ARECO: A FULL STEAM AHEAD1
Seldom did I see one of my projects become a product. I often felt frustrated,
being asked to come up with thousands of ideas every day, but then only ever seeing one
of them at work each year. Being independent gives me long-term horizons.
—Michel Gschwind, CEO and founder, ARECO
In November 2012, ARECO arrived at the brand new prototype that it had been
developing for weeks and slated to present at the third eco-design conference being held in SaintEtienne, France. The prototype represented the company’s latest contribution to the
technological development of nebulization technology: With 21 registered patents and 10
registered brands, ARECO had earned its reputation as the European leader in water nebulization
innovations. But how exactly did it get to this point?
The answer largely lies with its founder, Michel Gschwind. He holds degrees in
engineering from CPE Lyon and a doctorate in energetics. After conducting applied research for
several years at the Ecole des Mines, a top French engineering school and public research
institute, he joined IMRA Europe—the R&D unit of the Aisin Seiki Group—in 1989, where he
began working on thermal comfort and energy optimization. As Michel recalls it, in the early
1990s, as a researcher for IMRA, he did lots of travelling in his efforts to promote IMRA’s
patents for nebulization technology to any potential buyer that might be able to identify feasible
applications.
By 1997, Michel yearned to start his own enterprise, which he would call ARECO (Air
Refreshing Control). He developed a proposal, even though he doubted would succeed: IMRA
would license his new venture the nebulization technology. In the initial meeting with IMRA’s
top management, held at the Mercure Hotel, in Sophia Antipolis, France, the top management
team of IMRA’s Japanese parent company expressed surprise upon learning that one of their
French engineers wanted to leave to set up his own business, based on one of their patents. The
negotiations were tough—he continues to pay royalties, nearly 20 years later—but in the end, the
management team also proved to be surprisingly supportive. One of the executive managers,
who himself was about to retire, even chose to invest in the newly founded ARECO.
In the final deal, IMRA sold Michel a non-exclusive license on the patent, allowing its
use but only outside the automotive sector. The motive could not have been thoughts of
1
Dr. Philippe Chereau and Dr. Bruno Cirillo (SKEMA Business School) prepared this case as the basis for class
discussion. The authors are grateful to Michel Gschwind for his availability and assistance. All remaining errors are
the authors’.
© Copyright Philippe Chereau, Bruno Cirillo, 2015
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium
whatsoever without the permission of the copyright owner.
Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
monetary gain at that point; instead, Michel believes IMRA sought to use ARECO to help anchor
its Sophia Antipolis unit in the local ecosystem and signal its commitment and contributions to
developing and disseminating knowledge and innovation in France. Whatever the underlying
reason, a corporate spinout was born. And today, after years of effort to find viable solutions,
rather than Michel travelling the world to sell his idea, clients knock on his door, proposing new
opportunities and ideas for product development.
R&D management at the parent firm
In 1986, IMRA Europe was founded as a research arm of Technova Inc., which itself was
owned by Aisin Seiki and the Aisin Group. Over the years, IMRA established a research culture,
focused on supporting talented researchers, nurturing in-house projects, and providing solutions
for collaborative projects commissioned by clients, all of which represented the automotive
industry.
These researchers initiated and led many of the industry’s breakthrough technology
advances. The in-house–initiated research contributed to the company’s mission to improve the
latest state-of-the-art technologies, such that the company explicitly offered support for the
development of new solutions and a commitment to meet market needs. From design and
analysis to prototypes and technology transfers, IMRA’s research tradition produced a strong
focus on three domains: image processing (e.g., automobile safety systems, vision-based driver
assistance technologies and robotics, collision warning systems, robot assistance), energy-saving
and eco-solutions (e.g., solar cell technologies, thermo-electric materials, nano-structured
materials), and electromagnetics (e.g., design and analysis of electrical machines).
In addition, IMRA worked mainly with the automotive industry, to improve the
performance of automotive components in a continuous effort to enhance end-users’ experience
and generate value for clients. To identify market trends but also develop breakthrough
innovations, IMRA favored cross-cooperation with external partners—other research centers or
manufacturing units, leading universities, and so on. To this aim, researchers had the freedom to
initiate their own projects, and the organization actively attempted to balance its funding between
client-sponsored projects and in-house–initiated research. Yet Michel also recalls researchers
being exposed to an unwieldy bureaucracy and lengthy procedures, which seemingly were an
unavoidable element of belonging to a large, industrial, international group.
