September 1, 2006
The spirit of innovation is alive and well in the plastics industry. Yet, like most materials innovators, plastics suppliers and processors who launch advancements find themselves frustrated at the slow pace of adoption.
Their business plans promise quick adoption to justify the staggering investment needed to bring a material to market, but commercialization often proves harder than anticipated. The problems faced by plastics innovators are not new, but the lessons of history seem to have been forgotten. Have years of price-driven competition brainwashed the industry into believing that a "one size fits all" approach is best for new and old materials alike? Traditional wisdom says that the same factors that drive deep market penetration also drive quick adoption and growth-and that low price is the supreme predictor of both. By exploring the origins of the most successful applications of the world''s most successful plastics-PS, PVC, LDPE, PUR, HDPE, PP, and PET-we found that traditional wisdom is incomplete with regards to new materials; it leads innovators to overlook the three most important adoption obstacles: Application identificationTechnical deficienciesValue chain barriersThe most successful plastics addressed these obstacles by following a distinct commercialization pattern that minimized their effects-a pattern that can benefit today''s innovators throughout the industry, especially plastics suppliers and processors. The obstacles to adoptionBefore diving into the adoption obstacles, it is important to understand the growth of the plastics we examined, and to realize that specialty materials can be successful with much smaller volumes. The time needed for materials in our group to grow from commercial launch to sales that would fill a world-scale commodity plastics plant today (300 million lb/yr) ranged from six-15 years, with an average of 10.8 (see figure 1). This growth was always achieved by penetration into several major applications, leading us to also examine the time required for the plastics to achieve adoption into their biggest applications. Again measured from the year of first commercial availability of the plastics, adoption into the biggest applications (those greater than 300 million lb/yr today) took an average of 8.7 years (with a very broad range-see figure 2). This delay-even for such important applications-demonstrates that the factors that led to eventual large volumes were clearly not the same as those contributing to quick adoption. In fact, we found no correlation between current sales volume and adoption time for these applications. We surmised that the difference between the best and worst times were driven by a few obstacles, and statistical tests confirmed our hypotheses (see figure 3). The first adoption obstacle we found was failure to identify application markets. This failure was usually caused by tunnel vision-innovators focused on developing a few promising properties of a material while leaving undeveloped others that might allow people to recognize additional application opportunities. For example, no one considered using early PP in car interiors because it degraded so quickly with UV exposure-it wasn''t until years into PP''s development that this problem was solved and new applications opened up. We also found that value chain barriers-challenges in the value-creating activities between materials production and the end user-were major obstacles. Value chain barriers were quite varied, ranging from unwillingness of processors to invest in new technology to hesitancy of plumbing unions to accept a new type of pipe, but they all prevented the customer from having a chance to adopt the new material. Further investigation showed that the effects of value chain barriers scaled with the complexity of the value chain itself-simpler applications faced less delay because fewer changes had to be made to deal with the new material. The third class of obstacles was technical deficiency-problems inherent in the plastics that made them unfit for use in an application. Development of a material takes time, and most OEMs are unwilling to risk a potential material failure. It is important to note that the effects of technical deficiencies are also related to the complexity of an application-simpler applications generally require less development, less training, and therefore suffer less adoption delay because they generally face less risk if they fail. The biggest surprise for us was that a price advantage was not required. Most of our plastics applications cost either the same or-in most cases-more than the incumbents they replaced (see figure 4). In fact, plastics applications that cost less than incumbents actually took longer to be adopted than those that cost more! While it is true that the price differences were generally quite small (they had to be at least in the same ballpark), it is also true that new materials definitely did not have to be priced lower to succeed. This has a very important implication: the value created by new materials was based mostly on property advantages, not on low cost. The materials commercialization patternThe plastics we examined followed a common pattern of commercialization that minimized the effects of the adoption delay factors mentioned above. Each plastic followed three distinct phases-enabler, platform, and widespread adoption-which can be characterized by the types of applications in which the plastics were used. The table opposite gives some examples. The Enabler Phase: Clearing the pathNew materials are unknown quantities, and finding application manufacturers willing to invest in them or risk having them fail is a major challenge. As we mentioned earlier, both value chain investment and technical risk increase as application complexity increases. Enabler phase applications dodged complexity by launching into ridiculously simple applications-for instance, Hula Hoops. These applications, such as PUR-filled teddy bears and PS faux jewelry, were not the stuff of business dreams, but did play an incredibly important role in adoption. Their common characteristics combined to allow very quick adoption because:1) They took advantage of material properties to enable people to do things they couldn''t do before, effectively creating demand. 