CREATING A CULTURE OF INNOVATION

Air Products Becomes One of the First Industrial Gas Companies to Embrace an Open Innovation Strategy

Traditionally, companies have kept their intellectual assets under lock and key, developing new products in-house and restricting research and development to internal sources.  But given today's astonishing pace of technological innovation, a growing number of companies are employing a new paradigm called "open innovation."  Championed by visionaries like Hank Chesbrough, open innovation seeks to remove geographical, ideological and technological roadblocks to product development by incorporating technology and scientific research from outside the company.

Air Products, a leading global industrial gas and performance chemicals supplier, is advancing such a strategy and is among the first companies in its industry to embrace this trend.  Through university partnerships, collective research, venture investing and online scientific community membership, Air Products is discovering ideas and technologies from outside its doors and using them to support existing R&D projects, develop new avenues of research and compete more effectively on a global scale.

Dr. Miles Drake, vice president and chief technology officer at Air Products, says, "Employing an open model enables Air Products to move more nimbly and compete more effectively, while solving problems for a broad range of customers.  It's a vital part of our 'Identify and Accelerate' strategy for innovation."

The company's development of an open innovation culture follows a trend set by a number of successful pharmaceutical and consumer companies, among others, including Eli Lilly and Proctor & Gamble.  Drake, who was recently named 2004-2005 Chairman of the Industrial Research Institute (IRI), the foremost association of business and thought leaders in R&D, says, "If you look at the International Research Institute's 2003 R&D trends forecast, you'll note that many companies are moving towards spending less on internal research and collaborating externally in their key research areas.  It's cheaper and smarter, and it frees up your internal experts for improvement research on a product or technology after you've decided it has market value and acquired the licensing for it."

Alliances and Cooperative Research
Air Products maintains a number of long-standing university alliances, some of them dating back a quarter-century.  Through venture funding, patent donations, and cooperative arrangements, the company benefits from early stage, low-cost research, high-caliber scientific expertise, patent rights, and commercialization opportunities.  For example, Air Products funded research at Penn State University that resulted in 77 projects since 1998, saving on average one to two years of research time and hundreds of thousands of dollars per project.

Other cooperative arrangements called collaborative research and development agreements (CRADAs) enable Air Products to engage in shared research with institutions such as the Federal Research Laboratories.  Here, each partner owns the rights to their individual research, with certain projects owned jointly.  Air Products also joins with research institutions including the Battelle Memorial Institute, ITN Energy Systems, and TDA Research to develop technologies in the company's key growth areas: electronics, hydrogen and energy, healthcare, and performance materials.

Venture Investing
Venture investing is another integral part of Air Products' open innovation strategy.  To date, Air Products has invested in 12 companies, covering a wide range of technologies and applications including electronic inks, semiconductor cleaning, hydrogen fueling systems, and nanotechnology.  In addition, the company participates in the NGEN Enabling Technologies Fund, L.P., (www.ngenpartners.com), which provides funding and business expertise for emerging companies in materials science.

One example of a business opportunity developed through this fund is Solicore, Inc., a start-up with a promising new technology for solid polymer lithium ion batteries.  Air Products made an equity investment in Solicore, which has pioneered an electrolyte for batteries that is a non-compressible, non-combustible, and non-toxic plastic film.  It is used for items such as smart cards, games, and electronic devices.*

Another is E Ink Corporation, the leading developer and marketer of electronic ink technology for paper-like displays.  In this case, the innovation flow went both ways.  Air Products took a minority interest in E-Ink to help the company develop its technologies, and E Ink later asked Air Products to formulate materials for E Ink's products.**

Hard Wired for Success
To further take advantage of the enormous wealth of scientific knowledge and research available today, Air Products has added two Web-based tools, NineSigma (www.ninesigma.com) and InnoCentive^® (www.innocentive.com).  These powerful online sourcing solutions enable Air Products to connect with new ideas, technologies and solutions quickly, easily and at a far lower cost than through internal R&D options alone.

A challenge and an opportunity, as Drake sees it, has been creating a corporate culture that values external and potentially disruptive ideas.  He says, "It's an evolving process that has required a culture shift at all levels within the company.  The greatest challenges are often not finding new ideas, but creating a comfort level in seeking out and incorporating innovation from nontraditional sources."

About Air Products
Air Products (NYSE:APD) serves customers in technology, energy, healthcare and industrial markets worldwide with a unique portfolio of products, services and solutions, providing atmospheric gases, process and specialty gases, performance materials and chemical intermediates.  Founded in 1940, Air Products has built leading positions in key growth markets such as semiconductor materials, refinery hydrogen, home healthcare services, natural gas liquefaction, and advanced coatings and adhesives.  The company is recognized for its innovative culture, operational excellence and commitment to safety and the environment and is listed in the Dow Jones Sustainability and FTSE4Good Indices.  The company has annual revenues of $8.1 billion, operations in over 30 countries, and more than 20,000 employees around the globe.  For more information, visit www.airproducts.com.