This trait was notable for Michel. Although he had always dealt in applied research,
before joining IMRA, he had worked for seven years at the Ecole des Mines on public research,
where he had the chance to address (relatively) longer-term research projects. When he moved to
industry, the research culture changed completely, such that
I had problems every day. The rhythm was not the same. When I had projects in progress,
I seldom saw them coming to an end. It was something that frustrated me.
As the opening quote indicated, the need to produce thousands of ideas daily but never or rarely
see them come to fruition was a true issue for Michel:
I was always being told that this is the way our industry works. I was frustrated about
seeing my ideas never coming to a product.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
The spirit of IMRA is really Japanese, and [management] always raises the question of
how the automotive industry will use an invention.
Still, he had some successes in his position at IMRA. Michel and his team significantly
leveraged and improved on a principle that had been known about for 30 years, namely, water
nebulization technology. It entered a full development stage in the late 1990s, particularly in
Russia and Japan. Then IMRA rapidly sought protection for its inventions through patent
applications at the United States Patent Office, European Patent Office, and Canadian
Intellectual Property Office. Receiving these patents granted IMRA exclusive intellectual
property rights (IPR) over both the underlying process and several relevant devices.
Water nebulization involves creating a very dense fog of liquid droplets, with an average
diameter of about 3 microns. The density is nearly that of steam, but this vapor is cold. The first
applications involved spraying water, yet there was no reason other liquids could not be
nebulized too. The devices used to achieve nebulization consist of a vessel, a transducer placed
in the vessel, a pump in a feed circuit to fill the vessel with the liquid to be sprayed, and a sensor
(see Figure 1). The patents noted that the value proposition of the invention lies in its
combination of features, which together improve the efficiency of the spray, in that it contains
droplets of a predefined, uniform size.
Figure 1. IMRA’s patented nebulization technology
European patent 0931595A1
Title: A device for spraying a liquid
(Source: European Patents Office)
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
From invention to innovation at IMRA
The first implemented application of the nebulization technology involved the
humidification of air and gaseous fluids. It was originally developed for automotive applications,
such that in a moving vehicle, the technology could lead to two major benefits: (1) higher
efficiency and power generation (three to five times more powerful, yield multiplied by three)
and (2) ease of implementation and the small footprint of the generating unit. Excited by the
promise of these main features, product development began at IMRA’s lab. Yet notwithstanding
this initial enthusiasm, the research team and management soon realized that no valuable
application could have been developed for the automotive sector. The project came to an end in
1997, and Michel was tasked with selling IMRA’s patented technology, promoting its possible
uses, and finding potential buyers that could use it in other applications.
Licensing specific patents from its portfolio was a key part of IMRA’s strategy. In
contrast, the parent company Aisin Seiki sought only to develop technologies that would be
valuable for the automotive industry. Led by IMRA's top management in Europe, the subsidiary
fostered a more open strategy toward technology development, and the technologies it develops
eventually can meet market needs. Michel travelled around Europe to find potential buyers and
identified two interested parties, in Germany and the Netherlands. Both companies wanted to
buy the patent, and both visited IMRA to learn more about the technology. Their visits were a
trigger point. Michel realized, were a market for the technology to exist, the technology would
become increasingly valuable.
The decision to spin out
I have always had the idea of starting an independent business. It comes from my
infancy; I have always wanted to explore new things.
Another trigger came about in 1997, when Michel met with the head of R&D at
Bongrain, a large, agro-food producer and potential client for the nebulization technology, who
described ongoing problems in the humidification of cheese. The client was ready to investigate
the first prototype developed by IMRA, and Michel realized he was ready to strike out on his
own:
At that time we were working at IMRA on a contract with Techsonic (itself a spinoff of
Thomson) to develop piezoelectric technologies for the automotive sector. By chance,
Techsonic had a contact with a firm in the agro-food sector, Bongrain, which specialized
in dairy products. They were interested in the possible application of this technology and
committed to buy the prototype once it was developed. So, we had, on one side, other
companies interested in the technology, and on the other side, IMRA who was not
interested at all. Three patents were pending on the technology. So, I thought to myself
“there is surely something in this for me.”
