TROY, Mich.—Big innovations usually require big risks.
Mike Recchio's job is to make sure Zeon Chemicals L.P. takes the right risks.
The firm's vice president of corporate strategy shared his approach to research and development at the recent Rubber in Automotive Conference in Troy. He views product development like an investment portfolio—finding the right balance of safe bets, calculated risks and rewards.
He also keeps his eye on the big picture.
"When you talk about new product development, everybody wants their say," said Recchio, who has been with Zeon for 25 years and brings 30 years of industry experience to the table with a background in chemistry, compounding and marketing.
"I've got sales guys who will come in and say 'I want a product that will do this for us because of customer feedback.' The marketing people will come in and ask for something different, our R&D scientists come in with great ideas and customers as well will come to us with great ideas. We've got to balance all of those things."
Zeon's portfolio, under Recchio's guidance, is a mixed bag. He takes the ideas pitched from all departments and utilizes a gate-stage process to test the ones he feels are worth exploring. Some products are simple tweaks to existing items, a way to sell the current portfolio better. Others are a bit broader, adapting a line so Zeon can enter a different market. And then there are the big, wild ideas that could bring big change—and a big payoff—but they carry longer lead times and bigger risks.
Recchio said he looks at two key factors: the length of the project and the risk involved. Low-risk projects shouldn't take more than a year, mild-risk projects can take up to three years, and the big ones generally take at least three years and sometimes more than a decade.
"I want to balance my investment because I look at this as an investment portfolio," Recchio said. "If you're investing everything in low risks, you're not going to get big payoffs, but if you put everything in that high-flying stock and it doesn't pay off, that's not the right way to go either. You have to manage this like an investment portfolio with a mix of different kinds of projects."
While Zeon is willing to take on many ideas, that doesn't mean Recchio will allow them all to reach the finish line. The key, he said, is knowing when to kill a project. He measures his investment in a project against gross margin because it's not just about recovering plant costs, it's about making money beyond that.
And if it's obvious the project won't do that, he's not afraid to pull the plug.
"That's one of the keys to be successful at R&D, you've got to kill projects," Recchio said. "I kill at least eight out of 10 and I try to kill them early."
Recchio said Zeon uses a funnel approach by comparing new project ideas to the profiles of winning projects. The ones that fit the profile of a winner make it through to the firm's gate-stage process. Recchio said at each stage the company goes back and looks at the financials. The process involves five stages: Preliminary investigation; detailed business case; development; testing, validation and scaling up; and product launch.
Most products do not make it out of the first two stages.
"If you're asking the right questions all the way along, you're reducing that risk, but you're spending more money," Recchio said. "If you get all the way to stage four, which is running a trial for your client, how many of you really know the cost to run a trial in your plant? Of all the raw materials and time you're going to use? You've got to know those numbers and understand what your R&D scientists' time cost, not just what you pay that one guy. I've got an R&D center, buildings, equipment, utilities, maintenance and capital costs that I've got to figure in."
But the process is useless without the right gatekeepers in place, something Recchio said is critical. Zeon has a few of its senior leaders as gatekeepers, which occurs at every stage. Recchio said the ideal gatekeepers come with multiple experiences, not someone who, for instance, has done nothing but manufacturing. He outlined three things he looks for:
- A commercial background to understand customers and markets;
- A production background to understand the needs of manufacturing; and
- A technical background to understand and see the potential, not just what's already there.
"You've got to have various experiences to understand what all those different pieces do," Recchio said.