Applied Research Case Study Essay

worldwide Innovations ChallengesOn June 5, 2006, prick Vyas paced his office as he grapp aim with a request for $2 million to relaunch a mini irrigate-oxidation result. condescension devil failures to bring this return to securities industry over the past iii years, his group was confident this advancedst iteration was a winner. For Vyas, general tutor of the Filtration Unit of Applied Research Technologies ( finesse), the request presented a major challenge. He recognized that his police squad had worked tirelessly to make this take to a populace and strongly believed they were now headed in the right direction. precisely he as intumesce unders excessivelyd that the Filtration Units track record of failure during this crossways development had hurt its credibility. If he remain firmed the proffer, he k sore he would be empowerting on the line not single his throw personal credibility scarcely in like manner that of the entire unit. Due to the go steady s size, final approval would be made by Vyass boss, Cynthia capital of Mississippithe newly nominate vice president of ARTs wet Management division. capital of Mississippi was acutely aw be of the mounting losings in the Filtration Unit, and she had already devoted a significant amount of prison term trying to get them rearwards on track. She had confided to unmatchable of her colleagues When I withalk on this assignment, I was told my commencement task was to fix the Filtration Unit. The unit only had one gross-generating harvest-tide line and had failed to bring a profitable new product to market in phoebe bird years. It was clear that I was expect to every turn it around or shut it d have.Im trying to protect them and ensure they get support, but my sign feeling is if they are to survive, they must become much more than disciplined. They seem to be devising work up on that front, but in all honesty, I sometimes wonder if it is time to cut our losses and initiate a pull together st footstepgy for the unit.________________________________________________________________________________________________________________ HBS Professor Christopher A. Bartlett and Heather Beckham prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though establish on real events, is fictionalized, and every relation to actual persons or entities is coincidental. There are occasional references to actual companies in the narration.Copyright 2010 Harvard melodic line School Publishing. To order copies or request permit to reproduce materials, call 1-800-545-7685, write Harvard Business Publishing, Boston, MA 02163, or go to http//www.hbsp.harvard.edu. No set approximately of this publication may be reproduced, stored in a retrieval system, use in a spreadsheet, or transmitted in any form or by any meanselectronic, mechanical, photocop ying, recording, or other(a)wisewithout the permission of Harvard Business Publishing. Harvard Business Publishing is an affiliate of Harvard Business School.ART was one of the engineering science worlds emerging giants. The keep phoner had grown through the merger and acquisition of numerous technology-based industrial companies, acquired in the LBO buyout waves of the 1980s and 1990s.By 2006, ART consisted of a portfolio of about 60 short letter units, each of which operated as a profit center. Total corporate revenue was $11 billion in 2006.1 Major particles in the corporation include Healthcare (medical diagnostic equipment), Industrial Automation (robotics), Energy (extraction, conversion, and transportation solutions for the inunct and gas industryincluding the Water Management Division), and HVAC (Heating Ventilation and Air Conditioning, including modality control solutions for residential, commercial, and industrial markets). reveal 1 shows the organization structu re of the beau monde.The companys success had been built on its innovative and entrepreneurial destination, conjugate with a decentralized management philosophy. ARTs vision statement, proudly displayed in almost every office and cubicle, stated We aim to modify the world through innovation, and to grow our place in it through entrepreneurship. finis and PracticesART was dedicated to supporting innovation not only with keep (the companys R&D spending was double the rate for U.S. industrial companies), but likewise in its practices, some(prenominal) of which were deeply implant in the companys culture. ART advance employees to spend a half day each week experimenting, brainstorming, and thinking outside the box. It was a practice that the companys visionary founder and current chief operating officer, David Hall, referred to as tinker time. He explained the conceptInnovation and entrepreneurship are the twin engines drive this company. Its the reason weve ingrained tinker ti me in our cultureI expect all our managers, and particularly those on the front line, to create, promote, and rump promising suppositions. But we visualise that when you go for