IMRA's executive management remained uninterested in the opportunity. They even
expressed mixed feelings about the potential value of any technology applied outside the
automotive sector. They also had just paid for Michel to complete managerial training and
executive courses at INSEAD, and they had great plans for his future at IMRA. But Michel had
other plans, and he realized he needed to make those ideas clear to his bosses:
I told IMRA I was going to create my own enterprise to exploit this opportunity. I
informed them in a meeting. They were not interested. They felt that I was not
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
reciprocating their support for me. I did not know how to explain. I was asking to take
advantage of the managerial education they had helped me receive at INSEAD. While
this is common in France, it is not common for Japanese companies. They were quite
surprised. But after they thought about it and understood I did not want to compete
against them, we entered into negotiations.
The spinout deal
Because Michel had patented the technology with IMRA, IMRA was the original
assignee of all the patents. The negotiation to obtain a license was tough. But one IMRA
executive manager, Mr. Haramura, made a lot of difference: He was close to retirement, believed
in the project, and sought to participate in it, which granted credibility to the new venture. He
invested 5% of the initial capital, and he helped Michel negotiate with initial shareholders and
identify further seed fund sources, including a bank loan.
Despite the help of this champion, spinning out, with an agreement to commercialize the
parent’s proprietary knowledge, was not common practice at IMRA or Aisin Seiki. As Michel
explained,
It seems that someone else at IMRA is about to take the same approach, but it has not
been frequent. People do not want to leave their positions. They envy you when you do,
but they seldom go further. Maybe the negotiation with the former employer is too tough
over intellectual property rights, or the support to develop the product isn’t there. I did
not have quite the same problem, because the Japanese firm did not think it could make
any great fortune with the technology. Thus, I was able to negotiate good contractual
conditions and relatively beneficial licensing agreements, with payments of €15,000/year
minimum after the fourth year.
Eventually, IMRA agreed to release a non-exclusive license to Michel on the focal patents, for
€30,000 per year. It had no particular plans for the technology, but it also had no interest in the
spinout failing. Michel anticipated that IMRA would use his venture as an example of how the
company contributed to developing and disseminating knowledge and innovation in France. It
was signal for the local French ecosystem that IMRA was a good corporate citizen and partner.
In particular, as Michel pointed out, the company’s top management also realized that scientists
and researchers often need to exploit new carrier paths and change their focus every few years:
This renewal process is necessary to find new ideas. That’s why in Japanese companies,
employees regularly change positions and are given the opportunity to explore other
fields. I had been there for almost nine years. Since I left, they have been using me as an
example of someone who succeeded after IMRA, in creating his own company.
Meanwhile, IMRA continued to manage the IPR for the central technology. As a newly
established venture, ARECO had (1) a technology developed for an existing market that was
working well, (2) a relatively less innovative technology (with low development costs and
existing components), and (3) a patent protected by a large firm and a non-exclusive licensing
agreement for it. The non-exclusivity of the patent license required IMRA to defend the
invention against imitation, which provided a strong selling point for large clients, because
Knowing that we were to some extent backed up by IMRA for the protection of the
technology, clients would not try to fool us or copy us…. IMRA did not specifically want
to make money on the project! It had since moved on to other projects and technologies.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
Thus, things moved very fast. In just a few months, Michel discovered opportunities
outside the automotive sector, namely, with Bongrain and the agro-food industry. The
technology already had been developed, albeit for automotive applications, and it worked well.
All the components already existed, ready to be included in a prototype. But along with the
opportunities, a challenge quickly arose: Neither Techsonic, a partner of IMRA that contributed
to the early development of the nebulization technology, nor Michel had the competences or
knowledge to develop the application outside automotive settings. The main challenge for
ARECO thus was to recruit a team with a strong, advanced technical skills.
The founding team
None of Michel's colleagues followed him in spinning out from IMRA. In a way, the lack
of followers was a benefit; IMRA probably would not have appreciated the idea of Michel
stealing away an entire team of productive employees, so the relationship between IMRA and
ARECO might have been very different and more contentious. But his colleagues chose to
continue working on different projects for IMRA, and Michel recognized the appeals of
establishing a brand new team that would share his desire to explore new directions.
