Case scenario -The Electrical Products Corporation: Advanced Optical Devices (AOD) Background In the latter part of the 20 century many large...
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Case scenario -The Electrical Products Corporation: Advanced

Optical Devices (AOD) Background In the latter part of the 20 century many large companies had established centralised research (R&D) facilities to investigate and develop new technologies that would underpin the company's future products. Over time these central facilities were becoming increasingly expensive to run as the sophistication and costs of R&D escalated, and the number of constituent technologies in any product increased. Companies also became sceptical of the value of such research facilities, which they felt tended to lose touch with the needs of the product units which they were supposed to support. The product units started to complain that they were deriving no benefit from the facilities and that the central R&D staff had very little understanding of or even interest in their businesses, preferring instead to follow their own research interests and agendas. The research centres were beginning to resemble academic institutions In 2006, the Electrical Products Corporation (EPC) stopped supporting their R&D laboratories from a centrally imposed levy on product units. From this moment on the labs were expected to move towards financial self-sufficiency and raise all their funds from product unit sponsorship and contract research. Though a large amount of funding continued to come from the product units, the financial situation was strained and the R&D laboratories had to look for money from non-traditional sources The Advanced Optical Devices (AOD) project was perhaps the boldest cash-generating initiative. It was recognised that one of the main strengths of the R&D laboratories was in the design and fabrication of optical devices. Expertise in optical device technology had been built up over a number of years and the devices developed had been used in a number of prototype defence and telecommunications systems. Scientists from the R&D laboratory published widely and often received requests from other companies enquiring whether the devices were available for purchase. Lacking any mechanism for doing so, the laboratory had always declined such approaches. AOD was formed in response to the perceived wider opportunity, as a centralised marketing arm for all the separate research groups who had developed high-performance optical devices. AOD was a joint venture between EPC and a major American company, International Chemicals Corporation (ICC). ICC had approached EPC offering to distribute EPC's products initially in the USA, and later, Japan. Dr J Skinner, adapted with permission Jane Walker 2016
About the Two Companies EPC EPC is a major electrical and electronics company. It is split into many wholly owned subsidiaries (product units), each specialising in a particular range of products. For example, one company specialises in underwater defence systems, another in telecommunications medical instruments etc. Growth of the company has tended to be by acquisition of other companies rather than any radical growth of existing businesses or creating new businesses to exploit home-grown technologies. EPC has shown itself to be very proficient at taking on badly-run companies and turning them around by changing top management and imposing strict financial controls on operations Each group is run as an individual profit centre, even in the individual research groups Generally speaking, if your group is making a profit then you are fairly secure. If not, you are replaced or forced to find other homes for your research staff. The flip side of this is that everybody has great autonomy. Nobody, not even upper management, likes interfering with the decisions of a group leader. If they do then they are tacitly accepting responsibility for the decision, and the subsequent fortunes of the group. If a manager meddles in even the smallest way, it gives the group leader the opportunity to pass the blame for missed financial targets Technical staff in EPC's research centres tend to be graduate and doctoral level scientists There are two main objectives: to be successful within the firm (which you do by winning contracts and attracting research funding), and to be judged a successful scientist by your peers in the worldwide community by publishing and presenting papers. The most popular contracts are those that involve breaking new territory by building something that hasn't been built before. Defence work is popular, as are EU technology advancement programs, feasibility studies and prototyping for new product developments of medical instruments. Typical deliverables from a research project at EPC would be written reports describing feasibility studies and prototypes of devices, usually in batches of one. Most contracts are on a reasonable endeavours' basis, due to their ground-breaking nature. The relationship between a particular client and the research team tend to be established over a number of contracts and so both sides become tolerant of each other. In addition, end users realise that they are getting leading-edge devices and are usually conversant with the technology and its limitations. They are generally willing to accept devices and systems on this basis. Since scientists tend to be making one-off devices against contracts, they have no need to consult manufacturing or marketing expertise. ICC ICC is one of the largest chemical/pharmaceuticals companies in the world, and is based in the US. It is organised by divisions, each selling one narrow range of products. It has a major share of the world raw plastics market and it sells mainly to manufacturers of consumer goods (from kettles to cars).