the big leap, you wont always clear the bar. So there is no shame in failure when you are compassing for big objectives. Around here we routinely celebrate what we call worthy attempts even when they are unsuccessful.Knowledge manduction and dissemination was other key part of ARTs trading philosophy, and despite the high level of decentralization and profit accountability, technology and human being capital were both widely shared among divisions. For example, experts in one division routinely served as advisors on chuck committees for other divisions, and it was not odd for employees to go on loan to help another unit with a promising product idea or technology. The company to a fault travel apace to bring products to market. If an idea showed promise, financial backing was usually available for trivial beta batch output signals, which often allowed market testing to achieve what was called proofread of concept within ART. Once an innovation was proven, significant investment was chop-chop put behind it.Objectives and PrioritiesTo infuse discipline into its decentralized organization, ARTs top management set highly aggressive performance objectives and fasten executive compensation tightly to them. In 2006, as in 1 Of that total, Water Management Division gross revenue were $560 million and Filtration Unit sales were $38 millionany other year, each division was expected to deliver sales growth of 10%, pretax allowance accounts of 15%, and return on invested capital of 20%, referred to as the 10/15/20 Target. The whimsy that innovative products were the source of the companys ongoing competitive wages was reflected in a companywide metric requiring 30% of each divisions total sales come from products substantial in the blend in foursome years.2Hall excessively continually emphasized that to be competitive, ART had to trim the life cycle between a new technologys conception and its commercialization. In receipt, the company had introduced the Fast Track Pipeline, a architectural plan that riveted on the highest priority projects by providing them with additive resources and management attending. ART currently had 67 such projects in the pipeline, six in the Water Division, but none in the Filtration Unit. (The mini oxidation unit had not been identify as a Fast Track project). In the late 1990s, Hall began pushing to grow ARTs global presence. Its important not just to expand our market introduction, but as well as to broaden our endowment access, he insisted. Innovation and entrepreneurship know no discipline boundaries. In the quest to undertake this challenge to attract the best and the brightest wheresoever they live, in 2000, the corporate R&D group candided the India good Center (ITC)a substantial operation that Hall hop ed would become a model forother R&D centers he planned to open up around the globe.The Filtration Business UnitThe Filtration Unit was part of a air ART acquired from an oil and gas services company in 1996. Its essence product line was in mobile wet intercession that allowed oil and gas exploration companies to meet government water supply cycle requirements at well heads and drilling sites. These products were lifelessness the units core line, but in the late 1990s, new competition from Chinese manufacturers had led to a commoditization of the business and an erosion of margins. ARTs newly acquired filtration business had tried to develop the next generation of products and technologies, but after two high-profile new product failures, the unit had lost confidence. By 2006, it was losing about $6 million annually.New Management, New EnergyIn a thoance from his role as a lab manager in the HVAC Division, the 32-year-old Vyas had put on the role of business manager for th e Filtration Unit in June 2001. He right off confronted the units twin organizational problems of low morale and maturement turnover, and in his beginning(a) year, rebuilt the squad by carefully selecting entrepreneurial-minded individuals to fill the vacancies left by turnover in the unit. One of his key recruits was Janice Wagner, whom he knew from her five years as a marketing manager in the HVAC Division. She was ruttish to join a unit that had an opportunity to develop a new business from scratch.Convinced that survival depended on innovative growth, Vyas appointed a technology evaluation squad up up early in his tenure, charging them with the responsibility to tenseness on technologies with the capability to turn the unit around. In one of his first reviews with that police squad, Vyas well-read that for almost a year, the filtration unit had been working with ITC technicians on an enkindle new technology the young Indian team had unquestionable based on a licen se obtained from a Delhi-based start-up company. Developed as a potential solution to the widespread Third World problem of obtaining swooning water in away regions, this pocket-size-scale oxidation system was perspective to arrive2 Hall had recently increased