Commercialization in a Tough Market

Agenda

• Challenges

• Exemplars

• Investments

• Market Insight

• Strategy

• Summary

3

CHALLENGES

0.35

1.35

2.35

“Typical” Diffusion of Innovation

5

Innovators Early

Adopters

Early

Majority

Late

MajorityLaggards

2.5% 13.5% 34% 34% 16%

Source: Rogers & Shoemaker, Communication of Innovations

Oilfield is MORE willing to try

6

23%

37%

32%

8%

Try to be a pioneer / break new ground

Early adopter, but not initial risk taker

Cautious / try new technology after it has

a track record

Risk intolerant / use only after proven and

established

Which of the following best describes your company’s perspective on adopting new technology?

Source: 2008 Gulf Research: Accelerating Adoption of New Technology

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

SchlumbergerWellWatcher

• 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

WeatherfordMotorized 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 FluidsMICRO-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

0

100

200

300

400

500

600

700

800

2005 2006 2007

Research and Engineering(in millions)

Research and Engineering(in millions)

Source: 2007 Annual Report (Page 45)

http://library.corporate-ir.net/library/97/975/97513/items/281510/AR07.pdf

0

100

200

300

400

500

2005 2006 2007 2008

Research and Engineering(in millions)

Research and Engineering(in millions)

2007 Annual Report, Page 13 /

http://investor.shareholder.com/bhi/ar2007/bh_annual.html

0

50

100

150

200

250

300

350

2005 2006 2007

Research and Development (in millions)

Research and Development (in millions)

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

0

50

100

150

200

2005 2006 2007

Research and Development (in millions)

Research and Development (in millions)

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

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

Better Measure

R&D vs. Revenue

2005 2006 2007 2008

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