As CEO of the newly established venture, Michel sought to drive a culture and reputation
for innovation. As the author of several patents, he also was very motivated to see the
implementation of his inventions. He realized that during his tenure at Ecole des Mines de Paris,
he already had developed dual competences, in electronics and energy, specializing in moisture
control. He also possessed strong industrial experience in automotive and electrical engineering
sectors. To introduce new competences, he sought to hire engineers with extensive knowledge
about basic technologies used in these products. D. Guyomar, a professor who also had more
than a decade of industrial experience with the innovative firms Schlumberger and Thomson,
specialized in piezo-acoustic devices. G. Ching, a fluid mechanic and mathematician, specialized
in piezo-electric systems and had worked and taught at Schlumberger, Thomson, and SupAéro.
The complementary team embodied a range of relevant technological and industrial experience,
and Michel also had demonstrated his skills and talent in business development.
The start of a journey
In January 1998, the team entered into its first contract with Bongrain, which bought the
first prototype from Techsonic, for 150,000 Francs (about €22,900). From the start, ARECO
sought to design technological solutions for various sectors. The founding team lacked any
knowledge of the agro-food market, but in the course of their initial research, they quickly
learned that for dairy products, humidity was sold at the price of the product itself.
Next, ARECO’s team participated to a high-tech salon in Toulouse, France, where
several big companies expressed interest in the technology. Within two years, they developed 40
different prototypes and around 35 applications, including for retail food stores. Approximately
90% of these prototypes and their related development studies were financed by clients, such that
the customers largely funded ARECO’s initial R&D investments. By 1999, in a meeting with
Grand Frais, a French chain of medium-sized supermarkets, ARECO came to realize the broader
opportunities in the agro-food supply chain as they approached the end market:
I had never thought much about this market, but the return on the investment in the
technology would be much faster than that for dairy products. I also did not realize the
volume that this market represented, including its purchasing power and rate of turnover.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
We only discovered these potential markets after developing our technological offers. At
the beginning, I was strongly influenced by IMRA’s culture: Develop technology first and
then look for an application. It was the reverse of what is usually done, and I had to learn
the other way around.
That is, ARECO’s product market strategy sought to advance new technological
standards for nebulization by allowing the market to inform the technological trajectory of the
firm’s R&D efforts. Table 1 describes this process in the three strategic phases that the founding
team planned.
Table 1. ARECO’s product market strategy
Ends
Means
1998–1999
2000–2002
2003–2010
Technological standard
Commercial resources
Distribution system
Search for partners
Development of a
complete product
solution
Phase 1
Phase 2
Search for new product
applications
Entry into one or two
market niches
Market niche leadership
Product portfolio
development
Technological
leadership
Export 30%
Export > 80%
Technological
developments
Patent applications
Business plan
development
Entry into the French
market
Global control
technique system
Phase 3
During early contacts with members of the agro-food industry, Michel realized that
various other domains also might constitute opportunities for using the central technology. In
many cases, early clients introduced him to valuable new opportunities. Considering their
various prospects, the founding team decided to explore more in-depth solutions in three
strategic business domains: air conditioning and humidification, control of industrial processes,
and healthcare & life sciences. To enter these segments, ARECO aimed to develop two classes
of products: portable, autonomous nebulizers, dedicated to humidifying the air in professional
premises and offices, and a range of fixed, high power nebulizers, mostly dedicated to industrial
applications. Figure 2 depicts early prototypes of both types of water nebulization devices.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
Figure 2. ARECO’s water nebulization devices (1998)
A. Portable nebulizer, for air humidification
of professional premises and offices
B. Fixed, high power nebulizer, for industrial
applications
The next step was to build a niche presence to enable its successful growth. Accordingly,
the team sought to develop cost barriers, strategic partnerships, and client loyalty, such that
If competitors arrive, they will not know the costs of maintenance, whereas when we
decide to commit to a price package, we know that we can cope with that. Our cost
structure is so fine-tuned that we know how much each spoon will cost us!
Reprendre ici
Soon, ARECO had developed partnerships with distributors and suppliers to search for pilot
applications and penetrate niches in the air conditioning market. As its production volumes
increased but its production costs fell, ARECO also established its own network of technical
sales representatives, mostly dedicated to providing commercial and technical support to new
distributors in more competitive segments of the air conditioning and humidification markets.