various devices from EPC's research group leaders. At this point not many EPC personnel knew about the impending distribution agreement. They correspondingly gave the same up beat presentation that they reserved for all dignitaries. Glossy photos gave the impression of fully engineered devices which could be reproduced on demand After further formal negotiations at senior management level between ICC and EPC, it was agreed to enter into a joint venture, AOD (Advanced Optical Devices). The benefits to EPC laboratories would be the extra revenue gained from selling some of the optical devices that the EPC laboratories had developed under various past research contracts. It was intended that the AOD joint venture would market the devices, handle customer enquiries and then feed subsequent orders to the appropriate research group in EPC, AOD would arrange for shipping and billing. ICC promised to invest considerable sums in promoting EPC's products in the US, and EPC would simply supply the products. It seemed a marriage sent from heaven, one of those rare occasions when the motives of two joint venture partners are in complete harmony. EPC's senior management went ahead with the deal with minimal consultation with the research groups that it was designed to help. Nevertheless, the initiative was genuinely well- meant. It was thought that the joint venture would allow research groups to gain access to new customers in a cost-efficient way. Moreover, it was thought that the activity should be very profitable and therefore popular with research staff whose groups would receive a proportion of the profits. It was envisaged that few extra resources would be needed to manufacture the devices - the equipment and the people were already in place and paid for and the raw materials cost very little. AOD was set up as a separate division, reporting to a Project Board comprising senior managers from both EPC and ICC. The unit was to start with a small core team to kick-off the project, and it was anticipated that it would grow over time in line with increasing sales and customer numbers. The administration would be based in the UK to ensure proximity to the R&D laboratories with marketing and sales based in the US (close to the customers). The Project Board appointed the following individuals to the team: Mike Williamson as Head of AOD. In his mid-30s, Mike was a high-flyer in EPC. Mike's background was in manufacturing, which was one of the reasons that he was chosen for the job. It was felt that he had the skills to ensure the quality and precision of the products that would be produced by the R&D laboratories. Production yields and factory cost-effectiveness had improved directly as a result of Mike's management Sandra Downes, Marketing and Sales Manager. Sandra worked for ICC and had a strong track record in pharmaceuticals sales. A highly-motivated salesperson who had often been described as "formidable and a bit of a maverick by her colleagues. Sandra had a first degree in human biology and an MBA, but no technical engineering qualifications that related to optical devices. Two field sales representatives (also from the US) were seconded to the project, reporting to Sandra Dave Jeffreys, Technical Sales, Dave was in his mid-50s and had been an engineer in EPC's R&D research groups since he graduated 30 years previously. Although not known for his ground-breaking discoveries, Dave had a good reputation for his all-round technical knowledge and was known to be a bit of a 'guru' in the field of product testing. Dave had been
a widower for some years and his son had since moved to New York and had married and was residing there permanently. For Dave, the venture offered the opportunity to spend some years with his family and get to know his grandchildren whom he had never met he had no ties in the UK these days. The AOD US office would be in ICC headquarters in downtown New York, which was very close to where Dave's son and his family lived on Staten Island The last member of the team did not report into the AOD team structure but worked with them on a matrix basis. Peter Moore was nominated as the EPC / AOD Liaison Manager, he would be based in his own unit in one of the optical devices research groups, and his role would be as the main contact point with these research groups and the AOD team. He would work with AOD on a dotted-line matrix basis, although would still report through his R&D line management hierarchy. The AOD team had no authority over anyone in the R&D laboratories, nor did it have its own facilities to carry out any research. The purpose of AOD was to serve the research groups who were expected to deliver on-spec devices to AOD for shipping according to schedule.it was assumed at the group leaders would welcome the central resource and revenues it would generate, and would be happy to co-operate by providing information on the devices and, of course, the devices themselves. The AOD organisation chart is shown in the following diagram: AOD Organisation AOD Project Board Mike Williamson Head of AOD EPC R&D Sandra Downes Marketing & Sales 2 Field Sales Reps Dave Jeffreys Technical Sales Peter Moore These four people (Mike, Sandra, Dave and Peter) were the main links in the demand and supply chains for information and devices. Sandra and her sales representatives were responsible for nearly all customer contact. Orders and requests for product information were fed via Dave Jeffreys to Peter Moore, whose job it was to co-ordinate the customer requirements with the appropriate R&D groups. Mike's main role was to work closely with Peter and the R&D group leaders to ensure quality of manufacture and timeliness of delivery In addition, Mike (as Head of AOD) was responsible for the strategic development, budgetary management and profitability of the unit.
