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For the exclusive use of M. Zhang, 2018.
4168
FEBRUARY 19, 2010
CHRISTOPHER A. BARTLETT
HEATHER BECKHAM
Applied Research Technologies, Inc.:
Global Innovation’s Challenges
On June 5, 2006, Peter Vyas paced his office as he grappled with a request for $2 million to relaunch a mini water-oxidation product. Despite two failures to bring this product to market over the
past three years, his team was confident this latest iteration was a winner.
For Vyas, general manager of the Filtration Unit of Applied Research Technologies (ART), the
request presented a major challenge. He recognized that his team had worked tirelessly to make this
project a reality and strongly believed they were now headed in the right direction. But he also
understood that the Filtration Unit’s track record of failure during this product’s development had
hurt its credibility. If he supported the proposal, he knew he would be putting on the line not only
his own personal credibility but also that of the entire unit.
Due to the project’s size, final approval would be made by Vyas’s boss, Cynthia Jackson—the
newly appointed vice president of ART’s Water Management Division. Jackson was acutely aware of
the mounting losses in the Filtration Unit, and she had already devoted a significant amount of time
trying to get them back on track. She had confided to one of her colleagues:
When I took on this assignment, I was told my first task was to “fix” the Filtration Unit. The
unit only had one revenue-generating product line and had failed to bring a profitable new
product to market in five years. It was clear that I was expected to either turn it around or shut
it down.
I’m trying to protect them and ensure they get support, but my initial feeling is if they are to
survive, they must become much more disciplined. They seem to be making progress on that
front, but in all honesty, I sometimes wonder if it is time to cut our losses and initiate a harvest
strategy 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 based on real events, is fictionalized, and any
resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration.
Copyright © 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685,
write Harvard Business Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. This publication may not be digitized,
photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
This document is authorized for use only by Mingwei Zhang in WPC 480 Capstone 2 Spring taught by Roland Burgman, Arizona State University from March 2018 to May 2018.
For the exclusive use of M. Zhang, 2018.
4168 | Applied Research Technologies, Inc.: Global Innovation’s Challenges
Applied Research Technologies, Inc.
ART was one of the technology world’s emerging giants. The company 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 business units, each of which operated as a profit
center. Total corporate revenue was $11 billion in 2006.1 Major divisions in the corporation included
Healthcare (medical diagnostic equipment), Industrial Automation (robotics), Energy (extraction,
conversion, and transportation solutions for the oil and gas industry—including the Water
Management Division), and HVAC (Heating Ventilation and Air Conditioning, including climate
control solutions for residential, commercial, and industrial markets). Exhibit 1 shows the
organization structure of the company.
The company’s success had been built on its innovative and entrepreneurial culture, coupled with
a decentralized management philosophy. ART’s vision statement, proudly displayed in almost every
office and cubicle, stated: “We aim to change the world through innovation, and to grow our place in
it through entrepreneurship.”
Culture and Practices
ART was dedicated to supporting innovation not only with funding (the company’s R&D
spending was double the rate for U.S. industrial companies), but also in its practices, several of which
were deeply embedded in the company’s culture. ART encouraged employees to spend a half day
each week “experimenting, brainstorming, and thinking outside the box.” It was a practice that the
company’s visionary founder and current CEO, David Hall, referred to as “tinker time.” He
explained the concept:
Innovation and entrepreneurship are the twin engines driving this company. It’s the reason
we’ve ingrained “tinker time” in our culture…I expect all our managers, and particularly those
on the front line, to create, promote, and back promising ideas. But we understand that when
you go for the big leap, you won’t always clear the bar. So there is no shame in failure when
you are stretching for big objectives. Around here we routinely celebrate what we call “worthy
attempts”—even when they are unsuccessful.
Knowledge sharing and dissemination was another key part of ART’s business philosophy, and
despite the high level of decentralization and profit accountability, technology and human capital
were both widely shared among divisions. For example, experts in one division routinely served as
advisors on project committees for other divisions, and it was not uncommon for employees to go
“on loan” to help another unit with a promising product idea or technology.
The company also moved quickly to bring products to market. If an idea showed promise,
funding was usually available for small “beta batch” productions, which often allowed market
testing to achieve what was called “proof of concept” within ART. Once an innovation was proven,
significant investment was quickly put behind it.
Objectives and Priorities
To infuse discipline into its decentralized organization, ART’s top management set highly
aggressive performance objectives and tied executive compensation tightly to them. In 2006, as in
1 Of that total, Water Management Division sales were $560 million and Filtration Unit sales were $38 million
2
BRIEFCASES | HARVARD BUSINESS SCHOOL
This document is authorized for use only by Mingwei Zhang in WPC 480 Capstone 2 Spring taught by Roland Burgman, Arizona State University from March 2018 to May 2018.
For the exclusive use of M. Zhang, 2018.
Applied Research Technologies, Inc.: Global Innovation’s Challenges | 4168
any other year, each division was expected to deliver sales growth of 10%, pretax margins of 15%,
and return on invested capital of 20%, referred to as the “10/15/20 Target.” The belief that innovative
products were the source of the company’s ongoing competitive advantage was reflected in a
companywide metric requiring 30% of each division’s total sales come from products developed in
the last four years.2
Hall also continually emphasized that to be competitive, ART had to shorten the life cycle
between a new technology’s conception and its commercialization. In response, the company had
introduced the “Fast Track Pipeline,” a program that focused on the highest priority projects by
providing them with additional resources and management attention. 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 identified as a “Fast Track” project).