Since its creation, this network has continually provided market-based inputs that feed the
innovation process at ARECO. Parallel to its partnerships with distributors, ARECO established
strong cooperative links with engineering firms and institutions, which helped affirm the firm’s
legitimacy. Finally, to build customer loyalty in protected niches, ARECO approached clients
with customized financial solutions:
Today, rather than being a simple product seller, we have become a solutions provider.
We develop solutions in three months, which would take a year for our clients to do by
themselves. We have important competences and in-house human skills; we have
mastered the technical knowledge. These R&D efforts are rewarded differently by clients,
depending on their sectors. The challenging is choosing to invest in the right ones.
We designed our own rental solutions, which even the banker told me, “This is
quite interesting.”... We train the client’s staff once every year. Our technical staff goes
onsite, checks what can be improved, and then reports to the client about optimized uses
of the equipment. We know that if they use our equipment properly, they will make a lot
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
of money. If they don’t, they could lose money. So, we entrust our technical staff with a
commercial role, which also valorizes them.
We even try to innovate at the sales level. We bid with the aim of selling a service
in which everything is included. We made an offer to lease without commitment; the
customer can stop when they want. The only thing they lose is the deposit. They pay a
deposit of three months (it is not that much). We did rentals like this in response to
customers who told us, "You know, I do not have funding" or "As soon as I have money, I
will buy it." But once they leave, they forget it, and the buying never happens! We also
did not really take a big risk in saying, "You can stop whenever you want," because we
knew that they would not stop once they tried using our solutions. The only trick was to
find a bank that would finance the project.
The realization that clients could inform them about valuable new solutions helped
Michel and his team prioritize their need to remain open to new opportunities. An apt example
came from their experience with developing humidification solutions for big customers in the
agro-food market:
Today we have clients like Chiquita who come to us and ask for specific solutions. They
started asking for an application for bananas. And we had to develop an application out
of our technology. I would never have imagined it could work with bananas! They
referred to a consultant to receive possible solutions. The call for tender mentioned our
technology. We participated in the call for tender but did not reply further, because we
did not want to proceed. They called us back, saying, "We want to work with you, so you
have to answer the call!” So I prepared a dossier. Eventually we developed it, and it
worked well! In fact, by focusing only on the mainstream markets (I try to be selective
today), we may have shut the door to promising opportunities. We have developed a new
concept for selling a banana! The lifecycle of a banana lasts about one month.
Everything is calculated so that bananas ripen during shipping from the plantation to the
end market. You would never imagine how complicated a banana can be. Our technology
helped them gain one day in the process. Because our application allows them to stock
bananas for a longer time (one day), we increased the efficiency of their logistics. The
R&D of Chiquita was enthusiastic! Then Chiquita told us, "If it works on bananas, it is
going to work on pineapples!" We can have a strong impact on the cost structure in this
sector.
In other market segments, such as controls over industrial processes, ARECO followed a
dual development strategy. On the one hand, Michel used his research background to convince
original equipment manufacturing (OEM) clients to integrate ARECO’s ultrasonic technology in
their equipment. This meant Michel paid attention to finding target applications outside the
segments directly addressed by ARECO, namely, agro-industry or electronics. But his efforts
were supported by a strong patenting policy that could capture the rents of any R&D efforts
undertaken to access these OEM. On the other hand, ARECO intended to develop a leadership
position in industries in which ultrasonic nebulization technology was in a launch phase. Efforts
initially focused on developing this “best-in-class” positioning for flagship elements of the agroindustry (e.g., cheese ripening, wine aging), fine chemicals and fragrances, or the healthcare
sector. For this specific niche strategy, ARECO fully managed the whole value chain, from
design and manufacturing to installation and maintenance.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
The medical device applications were a different case. This promising market also
featured sensitive, risky elements, especially with regard to the certification required for market
clearance by health authorities. Therefore, ARECO decided to enter the sector through
partnerships developed through via technological cooperation platforms, such as the “Road of
High Technologies” proposed by a French agency to encourage research. Another motive for its
investigations in the health sector, as initially explored by Techsonic, came from a request for
proposal from a U.S. firm that wanted to develop medical respirators that could provide air
humidification and thus protect against drying out patients’ mucous membranes.
Table 2 offers an overlook of the market segments targeted by ARECO and the main
value propositions for each.
