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Van putten
1. Evaluation, Planning and
Management of Uncertain Growth
Projects: Discovery Driven Planning
in Action
Alex van Putten
Ron Pierantozzi
Ian C. Macmillan
Air Products and Chemicals
Wharton Entrepreneurial Programs
2. The core problem
Assumption/knowledge ratio
– Need to plan differently-> plan to learn
– Convert assumptions to knowledge
ahead of investment
– At major CheckPoints test assumptions
Not rocket science, but used by the rocket
scientists at NASA
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3. Five key disciplines of DDP
1. Frame a worthwhile challenge
2. Recognize competitive market metrics, if any
3. Identify and document assumptions
4. Outline major deliverables
5. Identify major CheckPoints
– test assumptions at CheckPoints, ahead of investment
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4. Fourth discipline: leads to an
Assumption Checklist
Element Data Source Last Checked Assumption #
Market growth 10% / year Gartner Group Report 2/10/03 1
rate Report
First “5” Sales $1, $2, $3, $4, Prototype Workshops 2
$5 development Sept-Dec
Features in v. Xxxxxx R&D Status December 3
1 report 2002
Price range for $50-75/unit Prototype Workshops 4
product development Sept-Dec
Production 50K / 12 Calculation Not checked 5
volumes months from Growth yet
rate
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5. The typical response of managers with
troubled projects
QuickTime™ and a
TIFF (Uncompressed) decompressor
are needed to see this picture.
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7. Real Options Reasoning (ROR)
Three major properties of an uncertain investment opportunity enhance
its value
Upside potential
Downside controllability
– Low cost of failure and/or
– Ability to bail out
yields
– The right, but not the obligation to invest further
Profit sustainability
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9. Traditional View of Uncertainty
Project
Value
Real Options
View
Option value
Traditional view
Uncertainty
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10. A Project Portfolio
Capability Uncertainty
High Stepping
Positioning Options
Stones
5.5
Medium Platform Launches y
int Scouting
rta Options
3.0 Ce
Enhancement
Low Launches
2.0 3.0 4.5
Low Medium High
Market Uncertainty
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11. Role of New Business
Development Group
Develop the strategies for new business
platforms
– New technologies and new markets
Incubate the early stages of new businesses
Develop the tools for new business creation
Individuals with diverse backgrounds
– Technologists
– Business
– Commercial Development
– Finance
11 Copyright Air Products and Chemicals, Inc.
12. Creating APD’s Growth Platforms
Performance
Advanced Materials Materials
(Chem Group)
Future Energy Solutions EPI
CDO (Gas Group)
Discovery Incubation Acceleration
CSTC
Emerging Materials Electronics
(Electronics)
Healthcare
Global Healthcare
12 Copyright Air Products and Chemicals, Inc.
13. New Business Creation Methodology
Tools and Training
Market Research
Market Research Customer &
Customer & Business
& Competitive
& Competitive Expert Validation
Expert Validation Implementation
Intelligence
Intelligence
Industry Structure
Analysis Value Chain Analysis
Develop Overall Business Strategy
Develop Overall Business Strategy
Concept Business Model Framing the
Idea Validation
Development Creation Venture
Toolbox
Toolbox Toolbox Toolbox Toolbox
Lead User Analysis
Creativity Consumption chain Learning plan CRA strategy Discovery Driven
Consultants Attribute Analysis Consumption chain tools Planning
Charlie Prather Market Attribute analysis Chesbrough
Segmentation
Woodside Discovery Driven Discovery
Institute Innovator’s solution Planning Driven Planning
Innovation
Network Proceed or Sunset
= Decision Junctures
13 Copyright Air Products and Chemicals, Inc.
14. The Discovery Driven Planning Methodology
Successful
Staged
business
Prepare roll-out:
Define income Prepare minimise
Frame a Identify
potentially statement milestone investment
worthy each
winning for plan; begin until each
challenge assumption
strategy business testing key
model assumption
is tested
1 2 3 4 5 6
Market research Business plan Implement
1. Set goal
2. Figure out how to meet it
3. Develop financials
4. Figure out what part of financials is uncertain
5. Develop plan to test these uncertainties
6. Roll-out
14 Copyright Air Products and Chemicals, Inc.
15. Development of DDP
Application at Air Products
Began with Business Building Training of
Business Development Professionals
Implemented in several pilot programs
Expanded the training to include 60+ people
in US and Europe
Began to use on broad basis
15 Copyright Air Products and Chemicals, Inc.
16. Projects Utilizing DDP
Generally larger business building projects
Research programs where there is high
uncertainty
Coupled with Stagegate ™
– Used to provide inputs to process
– Impact analysis tool (reverse income
statement)