this target from 25% of each units sales from products developed in the last five years.application in many less-developed markets. But in an case to cut costs, the filtration units previous management had decided to vehemence the collaboration a year earlier. subsequently reviewing the technology, Vyas became convinced that this had been a slue and encouraged his evaluation team to pursue the project. Working closely with the ITC technologists, the team concluded that the oxidation technology was the most promising opportunity in their portfolio, and recommended development a small-scale oxidation system that enabled waste-water disinfection in small batches. We were so excited by that decision, said Div Verma, the ITC technologist in frivol away of the project. We believe this project can make a huge deflexion to the lives of millions. Motivated by the support they received, the ITC technicians developed a promising initial design. Without bulky equipment (the equipment was a 26-inch cube) or an electrical power source (it utilize battery power), this small system could transform waste water into beverage water without chemicals in minutes. A single unit had the capacity to crop approximately 2,000 liters of contaminated water per day. With pride, they took their design to Vyas. But Vyas wanted to understand the business opportunity and asked Wagner to prepare a brief overview. Wagner learned that only about 2.5% of the worlds water was fresh, and most of that was frozen. Population growth, industrial development, and clownish expansion were all putting pressure on fresh-water supplies in both developed and developing countries. Indeed, the World Resources Institute found that engage for water was growing at twice the rate of the population. As a result, the World Health Organization estimated that over 1.1 billion people lacked access to clean water, and that 2.4 billion lacked access tobasic sanitation. The research also revealed that waterborne diseases accounted for 80% of infections in the developing world, and in 2002, 3.1 million deaths occurred (90% children) as a result of diarrheal diseases and malaria. As countries such as India and China industrialized, they used more fresh water and added more pollution to existing water sources.Wagner concluded that the scarceness of clean water was reaching crisis levels in developing nations, and that the mini-oxidation system could help avert some of the catastrophic effects. But she also reported comparable R&D efforts also underway in the government and private sectors in China and Europe, and that several companies in the join States and Canada were researching the technology. Nevertheless, her analysis sug gested the ITC teams product was further along and believably superior to anything else in the space.New Opportunities, New InitiativesVyas decided to pursue the project and convinced the VP of Corporate R&D who had ITC oversight to allow the threesome ITC technologists working on it to become members of his skillful teama egg on that would allow them to focus on developing commercial designs for the oxidation technology. Simultaneously, he asked Wagner to do a first-cut market assessment to identify potential opportunities for the technology. oer the next few weeks, through focus groups and interviews with potential customers, she uncovered several promising applications. (See Exhibit 2). But while the market research was exciting, progress in bringing a product to market proved to be slow and difficult. From January 2003 to February 2006, the technology team coordinated with separate manufacturing and marketing teams situated in the linked States to work through two complete cycles of product development, beta batch takingss, and test marketing of two different versions of the mini-oxidation system. twain failed due to what were subsequently revealed to be defects in the design and lack of invade in the marketplace.The first-generation product was aimed at the application for which the technology was originally developedto provide developing nations with safe drinking water. Largely supported by foreign aid, the mini-oxidation system was field-tested by representatives from backing agencies. Unfortunately, the output water had a detectable odor which the funders found unacceptable. Despite assurances that ITC technicians could fix the problem, the trials failed to convert into orders. The team decided to refocus a second-generation product on specialized applications in Western countries where funding was more available. The plan was to develop a roughly modified version of the product and aim it at a potential market for military use and NGO disa ster relief activities that Wagner had identified in her initial analysis. This decision was enormously disappointing to the Indian technologists who had developed the initial standards, and Vyas had to work hard to keep them on board. The second-generation product placed the odor problem, but field trials