Table 2. Target markets and value proposition
Targets
1. Air conditioning and humidification
This market consisted of portable individual devices used by professionals demanding a high level of guaranteed services,
including offices, fresh produce retailers, and garden centers. In 1998, the European market for air conditioning was
estimated at 150 million Euros. In France, it included a dozen distributors, and nebulization accounted for about 10% of
total volume. Six companies shared the ultrasonic nebulization market in Europe: Boga (D), Morgan (UK), Contronics
(NL), Stulz (D), JS (UK), and TDK (J). The average market price for ultrasonic equipment was 2,300 Euros, and estimated
volume represented 300 devices, or about 700,000 Euros. This was one of ARECO’s initial markets, in which the firm
expected to sell portable devices to high-end clients. In the air conditioning market, ARECO faced three main types of
competitors: (a) manufacturers targeting high-end niches, (b) follower manufacturers imitating large-scale products by
Japanese firms, and (c) importers of devices from Japanese manufacturers.
2. Control of industrial processes
Control of humidity is a central concern for the agro-industry, because humidity largely determines the quality of
production and marketed products (meat, wine, cheese, bread, vegetables, fruits). In other industrial applications, printing,
textiles, metals, and computer rooms also demand high-quality humidity control. Entering this market requires
technological knowledge about how to adapt existing standard solutions to the specific needs of each sector. Nebulization
technology was comparatively expensive, so ARECO decided to focus on applications in which the technology could
provide a strong value proposition. Business development efforts and testing were directed toward the wine industry to
control cellar humidification, cheese aging, and the storage and transport of fresh fruits and vegetables.
3. Healthcare and life sciences
In 1998, the market for home care devices was in a launch phase, with very promising double-digit growth forecasts.
Applications in this sector involved implementing OEM strategies, such that ARECO provided the core technology for
respirators and medical nebulizers to its clients. A similar option emerged in the cosmetics and wellness markets, where
the technology could be embedded in skin care and relaxation devices. ARECO also explored pharmacopoeia and biology
applications, because plant growth might require a strict hygrometry controls.
Value proposition
The competitive positioning of ARECO was strongly anchored in the value proposition it offered to clients. Its technology
provided both technical and economic benefits. From a technical standpoint, the technology provides highly competitive
power/footprint and power/electricity consumption ratios, providing 50 W (cf. 35 W for competitors) and three to five
times superior yield. Originally developed for the automotive industry, the technology also enables more flexible uses and
greater resistance to extreme use conditions (e.g., 65°C vs. 50°C, vibration resistance). From an economic standpoint,
ARECO technology requires three times fewer “noble” components than competitive devices, which results in lower
production costs, so ARECO gains a cost advantage too. Moreover, the higher reliability of the components it uses adds
to the longevity of its cost competitiveness.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
R&D management at ARECO
The move, from technology-pushed R&D at IMRA to a market-pull philosophy with
ARECO, was a significant one. It required exploring new organizational routines that put
innovation at the core of the business model. Michel explained how this model emerged to
become one of ARECO’s enduring competitive advantages, affecting not just the firm’s
innovation capacity but also employees’ dedication to its success and its prospects for growth:
I think I'm working with less risk today, because I can master the projects we are
involved in. For example, I could better handle the project with Chiquita than I could
have years ago. We can do in three months what would have taken us one year in the
past. We are doing better on the methodology part of course, but also in our intuition
about what will work, or not. I think I have a better feeling for the concrete results. When
I chat with the former quality manager of Monoprix—we regularly have lunch together—
he always asks me, “What’s new? What are you offering today?” Client relationships
have changed. We have truly become key partners with our clients with regard to our
innovation capabilities.
At IMRA in contrast, market choices always were imposed by headquarters in Japan. His
unit had a budget to spend on competitive intelligence and market scanning. They tested ideas
and offered project proposals to top management in Japan. Scientists and inventors often felt a
bit censored; the client was not the end user. Instead, the corporate culture for innovation at that
time and place meant that
We never knew why, sometimes, Aisin Seiki said no. And that was very frustrating! In
fact, it was mostly related to the corporate strategy. And as we had no clue about the
strategy, we did not know if it fit or not. We felt quite free to innovate, but in the end, was
that really the case, or just an impression? This was hard to handle, especially because
we were not part of the inner circle of decision makers. People say that in Japanese
companies the decision is bottom-up, which facilitates the generation of numerous ideas.
