2011 Annual Report - MATRIC€¦ · 4 Mid-Atlantic Technology, Research and Innovation Center 2011 Annual Report Dear Friend, I never fully understood or appreciated the complexities

2011 Annual ReportDELIVERING MARKET-DRIVEN INNOVATION

2 Mid-Atlantic Technology, Research and Innovation Center 2011 Annual Report Mid-Atlantic Technology, Research and Innovation Center 2011 Annual Report

Board of Directors

Letter from the President

Introduction

Delivering Market-Driven Innovation

Establishing a Culture of Innovation

Clarifying the Value Proposition

Star Employees and Star Board Member

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VisionTo be the premier innovation partner for customers where technology provides a competitive advantage or actionable knowledge.

MissionTo create unique value for our world-wide customers through market-driven innovation in chemical, energy and environmental technologies and integrated software engineering.

ValuesWe cherish fast-paced market-oriented innovation that creates value for our customers.We treat everyone with respect, dignity and fairness. We conduct our business with the highest standards of ethics, integrity and accountability. We earn trust by consistently delivering on our commitments. We commit to operating safely and protecting the environment. We value diversity of thought, experiences, disciplines and cultures.We aspire to be a great place to work.

Mid-Atlantic Technology, Research and Innovation Center 2011 Annual Report 3Mid-Atlantic Technology, Research and Innovation Center 2011 Annual Report

Greg ClutterTom Ellis

Andrew JordanElisabeth Lord

Dr. Parvez Wadia

Charles M. AvampatoPat Bond

Alan BraggMichael Chaney

Tim FogartyWilliam B. Goode

Paul HelmickStephen E. Kawash

Donald Supcoe

Robert BertholdJohn Jarrett

Dr. George E. Keller, IIEdward L. RobinsonStephen M. Woomer

2011 Board of Directors

Paul E. ArbogastCharles M. Avampato

Matthew BallardPat Bond

Clifton DedricksonMark Dempsey

Kevin DiGregorioTom Dover

James EstepWilliam B. GoodeJoe W. GollehonJ. Rudy Henley

Thomas A. HeywoodDr. Paul Hill

Dr. Carl IrwinJeff James

Stephen E. KawashDr. George E. Keller, II

Reid ManessKeith A. Pauley

Ron PotestaTom Potter

David RamseyP. Dwight Sherman

John C. StumpL. Newton Thomas, Jr.

Dr. Parvez WadiaH. Bernard Wehrle, III


Dear Friend,

I never fully understood or appreciated the complexities of managing a business until I became MATRIC’s CEO. Suddenly, the fate of the company, the hopes and expectations of the community and the lives of the employees came to rest on my shoulders.

What I have learned over the past eight years is that running a business is all about being open to change, seeing advantage in situations that arise and mitigating disaster when decisions go wrong. It’s about surrounding oneself with truly capable leaders and trusting them to manage. It’s also about continuing to push for improvement, honing business judgment and creating a culture in which ideas can thrive.

I’ve also learned that it’s not about having all the right ideas, but more about listening and evaluating advice from many different sources to reach decisions that others can support and help make happen. Even though the ultimate responsibility is mine, it takes a “village” to run a successful company. My “village” has been the corporate leadership team made up of division and administrative managers and the Boards of MATRIC and its subsidiaries.

Together, we envision the future, create annual goals and management plans and work as a group to accomplish them. We look at the overall health of the organization, encourage and foster growth where necessary, establish new work methods and processes, redirect focus as dictated by customers and markets, and make sure that our values and culture are aligned. On an annual basis, we assess the organization’s performance and develop action plans for the subsequent year.

In this report, we will address the results of our most recent evaluation in which we defined an optimal customer profile, identified customer value propositions, refocused business development messaging, and looked at the economic effects of global markets on our customers. We hope that you will gain a better understanding of our business model and service offerings through this discussion.