2) They had simple value chains with minimal obstacles to adoption.3) They were relatively fault tolerant (who cared if a hula hoop cracked?), and people accepted them because their value far outweighed the risk of failure. Each characteristic addresses (or dodges) an adoption obstacle, and enabler value is driven primarily by material properties, not low price. Although enablers were rarely financially feasible on their own, they built capability, credibility, and knowledge around each material, accelerating its adoption into larger markets. Enabler applications were big enough to attract processors and enticed them to build the capability of making the material into product. Enabler applications also taught processors, end-product manufacturers, and customers about each material, lending the material credibility in the marketplace. By allowing processors and materials suppliers to experiment under "real world" conditions with new materials, enabler applications helped eliminate technical deficiencies and created the knowledge necessary to launch into higher stakes applications. The Platform Phase: Setting the stageHaving established itself in the enabler phase, each plastic moved on to the "platform" phase, which hinged on the success of a single application that then acted as a base for future growth. Within a few years of launch, each of our plastics entered one major application that it quickly conquered and has dominated ever since. Like enablers, platform applications had some common characteristics. First, plastics replaced an existing material in platform applications (platforms were not completely new). Second, this replacement was based on a unique set of superior properties that the plastic offered: PVC, for example, offered much better colorability than rubber in wire insulation, while HDPE was virtually unbreakable and much lighter than glass in detergent bottles. Third, the applications were large at inception and still are today. The platform phase played an important role in sales growth: It validated the business plan by generating early profits and forced operational discipline on both producers and processors, who had to learn to consistently and efficiently make product that would meet downstream customer needs. The Widespread Adoption Phase: Returning the investmentEach plastic emerged from the platform phase as a known quantity with a strong processing base, ready for competition in the third phase: widespread adoption, in which it entered a variety of applications. All of the commodity materials are in this stage today and are competing to generate returns for investors. In widespread adoption, the properties and processing base of a material are well known, and switching costs and benefits are easy to calculate. Only at this stage is price as significant a lever of competition as the material''s properties, and materials undercut each other in applications until the lowest cost solution that meets product needs emerges victorious. Traditional materials wisdom dominates this phase.Why does this matter today?The obstacles to adoption are undoubtedly more challenging today than they were in the mid-20th century when the most successful plastics were launched. Decades of intense competition have made new applications much harder to spot, value chains have become much more complex, and technical challenges are becoming ever harder to solve. The pattern of materials commercialization was never planned-it emerged as each plastic fought and failed to enter the applications that seemed most attractive, then retrenched to enter enabler applications. Simply embracing the pattern outlined above would lead to faster adoption of new materials by eliminating time wasted focusing on the wrong applications at the wrong time, and by refocusing value creation on novel properties instead of low price. However, understanding the pattern''s underlying factors allows further improvement and promises a major reduction in adoption time. Materials innovators should broadly expand R&D to identify more applications. They should strategically choose enabler markets to eliminate the technical deficiencies that could keep them from entering their platform markets. And they should develop strategies to actively manage-and even control-the value chains of potential platform applications. About the authors: This article was written by Christopher Musso, Jason Grapski, and Bob Frei, all of business consultancy McKinsey and Co. An earlier version served as the basis for Musso''s Ph.D. in Technology Management at the Massachusetts Institute of Technology (Boston, MA).
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