an cearranents lists ments for speen precision AOD Kicks-Off Mike recognised the importance of building his new team and the development of working relationships across the two organisations -not just within AOD itself. To kick off the project, he organised an 'away day involving all members of the AOD organisation, Peter Moore and the leaders from the R&D optical devices groups. Mike opened with what he felt was a rousing speech: We are privileged to be part of this ground-breaking joint venture which will enable EPC and ICC to gain a leading and profitable position in the very important US market for optical devices. We are second to none in this technology and ICC are second to none in US marketing. The purpose of today is for us to share information, explain how we fit into this new venture and our plans for the next year." Mike then went on to clarify his role and how he would assist the R&D laboratories in adopting good manufacturing and quality assurance practices to deliver high precision, high quality devices to customers. He set out AOD's requirements for specification information and product documentation, including components lists and sources, change history, test reports etc. He emphasised the importance of the drawing on the manufacturing philosophy for this project to be perceived as excellent by our customers, we must be able to prove it The remainder of the day was given over to the rest of the participants to outline their participation. Sandra explained the marketing and sales plan, the promotions and targeted customer segments. Dave his explained his role in translating customer requirements (expressed as benefits, facilities) into technical requirements with the relevant R&D groups Each R&D group leader gave a presentation of their product developments and current research activities (where commercial confidentiality allowed). These presentations were highly technical and tedious for everyone (for different reasons). Those who worked at EPC in R&D (including Dave Jeffreys) already knew about these activities and there was nothing in the content that was new. Those who didn't know about them - Sandra and her sales representatives and Mike - didn't understand the presentations. Sandra did try to ask a few questions, although she would be the first to admit that she didn't understand the answers that the research scientists gave. Later in the bar Mike said to Sandra "Dont worry that you dont get what they were talking about...that's why we ve given you Dave... he sort all that out-you just go ahead and do your advertising AOD Starts Trading (and Ceases) The venture began with a trail of publicity in the US, with bold specification sheets and trade show stands. Sandra and her team began selling the devices, but yields were low and time scales horrific (customers began referring to devices as vapourware). The specifications were continually downgraded as customers demanded proper information, forcing EPC to make measurements. A number of products were withdrawn. There were quality problems, with several devices failing catastrophically after a few hours. This caused some frustrations with ICC blaming EPC and EPC claiming that devices must have been used incorrectly. The basic problem was that EPC were representing prototypes as production items After two years the venture was scrapped. EPC's pride was knocked because their devices were exposed as not being up to scratch in the market. The ICC opto-electronic modulator project had been terminated for technical reasons, and with it the underlying rationale for the
loss-making distribution agreement. The venture cost ICC around $4,000,000 and generated sales of around $500,000 The reasons for the failure were highlighted by recent interviews with project personnel Peter Moore, EPC / AOD Liaison Manager I was in an untenable position. First of all, Mike tried to force all of these manufacturing processes onto the R&D laboratories. He was right about the lack of formal systems which resulted in difficulty in getting information on delivery dates on the devices, or the devices themselves. However, internal production (in the labs] was inadequate to cope with the additional demand anyway, and AOD was just seen as a nuisance. Mike's insistence on all the documentation just exacerbated the resistance within R&D. Not only that, but they didn't answer to Mike and didn't have to co-operate. He just seemed to presume that they would There were not many attempts to distort information on the devices specs, delivery dates etc. However, information was very much on a 'need to know basis and it got to a point where the laboratory units were specifically told to hide information from me, and on one occasion it was information directly relating to a customer that AOD was talking to. Mike felt that EPC was not that important to ICC, and that ICC became the distributor because it wanted to add value to its new polymer and used us simply as a learning experience. I think Mike wanted to demonstrate that we added more value than that. I think he wanted this to become another EPC subsidiary (with him as the Head, of course). I'm not criticising Mike, don't blame him at all-good luck to him. And if it had worked, the benefits to the R&D labs would have been huge. But unfortunately, when it all started going pear-shaped, Mike never seemed to be around. He was always in this