showed that the solution caused the unit to consume too much power, requiring frequent battery replacement. Once again, no orders were forthcoming.While these trials were occurring, the filtration units small R&D team in the United States persuaded Vyas to allow them to work with corporate R&D on an entirely new version of the product that would utilize ultrasound waves for water disinfection. risque frequency vibrations were shown to control the growth of algae, organic waste, and bacteria such as E. coli. Market applications for this technology included interference for clean water transshipment center receptacles, public/private ponds, fish tanks, and ballast water. Howev er, in 2006 this technology was console in the earliest stages of research and testing.New Oversight, New DisciplineIn January 2006, just as Vyas and the rest of the mini-oxidation team were launching their secondgeneration system, Cynthia capital of Mississippi was appointed vicepresident of the Water Management Division. capital of Mississippis direction was soon drawn to the troubled Filtration Unit which she felt take awayed to put much more rigor into the planning and analysis that supported their product development activities. According to Jackson nib Vyas seems to be an excellent talent manager. He was able to recruit and retain good people to his unit, and wherefore build them into highly motivated teams on two different continents. Hes also shown himself to be an outstanding advocate for the groups ideas -skilled at managing upward, gaining support, and running interference so his team can cut down on the task at hand. And Im aware that the company has high hopes for the Filtration Unit, but the results just are not there.In my view, the unit lacks discipline. They had a promising technology that was in search of a market, but had not done the work to nail down either. In the first meeting I had with them I explained that they would be developing any hereafter proposals using a rigorous three-phase process linking market analysis and technological development to business planning. In her first meeting with Vyas, Jackson also made it clear that the units continued existence was in jeopardy if they did not turn things around.Mini-Oxidations Third Launch assayTo coordinate the third launch of the mini-oxidation system, Vyas assembled a single six-person development team with representatives from various functions located in the United States and India. Because Janice Wagner had demonstrated strong project management skills, Vyas named heras the team leader. (Exhibit 3 details committee membership.) From the outset, the team was highly committed to the product and worked tirelesslyto complete Jacksons three-phase process. manakin 1 General intersection Concept and Market compendWagner took the lead in preparing the sort 1 requirement to develop a general product concept supported by market research. Having learned that the unit lacked the expertise to sell to developing markets, governments, and NGOs, she decided to focus additional research on U.S. data that seemed to indicate strong potential for a residential water purification system. She also decided to see if opportunities index exist in domestic agricultural applications. According to the Palmer Drought mogul from April of 2006, 26% of the United States was considered in moderate to extreme drouth conditions, and Wagners research showed that low rainfall, high wind, and rapid population growth in the Western and Southeastern regions of the country caused a major water scarcity problem for these areas. The resulting government-imposed water restrictions often led to severe limitations or straight off bans of water used in residential landscape irrigation.Because re-use of waste water would serve conservation efforts while preserving residential landscaping, Wagner felt that the mini-oxidation system offered a perfect solution for the needs of homeowners in these drought-stricken areas. In addition, since the product would be used for irrigation and not for drinking water, the disinfection quality could be lowered and elan vital consumption would therefore be reduced compared to past product iterations. Wagners research on the U.S. water industry indicated that the domestic water- discourse equipment market generated sales of over $9 billion. (Exhibit 4 provides selected data from the research.) Residential water treatment products ranged from water filters that reduced sediment, rust, and chlorine odor (average retail price $50) to systems that provided more comprehensive household water purification (retail price $1,500 to $3,000). The r esearch also showed that in-ground sprinkler systems cost between $1,800 and $4,000, and after conducting some industry interviews and focus groups, Wagner felt this was a good barometer of what a homeowner was willing to pay for a lush, green lawn.After discussing the product concept with the development committee members, the team decided to