 4) Driving voice-of-customer input; 5) Aggressively managing new product launches; and 6) Leveraging tools and metrics to support cultural change. These initiatives helped Air Products successfully commercialize innovations like their BIP cylinder purifier technology on a global scale and grow revenues from differentiated offerings.

1. Pushing the Envelope – Driving
Innovation in a Mature Market
Dr. John Irven,
Director of Technology,
Packaged Gases, Air Products
Visiting Professor ,
Queen Mary, University of London
February 20-21, 2007 / St. Pete’s Beach, FL

2. Number # 1 in
Electronics
Helium
Hydrogen
A ~$9bn industrial gases &
special chemicals company
Diversified markets & geographies
in 30 countries, 50% outside USA
First International Stage-Gate Leadership Summit Slide 2
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

3. Air Products - some examples of
our businesses
Helium MRI scanning
Cryogenic liquid, space
Cryogenic Air Separation
Electronics, analytical
Cylinder packaged gases Hydrogen fuelling
First International Stage-Gate Leadership Summit Slide 3
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

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
First International Stage-Gate Leadership Summit Slide 4
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

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’
First International Stage-Gate Leadership Summit Slide 5
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

6. BUT - Size of innovation challenge in mature,
commodity, conservative industry
no new products in decades !
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…...
First International Stage-Gate Leadership Summit Slide 6
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

7. Changing the paradigm
BIP® - a purifier inside the cylinder
BIP in Cylinder
HIGH VALUE BUT
– DESPITE great response from Customers
– ‘NIH’ attitude was preventing take–up
WHY?
– we had an un-integrated innovation approach
Analyser
NEW APPROACH
Improved – developed & applied
Purity
Quality RESULT – our first success
Reliability
External ‘hassle’
Reduced – UK Queen’s Award for Innovation
Purifier – BIP commercialised in > 20 countries,
Cylinder HIGH VALUE becoming global analytical standard
LOW VALUE
First International Stage-Gate Leadership Summit Slide 7
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

8. Effect of globalisation on BIP
Europe
UK, Ireland
France, Germany
Belgium, Netherlands
Luxembourg, Spain
Portugal, Italy
Switzerland
Scandinavia
Americas
USA (Airgas)
Canada, Mexico
Puerto Rico, Brazil
Asia
Singapore, Malaysia
India
Africa/M.East
S.Africa Regional & Technology Centres
Dubai
Countries where we operate or partner
First International Stage-Gate Leadership Summit Slide 8
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

9. 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
First International Stage-Gate Leadership Summit Slide 9
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

10. 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
First International Stage-Gate Leadership Summit Slide 10
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

11. Strategic initiative # 2
Demand differentiated offerings
Customer IntegraPerfect
Party medical
Integra welding
Int Helium balloons
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
First International Stage-Gate Leadership Summit Slide 11
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

12. 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 & Introduction
risk analysis Ideas Development
• All aimed at avoiding the ‘NIH’ issue
0 Gates 4
First International Stage-Gate Leadership Summit Slide 12
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

13. 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
c ho 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 ust o Cu
C
First International Stage-Gate Leadership Summit Slide 13
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

14. 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
First International Stage-Gate Leadership Summit Slide 14
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

15. 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
First International Stage-Gate Leadership Summit Slide 15
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

16. Strategic initiative # 5
Manage the Gate 4 – understand/optimise the process
• CI role mapping
Commercial
R&D Group Dev Group Group
Ideas Development Introduction
Standard
Gates 0 4 activity
Development proven with
field trials
Concept/ Feasibility/ Prototype/ Development Launch/commercialisation
First International Stage-Gate Leadership Summit Slide 16
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

17. 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
Ideas Development Introduction
Standard
Gates 0 4 activity
Development proven with
field trials
Concept/ Feasibility/ Prototype/ Development Launch/commercialisation
Launch plan
First International Stage-Gate Leadership Summit Slide 17
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

18. 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
First International Stage-Gate Leadership Summit Slide 18
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

19. 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
First International Stage-Gate Leadership Summit Slide 19
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

20. Strategic initiative # 6
Tools & metrics – Air Products & PG
• ‘Make-good’ predicted v actual Air Products Corporate Portfolio
• Number of new offerings 120 35
through Gate 4 over time 100
30
Impact benefit (normalised)
• Predicted impact of offerings in 80
25
Number gate 4 pa
pipeline 20 Predicted
60 Actual
• # ideas in each stage 15 Gate 4s p.a.
40
• Times in each stages 10
20
– Development cycle time 5
– Product life cycles 0 0
99
00
01
02
03
04
05
• Customer loyalty 19
20
20
20
20
20
20
Year
First International Stage-Gate Leadership Summit Slide 20
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

21. 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
First International Stage-Gate Leadership Summit Slide 21
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