Entry into new geographies with existing
businesses
– Different business models or market
dynamics
16 Copyright Air Products and Chemicals, Inc.
17. Stagegate™ and DDP
Not necessarily in conflict
Can be complimentary
Stagegate deals with the known
DDP with the unknown
DDP can be the input to stagegate™ for high
uncertainty projects
17 Copyright Air Products and Chemicals, Inc.
18. Role of DDP-fit with other
tools
Increasing Technical Uncertainty
Learning
Plan
DDP
Stagegate™
Project
Management
Increasing Market uncertainty
18 Copyright Air Products and Chemicals, Inc.
19. DDP/Stagegate™
Stagegate Stages DDP Inputs
Scoping Consumption Chain and Attribute
– Preliminary Market analysis
Assessment
– Preliminary Technical
Assessment
Build Business Case Reverse Income Statement
– Define new product
– Target market identified
– Delineation of product
concepts
– Value proposition
– Project feasibility
Assumption Map
Development
– Product Prototype
– Lab. Research
Testing and Validation Refined reverse Income statement
– Validate project Assumption testing
Business Plan
Launch
Source: Winning at New Products
R. G. Cooper
19 Copyright Air Products and Chemicals, Inc.
20. How it all fits – It is about Learning
Verify market needs
Define deeper level
of segmentations
Attribute
Analysis
Reiterate
Refine
Business
Model
Value Proposition Targeted Consumption chain Competitive Advantage Value chain inside firm
Segments
MAP Did we capture all
assumptions?
Define
Do
Decide
Reverse Assumption
Income testing
Statement
Required Profitability Required Returns SG&A Operations
21. DDP Example
Leverage APCI capability into a service
offering
Identify key market segments and
opportunities to create a substantial
business position
Use the process to convince senior
management of viability
21 Copyright Air Products and Chemicals, Inc.
22. The Framing Challenge
APCI 2002
Profits $519 MM
Profit Margin 9.6%
Revenue $5,400MM
----------------------------------------------------------
Required Profit $52 MM to increase AP profits by 10%
Required Revenue $148 MM to deliver 35% margin
Required unit sales 124,000
Allowable costs $96 MM to deliver 35% margin
Allowable investment $445 MM to deliver 11.7% ROA
22 Copyright Air Products and Chemicals, Inc.
23. Deliverables Specification
Specification Estimate Source
Profit Margin 35% Plan
Unit selling price $100/mo/ Plan
Required unit sales 124,000 units calculation
Cost to Serve $30/mo/unit incremental cost
Capacity 10,000units/xxpeople
Size of world market unknown
Size of market segment 370,000 units SRI
Sales Expenses
Average order size 10 Wild guess
Sales orders required 12,400 Calc
No. calls to make a sale 4 Wild guess
No. sales calls 49,600 Calc
Sales calls/day/sales person 1 Wild guess
Annual salesperson days needed 49,600 calc
Sales people needed 200 Calc
Avg salesperson salary $70,000 guess
Total sales salaries $14 MM
Installation Expenses $5000/order Internal Knowledge
Total Installation expenses $62MM
Field Service Expenses
Call center Expenses
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24. Assumptions Checklist
# Assumption Type
1 Selling Price $xx/mo/unit Market
2 Cost to Serve $xxmo/unit Internal
3 # of points per order 10 Market
4 # of calls to sell 4 Sales
5 Additional sales force 0 Internal
6 Additional call ctr personnel 0 Internal
7 Additional field service personnel 0 Internal
8 Service will work with all applications yes Technical
9 Service will work with any equipment yes Technical
10 Existing personnel have knowledge of high value applications yes Internal
11 Can effectively compete or find open niches yes Market
12 Customers will accept value proposition yes Market
13 Business areas will not give away or undermine yes Internal
14 Data security will be an issue no Market
15 Customers will trust APCI to protect their valuables yes Market
16 We can find large segments of customers willing to buy from us (Healthcare, CPI, GI etc) yes Market
17 Need new distribution channels no Market
18 Offering functional characteristics will compare well yes Market
19 Days to Implementation 30 Technical
20 Disparate business areas can collaborate yes Internal
21 Installation cost $5000/unit Technical
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24 Copyright Air Products and Chemicals, Inc.
25. Test Assumptions at Key Milestones
Create Marketing And Selling Resources
•Tech bulletins
•Literature 1,2,3,4,5,11,12,18
•Press Releases
Test Market
•Sell to trial segments 1,2,3,4,6,7,8,9,10,11,14,
•Prototype demos 15,17,18,19,21
•Partners
Create Service Hub
•Present capability & Success Stories to Business areas
•Write overview business plan 8,9,10,13,20
•Create roundtable
•Cost allocations
Directed Inquiries
•“Find” List of competitive pricing and offerings 12,14,15,16,17,18
•Focus groups
• Can non paid service be charged later?
Establish Future Direction
• Brainstorming
•Identify next prototypes 5,6,7,11,12,16,17
•Internal Capabilities-TranIT, MPC, Sensors, etc
25 Copyright Air Products and Chemicals, Inc.
26. Other projects using DDP
Entry into new geographies
– Disruptive business approaches for
existing businesses
• Several businesses recently approved
by senior management
– Allows for options approach to market
development
R&D programs
New Platform development
– New and existing businesses
Copyright Air Products and Chemicals, Inc.
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