recommend a retail price of $2,000 ($1,000 wholesale price) for a residential irrigation mini-oxidation system (RIMOS) capable of supporting a 10,000 square-foot lawn. Pricing for an agricultural irrigation large oxidation system (AILOS) would be significantly less on a per-acre basis, with details to be developed only after further research had been done. Wagner and Vyas compiled the data and product concept information in a formal proposal for Jackson to approve. Jackson responded to the teams sort 1 proposal with a flurry of questions and challenges. She highlighted the sparseness of concrete market numbers and their lack of data on target markets. And when the team floated the idea of designing a larger-scale agricultural version of the system, she asked them to think about whether that would stretch resources too thin. With the whole company under pressure to trim budgets, Jackson asked the team to consider reducing the projects costs by eliminating either the RIMOS or AILOS product. After some discussion, Vyas and his team agreed to focus hereafter product development and marketing efforts on the RIMOS product for the U.S. market.Phase 2 Technical Specifications and PrototypeHaving won the approval of Phase 1, the team was now ready to begin the second phase of Jacksons product development process. This involved designing actual product specifications and find how to do this within the $1,000 wholesale price point that the group had decided was appropriate. A working prototype was also to be created as part of this phase. The team relied heavily on ITC expertise to adapt the existing product originally designed to provide potable water in remote locations, to one capable of processing wastewater for lawn irrigation. During this phase, several misunderstandings surfaced between team members in the United States and India. For example, Wagner became concerned when the Indian teamrepeatedly confounded design deadlines she had requested. When she confronted Div Verma, the lab leader responsible for the project, he responded terselyPeter told us he wanted the new design to be flawless. I take that as my number one priority. We cant meet this deliverable without proper testing. Why is everything so rushed with you? If we dont have a perfect design, then we run the risk of weakness a third time and that is not acceptable. My team will not provide designs for a prototype until we are sure that all the bugs have been worked out. We dont want to be involved in another failure. Emphasizing the mandate to move quickly while ensuring product quality, Vyas negotiate the disagreement by crafting a co mpromise that gave the Indian technical team a formal schedule allowing them two weeks of extra testing time. I felt there was a mix of disappointment and pride that had to be dealt with, said Vias. I also told Div that this third generation product would blow over us the credibility to return to the developing world project. Once the prototype was finished, the final designs and specs were again submitted for review.Jackson was impressed by the attention to detail in this latest iteration, but wanted to ensure that the team was fully utilizing the internal expertise available at ART. With Jacksons help, Vyas tapped engineers and manufacturing managers from the HVAC and Healthcare Divisions who had expertise his team was lacking. He invited them to join his development team, and they quickly became deeply engaged in the project. They identified several design changes and production specifications that increased efficiency and lowered manufacturing costs.Phase 3 Business thinkThe d evelopment of the business plan was the most difficult phase for Vyas and his team. They were new to creating complex sales forecast models and cost estimates. But eventually they developed a detailed product concept, marketing approach, and manufacturing strategy for RIMOS, as well as sales forecasts, cost projections, and expense estimates. They also acknowledged that they still believed there was a significant market in water treatment for the developing world and in emergency relief work, butthese future options had not been included in the current forecasts or business plan. They hoped to explore these with the help of the Oil and Gas Division which had excellent international contacts.Jackson challenged the teams pro forma financials which she felt lacked the data to support their assumptions. She asked the team to perform additional due diligence and to justify their assumptions. She also pushed back on the projected sales assumptions and suggested that the pro forma finan cials needed to be stress-tested. But after testing the analysis, Wagner felt her research was sound and was adamant about the size of the opportunity and their ability to capture the market. Vyas stood by Wagner and also defended the financial data which he felt had been carefully developed by the manufacturing and technology experts. Exhibit 5 summarizes the teams sales and