P Trott R&D Mgt slide 1 Managing R&D Projects “In many areas it is not clear before the event who is in the innovation race, where the starting and finishing lines are, and that the race is all about. Even when all these things are clear, companies often start out wishing to be a leader and end up a follower!” (Pavitt, 1990)

P Trott R&D Mgt slide 2 Managing R&D Projects 1. Introduction 2. What issues are there in selecting and evaluating projects? 3. How to evaluate projects? A. How Viagra almost slipped away B. R&D as 2 businesses 4. What are the other options to R&D internally? 5. Summary & recap

P Trott R&D Mgt slide 3 What issues are there in selecting and evaluating projects?

P Trott R&D Mgt slide 4 Key decisions in R&D Management decision making How many projects do we invest in? Which projects do we choose to invest in? When to evaluate? How much to invest in each?

P Trott R&D Mgt slide 5 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

P Trott R&D Mgt slide 6 Spreading Investment: Strategic Pressures on R&D Building knowledge for entire business Gaining greater depth of knowledge for a particular business Funding per area Number of research areas

P Trott R&D Mgt slide 7 Evaluating Projects Why evaluate, and which projects to invest in?

P Trott R&D Mgt slide 8 Why evaluate projects? introduction growth maturity decline development demonstration of application and product engineering applied research laboratory verification new concept time accumulated investment ROI revenue investment NEW PRODUCT DEVELOPMENT PROCESS Cumulative Expenditure & Investment

P Trott R&D Mgt slide 9 Which Projects to Invest In? R&D Project Selection Criteria 1. Technical 2. Research direction & balance 3. Competitive Rationale 4. Patentability 5. Stability of the market 6. Integration & synergy 7. Market 8. Channel Fit 9. Manufacturing 10. Financial 11. Strategic Fit

P Trott R&D Mgt slide 10 What does the process of evaluating projects look like? 60 ideas are evaluated for: Technical feasibility Financial feasibility Suitability 12 ideas worthy of evaluation through: Technical evaluation & market research analysis 6 potential products worthy of further development & analysis 3 prototypes for technical and market testing 2 products launched 1 successful product Evaluation of research project ideas Number of research ideas The Process of Evaluating Projects

P Trott R&D Mgt slide 11 CriteriaTypical questions 1TechnicalDo we have experience of the technology? Do we have the skills and facilities? What is the probability of technical success? 2Research direction & balance Compatibility with research goals? Balance of risk in project portfolio? 3Competitive rationale How does this project compare relative to the competition? Is it necessary to defend an existing business? Is the product likely to be superior? 4PatentabilityCan we get patent protection? What will be the implication for defensive research? 5Stability of the market How stable is the technology? Is the market developed? Is there an industry standard? R&D Project Evaluation Criteria

P Trott R&D Mgt slide 12 CriteriaTypical questions 6Integration & synergy What is the level of integration of this project relative to other products and raw materials? Will it stand alone? 7MarketWhat is the size of the market? Is it a growing market? Is there an existing customer base? Is the potential big enough to warrant the resource? 8Channel fitDo we have existing customers who might be interested, or do we have to find new customers? 9ManufacturingCan we use existing resources? Will we require new equipment, skills, etc? 10FinancialExpected investment required and rate of return. 11Strategic fitDoes it support our short term and long term plans for the business?

P Trott R&D Mgt slide 13 How Pfizer’s Viagra almost slipped away Viagra one of the world’s most recognised brands A social icon with sales >$2bn An unintended discovery 13yrs to market How to attract consumers without alienating them But impotence market was small! Why spend valuable R&D money on such a small market? Issue: Is it easy to evaluate which projects to proceed? Risk?

P Trott R&D Mgt slide 14 The main business activity Business 1 Corporate objectives objectives; strategy; plans. Business 2 Unplanned projects worth exploiting. Licences & technology transfer technology based diversification Provision of funds to R&D Projects selected to meet corporate needs (1-10) Projects warranting modification of existing corporate plans (B&Y) Research & Development Allocation of funds to projects to satisfy corporate needs Y X Z Loosely controlled funds A B C D E Unplanned value no value stated corporate needs Strategic planning: R&D Supports 2 Business Activities

P Trott R&D Mgt slide 15 Is internal R&D the only option? Types of R&D

P Trott R&D Mgt slide 16 internal R&D external R&D industrial R&D centralised laboratories decentralised laboratories internal market contract collaborative consortium Organising Industrial R&D

P Trott R&D Mgt slide 17 & Disney Sony-Ericsson A joint venture dependent on technology transfer

P Trott R&D Mgt slide 18 & Disney Technological Collaboration Internal R&D is now only one of many technology development options available to companies. The technology base of a company is viewed as an asset that represents the technological capability of that company. The focus of these new activities is on external knowledge acquisition and assimilation.

P Trott R&D Mgt slide 19 Acquisition of External Technology Knowledge Matrix Purchase existing products or manufacturing processes Seek possible R&D Strategic Alliances Purchase/license a patent Conduct Internal R&D Purchase know-how embodied within people & processes Explore external R&D contract possibilities Level of understanding of thetechnology by external third parties Level of understanding of the technology by the acquiring business Low High The shaded area represents those technology acquisitions normally embraced by technology transfer

P Trott R&D Mgt slide 20 Key Points R&D project evaluation It also supports a technology business Technology collaboration

P Trott R&D Mgt slide 21 Rate of Technological progress Amount of effort Single-processor computer Multiprocessor computer Speed of light Communication bottlenecks Technology life cycles and S curves: e.g. Supercomputer Source: Utterback & Abbernathy (1992) How do we spread investment? (how much do we invest in each)