Transcript BLACK & WHITE OHP TEMPLATE

Research & Development
Management
Structure of Lecture
1.
2.
3.
4.
5.
What is R&D and why is it important (and
how does this importance differ between
industries?
How does it link with corporate strategy?
What types of activities must we
strategically plan for R&D to be effective?
What are the operational activities of R&D?
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)
Where does R&D fit in an
organisation’s activities?
Extended Product Lifecycle
Research and Development
development
demonstration of
application and
product engineering
ROI
introduction
basic
applied research
research
laboratory
scientific
verification
suggestion,
discovery,
recognition,
new concept.
growth
revenue
maturity
decline
investment
accumulated investment
time
-12
-10
-8
-6
-4
-2
0
2
4
6
How important is R&D in
organisations:
Expenditure in 2003
Siemens
GlaxoSmithKline
Microsoft
Ericsson
Boeing
Procter & Gamble
Unilever
Dyson
£bn
3.792
2.936
2.675
2.090
1.018
0.994
0.760
0.008
% sales
11
18.7
17.9
22
4.9
8.2
5.1
9.6
How important can R&D be to the
value of a company?
200
R&D Intensive
Companies (R&D
>5% sales)
150
Share price
index
100
50
FTSE 100
companies
Caution
1991
2000
2001
2003
R&D Expenditure (mean)
Across Industries
Industry
Pharmaceuticals
Aerospace
Automotive
Chemicals
Electrical & electronics
Food
General manufacturing
Computers
%
15
5
5
8
7
1.5
6
12
Differences
Why?
source: UK R&D scoreboard 2001, DTI (2002)
R&D as % of sales = (R&D expenditure/ total sales income X 100%)
Classification of New Product Development
Activities Across Different Industries
Industrial products
technological
activities
Pharmaceutical industry
Electronics industry
balance of
activities
White goods and
domestic appliance industries
marketing
activities
FMCG
Food and drinks industries
How does R&D contribute to the
business?
…and how does it contribute?
How does Research and
Development help a firm?
What are we trying
to do in this business?
What will we
support in R&D?
What can we
afford?
How can R&D
contribute?
What are the costs
benefits and risks?
How does R&D manage itself?
What is the strategic
role of R&D to organisations?
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 ensure
that these can be exploited.
N.B It’s the business’
that pay for it
3. Exploratory research.
This helps to develop
understanding of technology
that the business is using or may use.
How does this convert into
activities that R&D must
undertake?
……What does an R&D department do?
R&D Strategic Planning means developing a
Technology Portfolio (a range of technologies)

Core technologies
Central to all or most of the company’s products

Complementary technologies
Additional technologies

Peripheral technologies
Whose application contributes to the business

Emerging technologies
Long-term significance
Music
Pharmaceuticals
Pharmaceuticals
How can we classify research
activities?
What does an R&D lab look like?
R&D continuum
knowledge &
concepts
Discovery
low
Basic research
Applied research
Close to market
Development
Technical service
physical
products
product tangibility
high
How can we describe R&D’s
operational activities?
Basic Research
Work of a general nature intended to apply to a broad range
of uses or to new knowledge about an area.
Applied Research
Work involving basic knowledge for the solution of a problem.
Development
The application of known facts and theory to solve a particular
problem through exploratory study.
Technical Service
Cost and performance improvements to existing products, processes
or systems.
Example: R&D within the
Pharmaceutical 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
References
Twiss (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
Which projects?
R&D Supports 2 Business Activities
(allowing for scientific freedom)
The main business
activity
Business 1
Corporate objectives
•objectives;
•strategy;
•plans.
Projects
selected to
meet corporate
needs (1-10)
stated
corporate
needs
Licences & technology
transfer
technology based
diversification
Business 2
Unplanned projects worth exploiting.
Provision
of funds
to R&D
Projects warranting
modification of existing
corporate plans (B&Y)
Research & Development
Allocation of funds to projects
Loosely controlled
to satisfy corporate needs
funds
1 2 3 4 5 YX
A B CD E
6 7 8 9 10 Z
Unplanned value
no value
Strategic Pressures on R&D
Building knowledge for
entire business
Number of research areas
Gaining greater depth of
knowledge for a
particular business
Funding per area
R&D Link with Corporate Strategy:
The Decision Making Process
-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?
Corporate Strategy
Business Strategies
What can we
afford?
What are the aims of
the business?
Allocation of Resources
to R&D
How can R&D
contribute?
Research &
Technology Strategy
-What are the needs of the business?
-What should R&D do?
-What can R&D do?
Management of research projects
Existing
Projects
Selection of
new projects
Operational Activities
Technical
Service
Technology
scanning
How many projects do we
invest in?
•Invest in
many to
avoid missed
opportunities
•Invest
heavily in
fewer
projects
•Investment
spread thinly
•Potential for
missed
opportunities
When should key evaluations be
undertaken?
Evaluations & the Cumulative Expenditure Curve
Early expenditures
Average
Expenditures
Late expenditures
What is cost of next stage?