meeting or the other - but I guess that's the occupational hazard of a senior manager. All he ever did was to send me e-mails requesting various bits of documentation - he said he could sort it from that. But the documentation just wasn't there and what was there was inadequate, and the more I asked the more unpopular I became with my colleagues. On the customer side, it seemed like poor old Dave was picking up all the flak and not getting any support this end. I think he understood the political problems although perhaps not the magnitude of them given what was going on this end. I didn't get to know Sandra that well - but it seems like her team did a good job of getting interested customers, and I think we let them down. I can tell you, it was a relief when my group leader asked me to lead a major R&D project for the Government, and gave me explicit permission to give this priority over my liaison role with AOD. Dave Jeffreys. Technical Sales I was really disappointed when the project was disbanded, I had gotten quite used to spending time with my son and his family. My granddaughter, Lauren, and my grandson Brett, were so pleased to meet their grandpa and they don't understand why I had to go back to the UK. I shall miss them terribly. Sandra was good in commercial matters but not so strong technically, which is why I was there to help. We got on really well. Sandra had previously worked in pharmaceuticals, where
products had been tested, tralled and approved, and where you went into see the doctor or surgeon and sold on the basis of hard data. I think that she now found herself suddenly dealing with a more fundamental R&D environment and found both the mentality of the people involved, and the language used, completely different. The people in the UK making the product were research scientists, working in a research laboratory. They got their kicks out of producing hero' devices and had no interest in making standard parts, and were somewhat scared that they could not reproduce devices, even in very small quantities. The project was forced on the research scientists by senior EPC managers, and the scientists would have preferred not to be involved. I know that the research teams viewed Sandra as a bit of a joke as she was selling devices that she knew nothing whatsoever about. Although she and I worked well together, her lack of technical knowledge didn't help her credibility with the R&D groups. But she and her team still did really well in getting the customers that they did they were real go-getters. Initially, my job was to translate customer requests from Sandra's team into comprehensible questions to AOD and the R&D labs (via Peter). As time went on, I ended up dealing with all the problems, such as trying to get the labs to provide information which they claimed was of no relevance to the customer' (often because nobody actually had the information). I also had to manage the discrepancy between the devices being standard items (as EPC had told ICC they were at the original presentation) and as ICC were portraying them and the best efforts that I guessed they were. Peter helped when he could, but I got the impression that he had other priorities in his department so he wasn't always available And as for Mike - the invisible man. He was never around and didn't seem to have any leverage with R&D at all. My requests for help or information were greeted with responses such as "I'm still trying to get hold of the documentation also. Although he did congratulate me on my customer calls logging and feedback system that I had set up to track customer enquiries and progress reports. In the end, most of my time was spent translating angry telephone calls from customers into polite requests for information from the scientists and pretending that all was well to customers. But I didn't mind, because at the end of the day! could go and visit my son and my grandchildren - which made it all worthwhile. Sandra Downes, Marketing & Sales Manager It was a great experience. I have learnt a lot about marketing and selling new technology custom products. My role was to feel out the US market, what it wanted from the devices what price would be feasible and to create a market. I did that. At the time, at ICC we were developing our own optical electric devices and we saw the project chiefly as a vehicle for promoting AOD products under the ICC banner in order to establish ourselves in this highly technical marketplace, and to build contacts Although the project was eventually wound down without selling too many devices, it was a success in some regards. We ficc] built a reputation in the US opto-electronic device market and established contacts, many of whom I still have enquiries from today. Thus there are many spin-offs from the project which have helped ICC and my own career development As to why the project was a failure, I think that the problems were mostly to do with the attitudes of the EPC R&D labs and AOD management than the concept itself. We proved that
