Research & Development Management
Jan 13, 2016
Research & Development Management
Structure of Lecture
1. What is R&D and why is it important (and how does this importance differ between industries?
2. How does it link with corporate strategy?3. What types of activities must we
strategically plan for R&D to be effective?4. What are the operational activities of R&D?5. How do we allocate funds to R&D?
What is R&D?
…and how important is it?
What is R&D?“R&D is the purposeful and systematic use of scientific
knowledge to improve man’s lot even though some of its manifestations do not meet with universal approval”
(Twiss, 1992)
“To develop new knowledge and apply scientific or engineering knowledge to connect the knowledge in one
field to that in others”(Roussel et al., 1991)
intr
oduc
tion
growthmaturity
decline
developmentdemonstration ofapplication andproduct engineering
applied researchlaboratory verification
basic researchscientific suggestion, discovery,recognition,new concept.
time
0-2-4-6-8-10-12 2 4 6
accumulated investment
ROI
revenue
investment
Where does R&D fit in an organisation’s activities?Extended Product LifecycleResearch and Development
£bn % salesSiemens 3.792 11GlaxoSmithKline 2.936 18.7Microsoft 2.675 17.9Ericsson 2.090 22Boeing 1.018 4.9Procter & Gamble 0.994 8.2Unilever 0.760 5.1Dyson 0.008 9.6
How important is R&D in organisations: Expenditure in 2003
How important can R&D be to the value of a company?
1991
2001
2000
2003
R&D Intensive Companies (R&D >5% sales)
FTSE 100 companies
Share price index
50
100
150
200
Caution
Industry %Pharmaceuticals 15Aerospace 5Automotive 5Chemicals 8Electrical & electronics 7Food 1.5General manufacturing 6Computers 12
source: UK R&D scoreboard 2001, DTI (2002)
R&D as % of sales = (R&D expenditure/ total sales income X 100%)
R&D Expenditure (mean)Across Industries
Differences
Why?
technologicalactivities
marketingactivities
balance ofactivities
Industrial products
Pharmaceutical industry
Electronics industry
White goods and domestic appliance industries
FMCG
Food and drinks industries
Classification of New Product Development Activities Across Different Industries
How does R&D contribute to the business?
…and how does it contribute?
What are we tryingto do in this business?
What are the costsbenefits and risks?
What will we support in R&D?
What can weafford?
How can R&Dcontribute?
How does Research and Development help a firm?
R&D and its link with businesses
1. R&D for existing businesses.This will ensure the businesses is able to compete and to exploit all
opportunities available to it.
2. Drive new businesses.Business opportunities will
continually arise. R&D will ensurethat these can be exploited.
3. Exploratory research.This helps to develop
understanding of technology that the business is using or may use.
N.B It’s the business’that pay for it
What is the strategic role of R&D to organisations?
How does R&D manage itself?
How does this convert into activities that R&D must undertake?
……What does an R&D department do?
Core technologiesCentral to all or most of the company’s products Complementary technologiesAdditional technologies Peripheral technologiesWhose application contributes to the business Emerging technologiesLong-term significance
R&D Strategic Planning means developing a Technology Portfolio (a range of technologies)
Music
R&D continuumknowledge &concepts
physicalproducts
product tangibility
Basic research
Applied research
Development
Technical service
low high
Close to market
How can we classify research activities?
Ph
arm
ace
utic
als
Ph
arm
ace
utic
als
What does an R&D lab look like?
Discovery
Basic ResearchWork of a general nature intended to apply to a broad range of uses or to new knowledge about an area. Applied ResearchWork involving basic knowledge for the solution of a problem. DevelopmentThe application of known facts and theory to solve a particular problem through exploratory study. Technical ServiceCost and performance improvements to existing products, processes or systems.
How can we describe R&D’s operational activities?
Example: R&D within thePharmaceutical industry
How do we manage investment in R&D?
…and which products do we invest in?
How do we allocate resources to R&D?
1) Inter-firm comparisons -Looking at competitors spending-Spend +/- or =-Must be based on firms strategy (relative to competition)
2) Fixed relationship to turnover -Based on a % of turnover-Normally a reasonably stable figure-Focused on past?!
3) Fixed relationship to profits -Based on what company can afford?-Undesirable?-No consideration of future!?
4) Reference to previous level of expenditure
-Looking back to previous years expenditures-e.g. plus inflation
5) Costing an agreed programme -Base investments on a project by project basis-Then come to overall figure-Negotiations may be required
6) Internal customer-contractor relationship
-Business units pay for research carried out on their behalf (by R&D)-Like outsourcing?!-Additional general funding to R&D to build overall knowledge base
Based on Trott (2007)
Key Points from the Lecture R&D can be managed and is managed Technology for today, tomorrow and the
future R&D undertakes a number of
operational activities Effective R&D project evaluation is key
ReferencesTwiss (1992) Managing Technological Innovation, FT:
Pitman.Roussel et al. (1991) Third Generation R&D, Harvard
Business School Press.UK R&D scoreboard 2001, DTI (2002)Trott (2005) Innovation Management & NPD, Financial
Times.
Additional Slides
The main businessactivity
Business 1Corporate objectives•objectives;•strategy;•plans.
Business 2Unplanned projects worth exploiting.
Licences & technologytransfer
technology baseddiversification
Provisionof funds to R&D
Projects selected to meet corporateneeds (1-10)
Projects warrantingmodification of existingcorporate plans (B&Y)
Research & DevelopmentAllocation of funds to projectsto satisfy corporate needs1 2 3 4 5 Y X6 7 8 9 10 Z
Loosely controlledfundsA B C D E
Unplanned value
no value
statedcorporateneeds
Which projects?R&D Supports 2 Business Activities (allowing for scientific freedom)
Strategic Pressures on R&D
Building knowledge for entire business
Gaining greater depth of knowledge for a particular business
Funding per area
Num
ber o
f rese
arch
are
as
R&D Link with Corporate Strategy: The Decision Making Process
Corporate Strategy
Business Strategies
Allocation of Resources to R&D
Research & Technology Strategy
What are the aims of the business?
How can R&D contribute?
What can we afford?
Management of research projects
Operational Activities
Existing Projects
Selection of new projects
Technical Service
Technology scanning
-What business are we in?-What business could we be in?-What business do we want to be in?-What must we do to get into or consolidate in that business?
-What are the needs of the business?-What should R&D do?-What can R&D do?
How many projects do we invest in?
•Invest in many to avoid missed opportunities
•Investment spread thinly
•Invest heavily in fewer projects
•Potential for missed opportunities
When should key evaluations be undertaken?Evaluations & the Cumulative Expenditure Curve
Late expenditures
Average Expenditures
Early expenditures
What is cost of next stage?