Sustainable innovation: case analysis and uncertain investment planning

DuPont Kevlar Aramid Industrial Fiber

DuPont is the world's leader in many different industry segments and have a strong dedication to research and development. This focus is embedded in the company's history and culture which has a foundation built in science. The company was once a major supplier to the tire industry until the development of the radial tire. During this industry transition, DuPont considered developing its Kevlar product for use in the next generation of tires. Although there were other materials available that could be used in this application that were far cheaper, DuPont believed that the superior qualities of Kevlar would be competitive if the price was within its competitors range. This report will provide a background and an analysis of the uncertainties inherent in DuPont's position.

Company Background

DuPont's scientific history can be traced back all the way to the 18th century beginning in France with an individual named Antoine-Laurent Lavoisier, who is often referred to as the "father of modern chemistry (DuPont, 2012)." Eleuthere Irenee du Pont, one of Lavoisier's students, founded the DuPont Company in 1802 based on Lavoisier's technology for the manufacture of black gunpowder. DuPont's product mix was broadened in the late 1800s with the introduction of nitroglycerine and nitrocellulose. Once the company developed the expertise and engineering capabilities required for manufacturing their products in mass quantities this led to an expansion of the company.

Today, DuPont is a very dynamic organization that operates in many different product niches. The organization has developed into five market oriented product groups -- Agriculture and Nutrition, Coatings and Color Technologies, Electronic and Communication Technologies, Performance Materials, and Safety and Protection. Today DuPont invests over $1 billion a year on research and development in a wide range of technologies and is home to one of the world's largest industrial R&D facilities, the Experimental Station. Research is performed by these groups individually but is also coordinated by Central Research & Development (CRD); which especially monitors long-term research projects. This organizational structure has worked to help the company develop many state of the art products in materials that are used in a wide array of applications.

Case Overview

The original development of Kevlar spun off of the development of Nomex. DuPont is known for its research and development and had a history of working with different materials that could be developed into fibers. Although Nomex was remarkably strong, it was also very stiff and hard to work with. This set the stage for the company to begin to play around with other fibers which was certainly in line with their mission statement, "Better Things for Better Living. Through Chemistry." Although Nomex was a financial disappointment for the most part, it set the stage for the company to continue developing other products.

Pressure on DuPont stemmed from General Motors who were looking to move to using radial tires by 1975. This was problematic for DuPoint because they were producing much of the cord for different tire applications in the industry. Thus an industry move to radial tires would cut them out of the materials market since radials developed with steel or fiberglass. Therefore DuPont set out to develop a material that could be used in radial tires and outperformed both steel and fiberglass. Despite the fact that Kevlar was four to five times stronger than steel, pound for pound, it was also much more expensive to use as a material.

The advantages that Kevlar offered the tire industry were clear; it was lighter, more energy efficient, and offered a smooth ride. However, DuPont estimated that the material could not be priced more than four to five times higher than steel or else it would lose its sales potential. Therefore, not only did the company have to produce a superior product, but it had to do so in a way be efficient enough to be able to hit a price point in the market. Management knew at the time that developing this niche would most likely result in several years of an operating loss.

The potential future of the miracle fiber was certainly unclear. Kevlar had excellent opportunities in the aerospace and aircraft market as well as many potential applications that were not even thought of yet. Furthermore, the company was running low on cash reserves and had to keep a close eye on capital expenditures. This created an interesting situation for the company. One on hand, they really need to build a breakthrough product that could offset the diminishing returns in some of the company's other product lines. On the other hand, the company could not afford to invest in another three hundred million developing a product that was ill received in the market.

Managing Under Uncertain Conditions

Risk arises out of uncertainty. Lack of information, especially on future price and quantity, results in uncertainty in sales and profits of the firm. DuPont, in this case, has uncertainty stemming from many different directions. First of all, there was risk in the internal capabilities in the company. It wasn't quite clear at the time if the production of the Kevlar capabilities could be developed with an efficient enough process to make them competitive in terms of price with other products in the market. Therefore the proposition for a new venture carried risk in regards to DuPont being able to meet all of their objectives. However, without developing the capabilities to expand the Kevlar product line, DuPont would not be able to capitalize on their long history of fiber development.

There was also risk in the market. DuPont was not entirely confident as to what applications Kevlar would be used for. They had ideas of various applications that the fibers would be ideal for in the aerospace and aviation industries, however these applications were still under development. Other applications of the product were still not known. The company only knew that the properties of the product would make it ideal to use in certain instances based on its relationship to other available products. Therefore, with such market uncertainty, it is difficult to forecast the demand for the product in the future.