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Presentation at SCI best practice showcase event 2005TRANSCRIPT
© Air Products 2005
Innovation in a mature market
Innovation, not stagnation -how we changed a mature market
Prof John Irven, Director of TechnologyPackaged Gases
2 © 2005
Air Products Industrial Gases – a ~$6bn pa business
ASU cryogenic distillation columnfor liquid air @ -196 oC
LIN @-196 oC
LOX @ -186 oC
Air Separation Plant
Cryogenic liquid transport
Cylinder packaged gases Cryogenic O2/H2
3 © 2005
Packaged Gases (PG) half of $30bn Global Industrial Gases market
Equipment5%
On-sites14%
Merchant Liquid
34%
Packaged Gases47%
$ 14 bn
Southern Europe18%
UK and Ireland15%
North Continent14%
Canada - 4%
Mexico24%
ROW18%
Air Products $900mm
In Europe we are 18% market share
4 © 2005
Old model‘PG is unprofitable part of gas businessbecause of high cost of distribution’Eliminate costly distribution logistics and focus back on base bulk gases“You can only cost reduce in such a commodity business to try to maintain cost parity with the competition – where you are not market share leader this leads to decline “There’s absolutely no margin in trying new products”“ Milk the cash cow of the mature business, and only invest in new growth platforms
New ModelPG is most profitable part of gas business“most value lies in the customer facing distribution steps ”Target retail customers who pay better prices, where gas is a small part of their cost stackSecure sufficient direct volume to achieve scale, but focus on indirect distribution via agents channelDrive customer loyalty and retention, and achieve profitable growth via differentiated , market leading offerings, and excellence in sales and marketing
BulkGases
CylinderFill
DirectDistribution
RetailDistribution
CustomerOn-siteProduction
x % 2x % >4x %x %Best
PerformerOROI
1.5x %
Old model New agent modelSupply chain
5 © 2005
BUT - Size of innovation challenge in mature, commodity, conservative industry
KEY FEATURES :
•Cylinder•Cylinder Valve & Cap•Compressed Gas
20002000
The only change had been the Colour ...
1900
6 © 2005
Integra value proposition
B50200 bar
Customer
‘Conventional wisdom’- value 2 + 2 = 4
Integration
Reduced size/weight
New opportunity- value 2 + 2 = 5 !
Incorporate other functions such as pressure, flow, + ease of use into our package - capture the value
IntegraTM
N30300 bar
Integra demurrage +100%; impact of ‘bundling’
7 © 2005
BIP®build the purifier into the cylinderOur first differentiated market leading offering
Prior to FY98 No branding & promotion strategyNIH preventing globalisation
Our first success proving innovation, but approach still unoptimised
DESPITEEarning gas premium of 50% over UHPsDoor opener
– Customers– OEMs– National Laboratories
Leverage sales x 3 other products
Output ppb O2 .H2O
© Air Products 2005
So what did we do about it?
Aim to try to build position for PGBUT improve on BIP experience
9 © 2005
Strategy DevelopmentDrive to an integrated offering development approach, linked to business strategyMarket-leading differentiated offerings to
– drive growth and profitability– improve customer loyalty and retention
Cross-functional and cross-regional participation in strategy, planning and prioritisation in a steering team
– Technology/ R&D– Marketing– Operations– Engineering– Geographical regions
All aimed at avoiding the ‘NIH’ issue
10 © 2005
Staged development pipelineUse a development pipeline approach to show how ideas proceed through to commercialisation
Gatekeepers from the key functionsDon’t re-engineer for each area, or re-invent the ‘wheel’ but do recognise that different geographies and cultures may need slightly different approachesCompetitor assessment and positioning
Ideas Commercialisation
0 1 2 3 4Gates
Con
cept
Feas
ibili
ty
Prot
otyp
e
Dev
elop
men
t
11 © 2005
Gate 4 Commitments drive commercialization
Link Gate 4 to established Business Plan
Ensure the ongoing commitments are baked into the planning and commitment process, supported by senior business leader in process3 year short term horizon for P&C and achieving fast returns are still balanced against the needs for a strategic program that looks at supporting also the longer term business-technology needsDon't overlook the role of communications and strongproduct and corporate brandingMarket driven, not sales drivenUnderstand customer and market need, but recognisethis can often be an as yet ‘undefined’ or ‘unmet’ need with a truly innovative offering