Sincerely,

Keith A. Pauley

Keith A. PauleyPresident and Chief Executive Officer

Letter from the President


THE ROLE OF THE ENTREPRENEUR

It is not surprising that the majority of revolutionary technologies are created by individual entrepreneurs or small companies formed to pursue their ideas. These small firms play an important role in technological change. Smaller firms have many advantages as sources of innovation because they are quick to adopt new and high risk initiatives; they facilitate structures that value ideas and originality; and they have a better capacity to reap substantial rewards from market share in small niche markets. Statistically, small firms outperform large firms in terms of patents per employee by 13 to 14 times. Breitzman and Hicks (2008) argue that small firms’ patents also outperform large firms’ patents on a number of metrics including growth, citation, patent originality, and patent generality.

Small firms (defined as having less than 500 employees) also play an instrumental role in the U.S. economy, employing half of all private sector employees and creating more than half of non-farm private Gross Domestic Product.2 Further, small businesses that innovate are most likely to grow into large businesses and become a source of highly technical, high-paying jobs in the future. As such, understanding the trends of small businesses, especially patenting trends, is becoming a focal point in applied economics and policymaking. Much research has been done in the field of economics measuring patents as indicators of innovation and technological change. From an economic perspective, studies examine the importance of innovation in the economy, the role of small firms in the innovation process, and the role of government in promoting innovation. From a policymaking perspective, the literature focuses on how to design an optimal patent policy.

Research papers also investigate the relationship between patent portfolios and financial performance. However, these studies are often based on samples of large businesses. Small firms tend to be overlooked because it is much more difficult to obtain detailed and reliable financial information from privately owned firms which are not required to file their financial statements with the U.S. Securities Exchange Commission, nor have their statements audited by an accounting firm or offer information publicly.

Of course, there are exceptions. The transistor, definitely an industry changing innovation, was developed at AT&T’s Bell Laboratories and many small firms develop improved products based on prior inventions. There are also small and large firms that develop breakthrough technologies as well as incremental enhancements.

MATRIC itself focuses on innovation in both breakthrough technologies and product /process improvements. This dual focus has been possible due to experienced product researchers and process manufacturing experts that make up our professional and technical staff. But the primary motivating force has been the study of market developments and trends to identify market niche opportunities and to develop timely, cost-effective solutions to meet those needs. We sometimes refer to this effort as market-driven innovation at the speed of business.

Most great people have attained their greatest success just one step beyond their greatest failure -NapoleonHill

Introduction


The term innovation is used to describe two very different but symbiotic results. Breakthrough technologies occur when a discovery revolutionizes a market segment or creates a new market. They have the potential to fundamentally change or improve the lives of ordinary people. Inventions such as the airplane, air conditioning, computers, artificial heart valves and MRI technology are examples of life-changing innovation. Incremental product improvement or enhancement is the logical follow-up to these breakthrough technologies.

The idea of using market data to spur innovation is not a new concept. The wheel’s inventor probably used customer input to refine and improve his concept and to discover new uses for the product. Companies regularly use focus groups and customer surveys and analyze trends and sales data in their efforts to gain market advantage. In the end, a product’s value to the customer determines success or failure.

Wilbur and Orville Wright succeeded in establishing manned-flight as a reality. One can only wonder what they might think of the impact their discovery has had upon the world. Yet without the Boeings and other aircraft manufacturers continuing to improve upon their concept, the impact might not have occurred. Thus, the reality of business is that it takes both entrepreneurs and implementers to bring about transformational change.

If you look back at previous annual reports, you can see that MATRIC has undergone a continuous evolution in our thinking and our focus. The founders of MATRIC envisioned an entity that worked mainly with universities and federal agencies, that would use the existing talent Union Carbide and Dow had brought to the region. While that was a great vision, the reality is that most of the talent in the area was much more experienced in “product” research and manufacturing processes than in “pure” research done for investigative purposes. So while MATRIC continued to pursue the vision of a basic research institute, we found that our interests were more aligned with applied and market-driven research.