22. Strategic initiative # 6
Tools & metrics – Packaged Gases ‘make good’
New Revenue
Growth in Market, AP PG Sales &
160 Differentiated Offerings
SRLD
140 Experis
30.0%
120 Home Medical
25.0% Market growth
Normalised basis
Medical
100 %
Licensing
20.0%
80 Oxy DA
AP PG Sales
Percent
15.0% Growth %
60 Acetylene (DMF)
Carbon Black
40
Linx Gases/Inframix
10.0%
Differentiated
Party Perfect
offerings CAGR
20 5.0%
Heligas / Ballonium %
0 BIP
0.0%
C
01
03
05
03
04
02
05
06
07
P&
Maxx
FY
FY
FY
20
20
20
20
20
20
-5.0%
07
FY
Integra Welding
Year
Year
Differentiated offerings grow > 25% pa CAGR even in flat mature markets
First International Stage-Gate Leadership Summit Slide 22
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

23. Strategic initiative # 6
Tools & metrics – Packaged Gases
Customer loyalty measure
100%
• Support culture change, with 90%
metrics showing progress
80%
70%
• Demonstrate price premiums 60%
over standard offerings at
much higher profit/OROI 50% At Risk
Indifferent
40% Favourable
secure
30%
• Measure and demonstrate the Category
benefit in customer loyalty 20%
of risk
surveys (part of VOC) 10%
0%
GI Non Premium
Commodity Maxx Heligas BIP
38
First International Stage-Gate Leadership Summit Slide 23
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

24. Key learnings
Business & Technology together
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
First International Stage-Gate Leadership Summit Slide 24
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

25. The future-what’s next ?
• Idea collection from wider sources
• Better assessment/prioritisation tools MacMillan matrix
– Different ‘incremental’ v ‘step out’ Scoping Stepping
Stones
Options
– DDP, ‘MacMillan’ & risk analysis
Technical Uncertainty
• Improved idea selection
Platform Scouting
– related to strategic marketing and Launches Options
segment analysis
• Forward-looking metrics Incremental
Expansions
• Reduce cycle time through
– Improved project management
– CI & lean techniques Market Uncertainty
First International Stage-Gate Leadership Summit Slide 25
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

26. 2006
Winners of Dow-Corning Chemical Industry Innovation award,
Queens Award for Innovation
Silver award
UK Chartered
Institute of Marketing
Party
Perfect Linx
Gases
OxyWalker
“Maxx”
Welding Gases
Integra
Heligas
BIP Medical
© 2007
First International Stage-Gate Leadership Summit Slide 26
February 20-21, 2007 / St. Pete’s Beach, FL Best gas
© 2007 Air Products supplier award
Externally recognised
7 © 2005

27. Key take aways
Believe in your product and approach - if you
don’t the market won’t !
Recognise and nurture innovation – it’s quite
hard to do !
Thank you
February 20-21, 2007 / St. Pete’s Beach, FL

28. Bibliography
‘Stage-Gate systems: a new tool for managing new products’ Robert G Cooper, Business
Horizons, May-June 1990 pp 44-56
‘Voices into choices’ C.Brodie, G.Burchill, Center for Quality management, Cambridge
Mass, Joiner Associates 1997
‘The entrepreneurial mindset’ R.G.McGrath, I MacMillan,
Harvard Business School Press Publishing Corp, 2000
‘Open Innovation’ H. Chesbrough , Business & Economics 2003
‘The Lean design solution’ B.Hulthwaite, The Lean design solution, 2004
‘Lean, rapid & profitable:new product development’ Robert G Cooper, Cambridge Mass,
Perseus Books 2005
‘Market busters’ R.G.McGrath, I MacMillan,
Harvard Business School Press Publishing Corp, 2005
First International Stage-Gate Leadership Summit Slide 28
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

29. 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 a UK Queen’s Award for Enterprise, Innovation 2004, 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.
First International Stage-Gate Leadership Summit Slide 29
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

30. Back-up slides
February 20-21, 2007 / St. Pete’s Beach, FL

31. Strategic initiative 6
Tools & metrics – Packaged Gases Product lifecycle studies
Revenue & profit Integra-Maxx revenue
$mm pa
Develop Introduce Grow Mature Harvest Retire
40 New
100
New 35
80
Improved
30 Improved
Improved
60 25
Rev 20
40 Improved
$
Profit 15
20 10
New
0 5
1
3
5
7
9
11
13
15
0
-20
FY00
FY01
FY02
FY03
FY04
FY05
FY06
year
First International Stage-Gate Leadership Summit Slide 31
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005

32. Key lessons learned
• Ensure ongoing integrated cross functional support
to avoid the ‘black hole’ syndrome at ‘hand-overs’
Non-aligned, non-integrated processes
Commercial
R&D Group Dev Group Group
Ideas Development Introduction
0 4
FINIS
Integrated OLM, P&C & Strat Plan process H
R&D Group + Dev Group + Commercial Group
Introduction
Ideas Development
First International Stage-Gate Leadership Summit Slide 32
February 20-21, 2007 / St. Pete’s Beach, FL © 2007 Air Products
© 2005