operating margin forecasts.The team acknowledged that its assumptions relied on the ability to gain access to the HVAC classifys Residential Market Division. As Wagner pointed out, ARTs norms encouraged them to take advantage of these types of synergies, and they had good contacts in the division. However, the HVAC Residential Market Divisions senior executives had full discretion regarding the products distributed through its channels, and they had not tho made a formal decision aboutJackson also expressed her concerns with the $2,000 retail price point and pushed Vyas to clearly identify the risks associate d with the plan. After further consideration, the team developed a risk assessment and response matrix, which they included in the business plan (Exhibit 6). The business plan revealed the need for $2 million in funding for beta batch production of RIMOS and the marketing budget to support its distribution and promotion.Toward a Decision Go or No Go?An hour after receiving the investment proposal from his team, Vyas was still pacing back and forth trying to decide whether to support or reject their request for the $2 million in funding for RIMOS. He knew his development team was absolutely convinced it could succeed, but he also realized that the units existence and even his own career were being openly questioned. Two floors above Vyass office, Jackson was also contemplating the RIMOS project. Having heard through the company grapevine that a funding request had been submitted to Vyas, she began to think about how she would handle the request if it was sent up to her. She had heard rumblings from other managers in her division that the Filtration Unit was a run down on division resources and that it was time to pull the plug on any additional funding.As a newly promoted division VP, Jackson dumb that her actions would be closely watched. She wanted to make sure she did not disgrace the ball.Exhibit 1ART Organization with Filtration Unit Detail payEngineeringLegalR&DHRDavid HallCEOHealthcareExecutive VPEnergy3 divisions17 business units2 divisions13 business unitsPowerGenerationOil/Gasorigin4 business units2 direct reportsT. SmithAdministrationCynthia JacksonVP WaterManagementDivision5 business units3 other business unitsB. BradyR&D USAIndustrialAutomationW. Steilow groundSuperintendent5 direct reports40 plant personnelHVAC3 divisions14 business unitsPowerDistribution3 business unitsPeter VyasManagerFiltration UnitJ. WagnerSales andmerchandising2 direct reportsB. Wang mathematical productControlP. GuptaIndian TechnicalCenter squad2 direct reports3 direct r eportsExhibit 2Wagners List of dominance MarketsDeveloping Nations Provide potable water solutions for areas with unsafe drinking water U.S. Residential Landscape irrigation Pools In-house water recirculation for non-drinking purposes (e.g., laundry, dishwashers, etc.) U.S. Commercial Restaurants Grocery stores Laundromats Linen/ undifferentiated companies Farms Landscape irrigationU.S. and Overseas Emergency Units Disaster relief MilitaryExhibit 3ART Mini Water Oxidation System study Committee Team Structure New Product Introduction Team MembersD. VermaR. PatelB. WangH. LewisJ. WagnerT. SmithC. CortezaG. SteinbergaLaboratory LeaderIndian Technical CenterProduct DevelopmentIndian Technical CenterManufacturingQuality AssuranceMarketing (TEAM LEADER)Project AdministrationHVAC Division interpretive programHealthcare Division Representativea Member from another unit of ART added in Phase 2Exhibit 4Market Research compendium informationThe U.S. Water Industry (Revenues in millions)aW ater Treatment EquipmentDelivery EquipmentChemicals mother OperationsConsulting/EngineeringMaintenance ServicesInstruments and TestingWastewater Utilities drunkenness Water UtilitiesTotal U.S. Water Industry$9,110$11,660$4,020$2,350$7,460$1,780$1,400$34,130$35,070$106,980sU.S. Residences (2000 Census)Total lodgement UnitsSingle-Family Detached Homes116 million70 millionDrought Indicators (Palmer Drought top executive 4/10/2006)% of the continuous U.S. in severe to extreme drought% of the continuous U.S. in moderate to extreme drought13%26%NOTE Mini-Oxidation Systems are a new-to-the-world product with unknown market potential. a Source Adapted from the Environmental Business Journal, 2006Exhibit 5Summary Sales and Profit Forecast for RIMOS2007Forecast Sales ( $ millions)Forecast in operation(p) Income (%)Exhibit 62008200920102011$ 5.4510%$ 7.0815%$ 8.8620%$ 10.8920%$ 13.0720%Summary Risk Analysis and Risk Mitigation for RIMOSRisk aimPlanMay not gain market acceptance soaringEnsur e HVAC distribution supportHighlight ART name adjunct marketing budget for product launchProduct design flaws mass mediumMonitor beta batch closelyPrice point too highMediumQuantify customer savings from increased waterefficiencyProvide sales training to distributorsEmerging competition menialGet to market firstLeverage ART global presence, technical support,supplier relationships, and distribution network