A corporation is a living organism; it has to continue to shed its skin. Methods have to change. Focus has to change. Values have to change. The sum total of those changes is transformation. – Andrew Grove, co-founder of Intel Corporation

During that same period, it became obvious that the commercial chemical industry, and, at the federal level, not chemical research but advanced systems technologies were the best fit for staff’s skill sets. These were areas where MATRIC’s professional contact networks were deep. Approximately 100 percent of MATRIC’s early growth could be attributed to word of mouth business development using these networks. At a current rate of 60 percent, that number

Delivering Market-Driven Innovation


is still at an incredibly high level, with the balance of MATRIC’s work coming from repeat customer business and customer referrals. To date, most of MATRIC’s work involves helping our customers meet market needs by developing cost-effective solutions.

These evolutionary circumstances have resulted in many changes for MATRIC, including revised business goals, intensified customer focus and revamped marketing messages. What has not changed are our corporate values and the culture inherent in those values.

ESTABLISHING A CULTURE OF INNOVATION

From its inception, MATRIC has charted its own course outside conventional organizational boundaries. Our dual organizational purpose of research and economic development led us to determine that the projects we would undertake would have the potential to make an economic impact in the state or in a particular industry. To fulfill this mission, we would need to access to researchers, subject matter experts and operational personnel. The decision to use scientists and engineers who had been downsized as part of the regional chemical industry’s restructuring was not necessarily groundbreaking. Many of Union Carbide and Dow’s layoffs and retirees were involved in consulting activities on their own; marketing their expertise, pursuing customers, and handling all the paperwork required of small businesses. What they lacked were the facilities necessary for innovation, the collaborative and collegial atmosphere, and, the organizational support that had propelled most of them to the pinnacle of their respective specialties.

What MATRIC offered them was the opportunity to re-enter that network at their chosen pace. Few professional services companies set out to establish an extensive network of part-time specialists. Circumstances usually dictate a more conventional approach to staffing. Since MATRIC’s second year of operation our ratio of full-time to part-time has remained steady at around 50 percent. MATRIC has been able to provide office space, access to laboratories and support services to enable these specialists to participate in new and interesting billable customer projects, and to test new ideas for breakthrough or enhanced technologies.

Once a month, MATRIC convenes its professional and technical staff for presentations of ideas for new products, processes or services. Inspired staff prepare a 15 minute presentation and their

Dr. Madan Bhasin, MATRIC Board Chair Paul Arbogast, Dr. George Keller, Dr. Stan Fruchey, Dr. John Sawyer,

MATRIC Chief Operations Officer Greg Clutter


colleagues will ask clarification questions. As a result of these meetings, ideas are frequently selected for further investigation. A preliminary review is undertaken to determine the value proposition of the proposed technology, its fit with MATRIC’s capabilities, and the market potential versus cost to market. Ideas that survive this rigorous review generally result in a new company being formed to seek venture capital funding for commercialization efforts.

Some examples are listed below:

Aither Chemicals – Enhanced ethane “cracking” at a smaller, more efficient scale

Geospatial Sciences – Breakthrough products combining geospatial information systems, various standardized software platforms and gaming technology

Liberty Hydro – Enhanced water treatment and contaminant removal from industrial wastewater

PolyPlexx – Enhanced polyurethanes with superior clarity, impact resistance and performance properties

SGA Polymers – Breakthrough process for creating acrylates from biodegradable sources rather than petroleum

Trax-Biodiscovery – Breakthrough product for identifying different types of T-cells in the body

A similar process is applied to customer development projects or dilemmas for which they are seeking solutions. Teams of diversified experts collaborate to solve R&D technology development challenges. A multi-disciplinary team including, as appropriate, project managers, chemical engineers, subject-matter scientists, organic, inorganic or analytical chemists, process engineers, and master technicians will review the project or problem to determine the most effective course of action, set project protocol and data collection standards, and perform technological and economic assessments as required. The extant knowledge from all of these sources produces a sequenced action plan that virtually reduces or eliminates errors and false starts, thereby greatly reducing the time required for effective development or resolution.

These teams will follow a project to its conclusion. While individual participants may change as the process moves from the research stage to pilot to implementation, the core team remains. This continuity allows the teams to develop exceptional rapport with customer representatives which helps ensure the success of the project.