But then the ideas are strongly screened by top management. Despite the frustration, the
system at least enables the emergence of new insights.
When he founded ARECO, Michel knew the importance of installing a new culture for
nurturing and stimulating the generation and exploration of new ideas for alternative markets. He
recalled some best practices exhibited by Alpha, a company that regularly made €50 billion:
The R&D director of Alpha used to regularly brush his teeth and talk with employees
during their lunch breaks. Could you imagine this by his peers at Peugeot or Renault?
During breaks, he was joking with employees while giving them information about what
he expected. In fact, he was disseminating the company’s strategy to everyone. He was
giving directions, saying, “You should work on this. Don’t you see there is something
interesting there?” What we do at ARECO is stay directly in contact with the end client.
Today I worked with an automotive group. The representative we worked with is 40 years
old, and this is the first time he has had a project selected into the fifth level of
development, which is very advanced in the project screening process. He is super happy,
but it also creates a lot of pressure. This is really frustrating, because it means he has
never conducted a project that went beyond level 4 over the past 15 or 20 years. It was
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
the first time he came to level 5, and according to the way they classify the level of
projects from one to nine, it means there are still four levels to go! I could not work this
way.
I think that those who are here [at ARECO] are happy to see that what they are
working on is worth it and valued. In the example of Chiquita, the person in charge is
probably having a good time, being congratulated by the client, as I have been
congratulated myself. People really see the result of their involvement. It is exciting.
That’s why I like them to go and see what happens elsewhere. The people working with
our automotive clients are astonished when they come back. They tell me, “You know
what? They need five signatures to make a decision!” Here, people can manage their
own budget. I seldom have a look at what they order. Things are very fluid. I tell them
they are lucky. That’s not what I have experienced in my former professional life. Until
they have experienced how it is elsewhere, they do not realize it.
Related to these unique processes, ARECO is a highly innovative company. Since its
beginning, Michel installed a culture of innovation that clearly differentiates it from its parent
organization. Yet the new venture did not completely ignore its parent’s routines and procedures:
Often I think I brought a little bit of IMRA here. I talk about it quite often. Not the
procedures—I left them over there, because it was really painful. Right now I am starting
to insert some, because we are obliged by the number of people working in the company
to have some procedures in place. But for R&D, I have reduced the procedures
substantially. We always try to keep in mind, when you have an idea, think about how it
will be used, to pay attention to validate it with the client. This morning we were having a
meeting, and we were working on new topics. I urged, “But ask the clients! There are two
or three customers in the area that we know very well. So ask them to come by, and if
they do not want to come, make a video and go and show them, to explain what we want
to do, and find out what they think about it.”
At IMRA it was not like that, a mindset to listen or get feedback from the field
quickly. I did it out of necessity at first, because it allowed me to finance the development
of prototypes, but then it became part of the corporate culture, that's for sure. That is to
say, we always and immediately present ideas to the market and avoid developing our
idea on our side and then saying to the client, “I have something for you.” Considering
the costs of development, I ask the client upstream, not once everything has been
developed. I have tried to involve customers and have intermediate outcomes. For
instance … a new project called "Nebuleco" was initiated by the R&D team. They came
one morning, and they said, "People keep talking about CSR, so we want to develop an
eco-design product.
Furthermore, in the 16 years since Michel spun out from IMRA, his role had changed
substantially, which became crucial for supporting the dissemination of ARECO’s culture of
innovation. This was facilitated with the arrival of Benoit Rey, an engineer from the Ecole des
Mines, specialized in production processes. This was in fact the acceleration of the development
of ARECO. Benoit acquired 32% of the shares and focused on procedures and control of
operations, while Michel could concentrate on innovative projects and business development.
I do work a lot more now! But, at the very beginning it was stressful. Now I take a step
back. Before, I had to travel a lot.... I am still involved with patenting, and for sure I'll
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
take a lot more! Anyway, I think that in the process of innovation, the manager plays a
key role. That’s what I often tell my teams. The one who makes the innovation does not
necessarily know that it is innovation. That is the role of the manager, to say, "What you
are doing here is really good! You should file a patent on it!" And that's what I do. We
encourage employees to file patents. Bonuses are given for patents. Even with incentives
though, the ones who do it spontaneously are very few. Even though they work on their
own topics, trying to propose something new, few go beyond their individual assessment
and decide to highlight their findings. So I push them to file patents. After we fine-tune it,
I contribute by trying to make it more presentable, to extract the innovation from what
they did. They do not necessarily know what they can take out of it. But we do not just
focus on patents. We incentivize any type of innovation that fosters firm efficiency.