12 © 2005
Ideas Development Introduction
0 4
R&D Group Dev GroupCommercial
Group
Integrated OLM, P&C & Strat Plan processR&D Group + Dev Group + Commercial Group
Non-aligned, non-integrated processes
Ideas Development IntroductionFINISH
Key lesson learned - ideas into commercialization
Ensure ongoing integrated technology support to avoid problems with introduction process causing the new offering to crash into a ‘black hole
Don’t under-resource implementation effortDon’t blame gap fillers as problems surfaceBy building an open and supportive team dynamicWe’re all in this together
© Air Products 2005
Results
14 © 2005
IntegraTM cylinder on welding set+ MaxxTM range of shielding gases
300 bar lighter cylinderIntegral pressure regulatorQuickfit outletOptimised flow rate
‘Transforming commodity products
into global competitive advantage’
Silver awardUK Chartered
Institute of Marketing 2000
15 © 2005
Maxx Welding Gases
250 300 350 400
Ferromaxxplus
Speed -19% increase
86% Ar12% CO22%O2
-
Travel speed in mm per minute
© 2005 Air Products
16 © 2005
HeligasTM lightweight 300 bar cylinders
N3030 l
N2020 l
N1010 l
Cylinder CapacityM3
Lightkg
Oldkg
N10 2.6 12 18
N20 5.2 25 46
N30 7.8 49 62
Best gas supplier award
17 © 2005
Balloonium Party Perfect (retail helium balloons) local transfill
How to participate in higher profitability retail sector,Without giving all value to a distributorWithout incurring excess distribution costs
BulkGases
CylinderFill
DirectDistribution
RetailDistribution
x % 2x % >4x %
$8.3 B$4.7 B $6.7 B
x %
$2.3 B
BestPerformer
OROI
Value (2000)
Customer
18 © 2005
Party Perfect
19 © 2005
Lightweight oxygen therapy package New life style for our patients
20 © 2005
Lightweight oxygen therapy package the
new life style for our patients
21 © 2005
l
ProfitabilityFunctionality & priceGas volume & package size
22 © 2005
“Without portable O2 she wouldn't be able to attend school or travel to Disneyland Paris or lead the full and active life that she leads. Please feel free to use whatever photos in the promotion of portable oxygen - we are huge fans” - her mother
23 © 2005
Voice of the customer
She says…..excellent!
“Now that I have a cylinder which is light enough to let me go back to school, my mummy has asked Air Products to design one which will let me climb trees as well!!”
24 © 2005
MetricsSet up ways to measure success ($) as offerings are introduced, and as the product shows growth, based on an understanding of the product life-cycleDemonstrate 30-100% rental premiums over standard offerings, with much higher OROIMeasure and demonstrate the benefit in customer loyalty surveys from such offerings
38
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
GI Non Premium Maxx Heligas BIP
At RiskIndifferentFavourablesecure
25 © 2005
Key learnings
Embed Technology Program as an integral part of business, its strategy and implementation, driven by senior business leader. Set up structure and processes to drive and implement the strategyEnsure differentiated, value-added, branded offerings become key part of the recipe for growth and profitabilityDevelop trust and self-belief in open team environment, with technology support throughout development and into commercialisationBelieve in the product-if we don’t the market wont !Value of external validation by customers, OEMs and external awards Recognise and nurture innovation – it’s quite hard to do !Result - new offerings portfolio helping drive profit growth
26 © 2005
Brand & values
Best company toInvest in
– our shareholders through improved business returns
Buy from – Our customers
response to the products
To work for– Recognition and
rewards for innovation
Underpinned by key valuesPassion
– For innovation over all the hurdles
Integrity – Belief in the
approach– Don’t under or
overselling Understanding
– Of customer and Air Product needs
– Of wins for Customer, Air Products & Society
Maxx® BIP®
Heligas® Integra® Party Perfect®
© Air Products 2005
Thank you
28 © 20057
BIP
Heligas
“Maxx”Welding Gases
Medical
Integra
OxyWalker
Packaged Gases - new offerings
PartyPerfect Lynx
Gases
Best gas supplier awardExternally recognised© 2005
© Air Products 2005
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