Research indicates that workers have three prime needs: interesting work, recognition for doing a good job, and knowing what is going on in the company. - Zig Ziglar

Not only do these processes benefit our customers, the benefit to employees cannot be overlooked. Interesting and varied work is most often cited by employees as the primary factor in their decision to join MATRIC. The ability to interact across disciplines is also recognized as a differentiator, as is MATRIC’s policy of undertaking only developmental research projects that have the potential to impact industries or market segments.


MATRIC provides continuing professional development both formal and informal; continuing Environmental Health & Safety training at monthly “pizza” lunches; and, a variety of employee recognition programs. Quarterly all-staff events generally include a spring sporting event, a summer picnic, a fall luncheon and a winter formal reception. Monthly and quarterly functions also provide opportunities for management to address company business highlights and respond to staff questions. These efforts contribute to the overall morale of the organization and stimulate the collaborative environment so important to our continued success.

A large part of MATRIC’s culture of innovation stems from the desire of our staff to make a difference in the world and to leave behind a legacy of achievement for future generations to build upon. Evidence of this legacy can be illustrated by the number of new patents based on our research that have been filed in the last few years. From 2008 to 2011, MATRIC filed 89 patent applications, 65 for customers and 24 for MATRIC developed technologies.

CLARIFYING THE VALUE PROPOSITIONAs part of the most recent annual evaluation, an in-depth look at MATRIC’s business model, customer base and customer value proposition were the top priorities. As mentioned previously, MATRIC’s founders envisioned a research institute. The first step in the process was to determine if that was still a viable option, and, if not, to define the essential elements of MATRIC’s business model. Looking at the customer base helped to identify the primary commonalities among MATRIC’s customers. The base was split into two distinct subsections, one made up almost entirely of commercial customers developing, improving or acquiring innovative or “unproven” technologies within the chemicals, energy or environmental industries. The commercial customers generally needed concept validation, process improvement, or scale-up to pilot plant or small scale manufacturing. They were primarily early stage companies who lacked specific technical expertise or larger established companies who had down-sized or eliminated their research departments and were outsourcing technology development. The other subsection was made up of state and federal customers seeking innovative advanced systems solutions to facilitate learning or to provide real-time or other data for decision-making. For all of them, the technologies were viewed as viable sources of competitive advantage in the marketplace.

What MATRIC was able to provide to these customers and how it was accomplished is the basis of MATRIC’s business model.

Dr. Duane Dombek, EHS Specialist Michael Boyd, Don Bunning , P.E.


Well-Founded Professional Assessments – Customers often engage MATRIC very early in the conceptual development stage which allows MATRIC to assess the technology at its purest point in the technology development life cycle. MATRIC leverages the experience and technical skill set of our engineers and scientists to quickly identify potential pitfalls as we diagnose emerging first generation technologies. MATRIC is able to draw upon not only its current staff, but also a huge network of subject matter specialists to provide expert review of every aspect of a technology. Within a very short time, MATRIC can determine whether or not a technology is based on sound principles, whether improvements are required for viability or whether the technology is not worth pursuing for economic or technical reasons. Not only do customers appreciate MATRIC’s honest and forthright evaluations of their technologies, in many instances, engaging MATRIC in the development to commercialization process has saved them as much as 50 percent of total capital costs by avoiding unnecessary process steps and/or using a more economical raw material or a more efficient process technology. MATRIC has also saved clients money by evaluating bench scale technology against full commercial scale technology economics. We often find that technologies that are practical and achievable as a bench scale technology simply are not economically feasible on a commercial scale. Often, MATRIC can adapt the bench scale technology to provide a more suitable and economical commercial scale technology. Typically, these modifications either revive the original use for the technology or lead to introduction of the technology to different markets with higher margins and more end uses. Many times, a customer will begin technology testing and encounter problems in chemical reactions or processes that they are unable to solve. From purity issues to fouling to faulty process design, MATRIC’s experienced scientists, researchers, process engineers, and technical staffs are equipped to solve these dilemmas.