Further developments
Already, ARECO has developed hundreds of solutions for the agro-food industry. The
nebulization technology has reached a mature stage. Thus Michel and his team face a new
challenge: Should the company continue to innovate in this technological area and business
sector? Or should it explore additional new markets and technologies? He knew that
Surely, we are working further on agro-food. This industry is still big, with even more
export to come. We must innovate. Our business really started to expand with vegetables.
Then, we extended to fish, meat, and cheese. We are also now considering proposing
disinfecting and cleaning solutions. Our sales staff regularly comes to us with ideas,
saying, "We could do this. We could do that.” We could add accessories to increase the
business. We are accustomed to selling about €10,000 per outlet. Today we are trying to
win up to €25,000–30,000. So little by little, by proposing side services, we acquire new
competencies for fresh products. That's why companies like Chiquita come to us, because
we are able to provide them with solutions even on a product we do not know, because
what matters is our knowledge of store issues. Now we work in the United States with one
of the best supermarket chains for fresh products. So, there will certainly be synergies
that will be created.
In making these decisions and plans, Michel has come to appreciate the benefits of his
time at IMRA. Even if the negotiations were not always easy, the results have surpassed any of
his predictions when he launched ARECO. Not only did IMRA allow him to leverage his patents
and technology, but it encouraged him to find a new culture of innovation, display patience and
negotiation skills, exhibit respect for stakeholders, and develop a long-term view. He constantly
reminds his employees of these precepts, hoping that ARECO will continue to succeed, in
harmony with suppliers, customers, partners, and employees.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
APPENDIX
Table A.1. Financial Plan
EXPENDITURES
Intangible assets
Property and plant
Equipment
Loans repayment
Need for working capital
Increase of working capital
TOTAL EXPENDITURES
RESOURCES
Net cash flow
Shareholders’ equity
Partners’ current account
PRCE
Medium & long term credit
Others
TOTAL RESOURCES
YEAR VARIATION
CUMULATIVE VARIATION
1998
1999
2000
TOTAL
128,000
200,000
200,000
528,000
157,700
11,731
118,389
118,389
415,820
135,000
18,500
387,038
268,649
622,149
120,000
19,640
528,076
141,038
480,678
412,700
49,871
1,281,782
528,076
1,518,647
- 55,901
140,000
132,000
200,000
200,000
120,000
736,099
320,279
320,279
63,928
529,457
63,928
- 558,221
- 237,942
529,457
48,779
- 189,163
537,484
140,000
132,000
200,000
200,000
120,000
1,349,484
- 189,163
Note. All values are in euros.
Table A.2. Margins over variable cost
EXTERNAL CHARGES
Leasing
Rents and rental charges
Maintenance and repairs
Insurance
Interim
Fees
Advertising
T&D
P&T
Miscellaneous
TOTAL
FIXED
VARIABLE
55,000
8,800
14,000
88,500
8,000
9,800
5,000
189,100
110,500
45,000
12,200
112,420
280,120
TOTAL
0
55,000
8,800
14,000
0
199,000
8,000
54,800
17,200
112,420
469,220
Note. All values are in euros.
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Chereau and Cirillo: ARECO: A FULL STEAM AHEAD
Table A.3. Sales forecasts
Production sold 1998
Portable systems
Industrial systems
Special applications
Total
Production
346,000
574,000
425,000
1,345,000
Raw materials
94,043
287,000
158,355
539,398
Margin
73%
50%
63%
60%
Production sold 1999
Portable systems
Industrial systems
Special applications
Total
Production
650,000
1,080,000
400,000
2,130,000
Raw materials
176,670
378,000
100,000
654,670
Margin
73%
65%
75%
69%
Production sold 2000
Portable systems
Industrial systems
Special applications
Total
Production
1,400,000
2,400,000
400,000
4,200,000
Raw materials
380,520
840,000
100,000
1,320,520
Margin
73%
65%
75%
69%
Note. All values are in euros.
15