customers wanted this. The R&D labs were clearly technically superb but suffered from a lack of any understanding of the US market and its needs It is also possible that the project suffered some after effects of the shaky start-up period. The early misleading representations that EPC put to ICC which painted pictures of fully tested, ruggedised production quality products, were simply not accurate. The subsequent evasiveness shown by the labs created an air of mistrust, which remained throughout the life of the project. Eventually we got the idea that these products were developmental products and began to persuade customers to settle for fairty loose product specifications. However, before we realised that we had a lot of unhappy customers and we spent a lot of out time trying to resolve the problems rather than being out there selling I think a lot of the problems stemmed from poor communications with the research groups - whenever I spoke to them they talked in technical jargon, and sometimes I got the impression it was deliberate to stonewall me. It didn't help me being out here in the States and the labs being in England - I didn't get the chance to get to know any of the guys, and this might have helped us to work better together. Dave was an invaluable member of our team and he picked up a lot of the customer complaints, because he understood the technical issues. He was able to bridge the gap between the US market expectations and the researchers at EPC. In addition, at times when mistrust between AOD and the research labs was at its greatest, Dave had the trust of the scientists and was usually able to find out exactly what was going on. I would have liked more contact with Mike - he was very difficult to get hold of. Although he did send me regular e-mails asking me for my sales call reports, conversions, revenue and profit calculations. He seemed to be peering at this through the numbers. I remember, we once had a really important client that I wanted Mike to come out and meet the business potential was huge. He couldn't make it but he did send me a statement on quality statistics and manufacturing documentation and something called ISO9000 which he said I should quote. I made the deal anyway, and didn't need to use any of that I just wanted Mike, as the President of AOD to come along and show how important we viewed this client. I always felt that Mike had no time for marketing and sales. I think he just thought we would do some commercials and the rest would fall into place. And as long as we sent him our numerical reports (and the numbers didn't look bad) then he would be happy. It seemed to me that there was no overall strategy as to which market to move into and hence which technology to promote. It was more a case of suck it and see and as long as the numbers came in nobody asked any questions. It just isn't like that in ICC. Mike Williamson, Head of AOD The systems and processes were a mess. The product specification sheets produced by the scientists exaggerated some results and made some assumptions about parameters which had not been tested. The scientists became very defensive when Peter or Dave asked for detailed information. Eventually the measurements were made and the specifications on the devices had to be downgraded. I lobbied hard to the project board and senior management in the R&D labs to introduce proper quality assurance processes. They gave me their full support, but the labs just did not comply with what I told the group leaders to do
At one stage the technical staff would not speak to me so I started doing walkabouts. These walkabouts caused a lot of problems as I unearthed a number of skeletons in dosets. From my observations, 100% of new products failed in that they didn't meet customer requirements. Either the devices had defects, or they lacked the properties of features that the customer really wanted. The scientists were uninterested in customer feedback channelled back through AOD. It took me over a year to put in place a system that handled feedback to customer complaints We were definitely victims of our own success - we had more customer orders than we could handle, and if R&D had followed my quality processes we could have avoided the problems. The R&D labs should definitely have been given defined goals and profit-based targets, as we had. The company was doing lots of good technology, but it seemed to go nowhere. It seems to me that no one had managed the full development cycle from product development through manufacturing and to sales. R&D was very insulated, and whatever talking they did with customers tended to be research oriented since most of their customers were usually research customers My main priority was to get the numbers right and report progress to the Project Board. I had more success with Sandra on this point than with R&D. In the end I had to develop the statistics myself based on information I could glean from reports from Dave and Peter. However, the project wasn't a complete failure. R&D's lack of marketable products has been exposed (albeit somewhat expensively) to senior management who now wish to set up a project to review what needs to be done to gain full financial benefit from our R&D capability I have already put forward some ideas on the systems and processes that are needed for this to happen, which have been well received by senior management. I have been asked to head a task force of R&D group leaders to sort this out once and for all. This time it isn't going to be a separate organisation relying on R&D's goodwill - the task force will report to EPC's main Board so I think they'll co-operate this time. I am looking forward to this project

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