Laboratory and Pilot-Scale Research and Development to Create New Innovation

(intellectual property development)

Professional Engineeringto Implement Innovation

(detailed design, constructionmanagement, operations training)

Commercialization toAccess Markets

(license or start-up companies)

Figure 1. Discovery, Design and Deployment in the MATRIC Enterprise


Risk Mitigation and Support for Complex Decision-Making – MATRIC’s approach to project management is designed not only to mitigate the risks involved in the completion of the project scope, but to identify the highest risks to success for the customer and to tackle those problems first. These risks are addressed in the initial project framework for scientific investigation which uses disciplined work processes to maximize laboratory activity, create early conceptual designs and provide validation of the technical and economic models. This framework is designed to create decision points for the customer at frequent intervals during the process. Regular communication between the customer, the project team and MATRIC management is a critical element to ensure that the customer’s expectations are met. In addition to technical and economic risks, environmental health and safety is a factor that is considered at the start of every project. MATRIC employs certified EH&S specialists who review project plans, provide staff training and prepare operational guidelines for each project. Experts in process safety, hazardous materials and explosives are involved whenever necessary. These safety specialists are available to support customers in many ways. They perform safety inspections and recommend process changes to mitigate risk, investigate accidents by performing root-cause analyses, develop safety guidelines for hazardous operations and provide operator training as required.

Speed-to-Market and Good ROI on Research Expenditures - The depth of MATRIC’s expertise in chemical product research, product development, process improvement, process safety, engineering and manufacturing is not unique in and of each element, but rather because all these disciplines are concentrated in one organization. It is this anomaly that sets MATRIC apart from its competitors. A company might have to interact with five or more service providers to obtain a similar level of expertise. Applying this broad perspective enables MATRIC to move products from concept to commercialization at a speed which creates a competitive advantage for our customers.

Project Management

Figure 2. Innovation in the MATRIC Enterprise

Technology Assessment

LaboratoryResearch

ConceptualProcessDesign

ProjectScale-Up

Detailed Process Design

LicensingPackage

Development

ContinuousImprovement


MATRIC’s founders deliberately chose to create an organization whose focus is on moving innovation into the marketplace. The organization’s dual purpose of developmental research and economic development is the principle that guides decisions and actions. This intensive focus includes the elements of informed planning, efficient and effective collaboration, data-based decision making, and disciplined urgency. Delivering value over and above a customer’s expectations is always our goal.

Cutting-Edge Adaptive Technology Tools The depth of MATRIC’s chemical expertise is matched by the experience and creativity of its advanced systems technologies group who combine innovative problem solving skills with a deep understanding of software application development and parallel computing architecture design. Development of software systems using an Agile software development process provides the customer with rapid prototyping capability and reduces both rework costs and developmental time delays. Of particular consequence, the development of modeling and simulation capabilities combining geographic information systems with gaming technologies to combine real-world data with next generation interactive immersive environments provides unique operational tools, experiential training environments, and “what if” scenario planning. Key components of the development include: interactive and immersive 3D environments; GIS data, analysis, and geo-processing services integration; parallel computing; artificial intelligence; and physics based modeling. In addition to producing significant, marketable products, the same process can be applied to control systems for chemical processes and advanced manufacturing systems. In each case, actionable knowledge for data-based decision making is the desired result.

SUMMARY

Fortunately, the result of a good self-evaluation is that a company can identify the things that are working and design support systems to enhance and improve those. More importantly, things that aren’t working can be identified, analyzed, revised or abandoned. This latest exercise has rejuvenated MATRIC’s management team, because, as we so often advise our customers, we now have actionable knowledge and have created a plan that concentrates on improving our employee, customer and partner relationships and strengthening our service and development offerings. In preparing this report, one of our goals has been to articulate what makes MATRIC a great place to work, a great value for customers, and a great partner in building the future of our community. The other is simply to thank our employees, customers and community supporters for allowing us to be a participant in the demanding and exhilarating business of innovation.

