Commercialization in a Tough Market

Agenda

• Challenges

• Exemplars

• Investments

• Market Insight

• Strategy

• Summary
3
CHALLENGES
 “Typical” Diffusion of Innovation

2.35
2.5% 13.5% 34% 34% 16%

1.35

0.35

Innovators Early Early Late Laggards

Adopters Majority Majority

Source: Rogers & Shoemaker, Communication of Innovations

5
 Oilfield is MORE willing to try
Which of the following best describes your company’s perspective on adopting new technology?

Try to be a pioneer /
23%
break new ground

Early adopter, but not

37%
initial risk taker

Cautious / try new

technology after it has 32%
a track record

Risk intolerant / use

only after proven and 8%
established

Source: 2008 Gulf Research: Accelerating Adoption of New Technology

6
 Barriers Are “Manageable”

Only 50%
Of Buyers indicating that:
Procurement
Difficulty Finding the Right Wells
Reluctance of Change

Were Important Barriers for New Technology Adoption

Source: 2008 Gulf Research: Accelerating Adoption of New Technology

 Customers Need Clear Relation to Problem

• “Prove that it can save you money and make money at the same
time.”

• “Shown performance, quality testing and honesty about the product

(e.g. limitations and reliability).”

• “Being upfront with the accruable total benefit from deploying such a
technology and demonstrating it is no marketing propaganda - that
the new technology will indeed add great value.”

• “Better to have a workshop of technical professionals from different

exploration and production companies and give detail presentations
to them and let them discuss its pros and cons.”

8
 …And Help Them Reap Benefits

74%
say providing technical assistance
would help increase the rate of new
technology adoption

Source: 2008 Gulf Research: Accelerating Adoption of New Technology

 Not Knowing Your Market Comes at a High
Price

• Bringing products to market is the most expensive

activity of the product development process

• Managing the risk of new product failure involves

planning, optimizing product/service and price
packages, launching, and adapting to responses

• Successful new product launches require market insight

involving a holistic approach where
operations, technology, sales and marketing play a role
 Critical Success Factors

• Seek differentiated, superior products based on customer needs

• Up-front homework pays off, so examine your markets globally
• Build-in the voice of the customer, using advanced qualitative techniques
• Demand sharp, stable and early product definition with early input from
Customers
• Plan and resource the market launch early in the game to focus on the
Champions
• Build tough go/kill decision points into your process – a funnel, not a tunnel
• Organize around true cross-functional project teams and be sure to include
international representation, not just North America/North Sea
• Attack from a position of strength, so you need to understand your
reputation and associated perceived risks
• Build an international orientation into your process
• The role of top management is central to success
• Strengthen your global brand to earn customer trust

-- Adapted from Cooper & Edgett, New Product Development Institute

EXEMPLARS
 Who’s Doing it Right?

• Schlumberger
• Weatherford
• Baker Hughes
• Halliburton

Rated most effective at

introducing new technologies
Source: 2008 Gulf Research: Accelerating Adoption of New Technology
 Schlumberger
WellWatcher

• Plan and resource the market

launch early in the game to
focus on the Champions

• Organize around true cross-

functional project teams and
be sure to include
international
representation, not just North
America/North Sea
 Weatherford
Motorized Cutting Tool (MCT)

• Up-front homework pays

off, so examine your
markets globally

• Attack from a position of

strength, so you need to
understand your
reputation and associated
perceived risks
 Baker Hughes Drilling Fluids
MICRO-CURE

• Demand sharp, stable and

early product definition with
early input from Customers

• Plan and resource the

market launch early in the
game to focus on the
Champions
INVESTMENTS
 Making the Case for More Funds

• Warning – R&D Expenditures

are a trailing indicator to
revenue growth

• But it does indicate a

commitment to evolving the
company

• Separate “creation” from

“deployment”

• Always compare apples to

apples
 Research and Engineering
(in millions)
800
700
600
500
400 Research and
300 Engineering
200 (in millions)
100
0
2005 2006 2007

Source: 2007 Annual Report (Page 45)

http://library.corporate-ir.net/library/97/975/97513/items/281510/AR07.pdf
 Research and Engineering
(in millions)
500

400

300
Research and
200 Engineering
(in millions)
100

0
2005 2006 2007 2008

2007 Annual Report, Page 13 /

http://investor.shareholder.com/bhi/ar2007/bh_annual.html
 Research and Development
(in millions)
350
300
250
200 Research and
150 Development
100 (in millions)
50
0
2005 2006 2007

2007 Annual Report, Page 12 http://thomson.mobular.net/thomson/7/2738/3328/

 Research and Development
(in millions)
200

150

100 Research and

Development
50 (in millions)

0
2005 2006 2007

2007 Annual Report, Page 26 / http://library.corporate-

ir.net/library/77/777/77782/items/292723/WFT07-AR0608.pdf
 Better Measure

R&D vs. 2005 2006 2007 2008

Revenue

Schlumberger 3.5% 3.2% 3.1% 3.2%

Halliburton 2.2% 2.0% 2.0% 1.8%

Baker Hughes 4.2% 3.8% 3.6% 3.6%

Weatherford 2.5% 2.3% 2.2% Unavailable

Source: Annual Reports and Investor Presentations

MARKET INSIGHT
 Market Information is Critical

• 80% of the new product successes gathered and used

more market information

• 75% of the failures knew less than average about the

market at project inception and gathered/used less
market information during the product development
process.

-Ottum and Moore, Journal of Product Innovation Management

 Market Insight Techniques You Can Use

• Needs Identification
– Customer Advisory Board
– Experience Mapping
– Site Visits

• Estimating Demand
– Segmentation Analysis
– Conjoint Analysis for Feature Optimization
– Choice Tasks for Pricing and Prioritization
STRATEGY
 "The essence of
strategy is choosing
what not to do."

Michael Porter
 Importance of Strategic Thinking in 2009

• Creating New Products

– Create, then sell?
– Collaborate, then use?
– Understand, then execute?

• Deployment
– Beat the Market
– Niche Approach
– Delay

• Monitoring
– Number of killed projects
– % revenue in new products
 Summary

• Economic Troubles Don’t Make

Our Jobs Easier

• Look to Practices of Leading

Companies and Critical Success
Factors

• Examine Your Commitment

• Understand Your Customer

• Be Strategic About Deployment

QUESTIONS
Gelb Consulting Group, Inc.

1011 Highway 6 South, Suite 120

Houston, TX 77077

281-759-3600 x1022

Contact: John McKeever

www.gelbconsulting.com