In the late 1990s, Hall began pushing to grow ART’s global presence. “It’s important not just to
expand our market access, but also to broaden our talent access,” he insisted. “Innovation and
entrepreneurship know no national boundaries.” In the quest to meet this challenge “to attract the
best and the brightest wherever they live,” in 2000, the corporate R&D group opened the India
Technical Center (ITC)—a substantial operation that Hall hoped would become a model for other
R&D centers he planned to open up around the globe.
The Filtration Business Unit
The Filtration Unit was part of a business ART acquired from an oil and gas services company in
1996. Its core product line was in mobile water treatment that allowed oil and gas exploration
companies to meet government water recycling requirements at well heads and drilling sites. These
products were still the unit’s 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. ART’s 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 Energy
In a promotion from his role as a lab manager in the HVAC Division, the 32-year-old Vyas had
assumed the role of business manager for the Filtration Unit in June 2001. He immediately confronted
the unit’s twin organizational problems of low morale and growing turnover, and in his first year,
rebuilt the team 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 excited 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
team early in his tenure, charging them with the responsibility to focus on technologies with the
potential to turn the unit around. In one of his first reviews with that team, Vyas learned that for
almost a year, the filtration unit had been working with ITC technicians on an exciting new
technology the young Indian team had developed based on a license obtained from a Delhi-based
start-up company. Developed as a potential solution to the widespread Third World problem of
obtaining clean water in remote regions, this small-scale oxidation system was thought to have
2 Hall had recently increased this target from 25% of each unit’s sales from products developed in the last five years.
HARVARD BUSINESS SCHOOL | BRIEFCASES
3
This document is authorized for use only by Mingwei Zhang in WPC 480 Capstone 2 Spring taught by Roland Burgman, Arizona State University from March 2018 to May 2018.
For the exclusive use of M. Zhang, 2018.
4168 | Applied Research Technologies, Inc.: Global Innovation’s Challenges
application in many less-developed markets. But in an effort to cut costs, the filtration unit’s previous
management had decided to abandon the collaboration a year earlier.
After reviewing the technology, Vyas became convinced that this had been a mistake 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 developing 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
charge of the project. “We believe this project can make a huge difference 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
utilized battery power), this small system could transform waste water into potable water without
chemicals in minutes. A single unit had the capacity to process 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 world’s water was fresh, and most of that was
frozen. Population growth, industrial development, and agricultural expansion were all putting
pressure on fresh-water supplies in both developed and developing countries. Indeed, the World
Resources Institute found that demand 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 to basic 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 scarcity 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 United States and Canada were researching the
technology. Nevertheless, her analysis suggested the ITC team’s product was further along and
probably superior to anything else in the space.
New Opportunities, New Initiatives
Vyas decided to pursue the project and convinced the VP of Corporate R&D who had ITC
oversight to allow the three ITC technologists working on it to become members of his technical
team—a move 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. Over 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 located in the United States to work through two
complete cycles of product development, beta batch productions, and test marketing of two different
versions of the mini-oxidation system. Both failed due to what were subsequently revealed to be
defects in the design and lack of interest in the marketplace.
4
BRIEFCASES | HARVARD BUSINESS SCHOOL
This document is authorized for use only by Mingwei Zhang in WPC 480 Capstone 2 Spring taught by Roland Burgman, Arizona State University from March 2018 to May 2018.
For the exclusive use of M. Zhang, 2018.
Applied Research Technologies, Inc.: Global Innovation’s Challenges | 4168
The first-generation product was aimed at the application for which the technology was originally
developed—to provide developing nations with safe drinking water. Largely supported by foreign
aid, the mini-oxidation system was field-tested by representatives from funding 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 slightly modified version of
the product and aim it at a potential market for military use and NGO disaster relief activities that
Wagner had identified in her initial analysis. This decision was enormously disappointing to the
Indian technologists who had developed the initial prototypes, and Vyas had to work hard to keep
them on board. The second-generation product fixed 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 unit’s 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. High frequency vibrations were
shown to control the growth of algae, organic waste, and bacteria such as E. coli. Market applications
for this technology included treatment for clean water storage receptacles, public/private ponds, fish
tanks, and ballast water. However, in 2006 this technology was still in the earliest stages of research
and testing.
New Oversight, New Discipline
In January 2006, just as Vyas and the rest of the mini-oxidation team were launching their secondgeneration system, Cynthia Jackson was appointed vice president of the Water Management
Division. Jackson’s attention was soon drawn to the troubled Filtration Unit which she felt needed to
put much more rigor into the planning and analysis that supported their product development
activities. According to Jackson:
Peter Vyas seems to be an excellent talent manager. He was able to recruit and retain good
people to his unit, and then build them into highly motivated teams on two different
continents. He’s also shown himself to be an outstanding advocate for the group’s ideas—
skilled at managing upward, gaining support, and running interference so his team can
concentrate on the task at hand. And I’m 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 future 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 unit’s continued existence was in
jeopardy if they did not turn things around.
Mini-Oxidation’s Third Launch Attempt
To 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 her
HARVARD BUSINESS SCHOOL | BRIEFCASES
5
This document is authorized for use only by Mingwei Zhang in WPC 480 Capstone 2 Spring taught by Roland Burgman, Arizona State University from March 2018 to May 2018.
For the exclusive use of M. Zhang, 2018.
4168 | Applied Research Technologies, Inc.: Global Innovation’s Challenges
as the team leader. (Exhibit 3 details committee membership.) From the outset, the team was highly
committed to the product and worked tirelessly to complete Jackson’s three-phase process.
Phase 1: General Product Concept and Market Analysis
Wagner took the lead in preparing the Phase 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 might exist in domestic agricultural applications.
According to the Palmer Drought Index from April of 2006, 26% of the United States was
considered in moderate to extreme drought conditions, and Wagner’s research showed that low
rainfall, high wind, and rap …
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