Opportunity is missed by most people because it is dressed in overalls and looks like work – ThomasEdison

GIS Modeling and Simulation Experts Vic Baker, Aaron Barkhurst, Timothy Jones


Brooke Albin, Chemical and Environmental Technologies 2011 STAR Employee.Brooke has contributed in many ways to the success of some of MATRIC’s major projects. One important contribution was the development of a predictive model for the behavior of a complex reaction system, based on both laboratory experiments and literature data. This fulfilled a key customer requirement and has helped in our understanding of the process, providing guidance for scale-up and extension to the next-generation technology. This employee also has been a critical member of the team developing the engineering design of the process for its first commercial implementation. Her depth of knowledge of the process, attention to detail, and strong commitment to the project were specifically recognized by the customer.

Star Employees & Star Board Member

Vic Baker, John Matheny, Patrick BondE. Jane Copley, Ramona Neal, Brooke Albin


Vic Baker, Advanced Systems Technologies 2011 STAR EMPLOYEE.Vic won a National Science Foundation Phase I Small Business Innovation Research award for development of a serious gaming platform to assist physicians in mastering the patient diagnostic interview. In addition to this SBIR win, he was invited to present MATRIC’s Common Operating Picture and Catastrophic Evacuation Modeling and Simulation work at three ESRI venues including their International Users Conference, Mid-Atlantic Users Conference, and Homeland Security Summit. He also had a paper accepted for presentation on these geographical information platform technologies at the IEEE Homeland Security Technology Conference.

E. Jane Copley, Administrative Services 2011 STAR Employee.Copley was part of the original small number of staff hired by MATRIC in 2004-2005. She has had various roles through the years, including Chief Financial Officer, Human Resources Director, Contracts Manager and Vice President of Administration. She works long hours, is the “go-to” person for any task outside of the normal work process, and provides a listening ear to staff issues both personal and professional. However, it has been her willingness to do whatever it takes for MATRIC to be successful that has earned her the respect and admiration of our staff and Board of Directors.

John Matheny, Chemical and Environmental Technologies 2011 STAR Employee.John has a wealth of experience in the operation of laboratory units and pilot plants. In the past year, he has been a key participant in multiple projects covering a wide range of activities. He serves as a tremendous resource to the CEET management group and is in great demand for consulting on operational issues. His knowledge and experience have helped move projects along quickly and at reduced cost for our customers. He has also been a key contributor in the development of proposals and costing of construction materials and supplies.

Ramona Neal, Chemical and Environmental Technologies 2011 STAR Employee.Ramona has been a key contributor to nearly all of our laboratory and pilot plant projects. The contributions have included helping initiate new projects, developing new techniques, trouble-shooting, providing ongoing support, and reviewing results for quality. Without the benefit of this experience and capability, MATRIC would not be able to serve our customers with the level of proficiency they have come to expect. In the past year, this employee has had the additional challenge of managing a heavy work load resulting from increased pilot plant and laboratory activities, and she has done this very effectively. Her experience in analytical chemistry and her ability to participate in and manage multiple projects have made her an indispensable member of the MATRIC team.

Patrick Bond, 2011 STAR Board Member.Pat has contributed many hours to his role as a member of the Mid-Atlantic Holdings board of directors. Despite the fact that he is a community volunteer, he has become a critical part of the MAH and MATRIC team, advising on start up activities, financing activities and a cadre of other incredibly valuable work. He has spent countless hours on late night phone calls to put together closings, resolve issues, advise the MATRIC leadership and technical teams and expand the MATRIC network. He even attended the 2011 MATRIC leadership strategic planning session which involved long hours of honing the overall MATRIC long term strategic vision and mission. In short, he has been a model board member.


Our value statement about treating people with respect and dignity is not just words but a creed we live by every day. You can’t expect your employees to exceed the expectations of your customers if you don’t exceed the employees’ expectations of management.

-HowardSchultz

MATRIC Staff - Annual Reception

800.611.2296 • P.O. Box 8396 • South Charleston, WV 25303www.matricresearch.com

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2011 Annual Report - MATRIC€¦ · 4 Mid-Atlantic Technology, Research and Innovation Center 2011 Annual Report Dear Friend, I never fully understood or appreciated the complexities