Management of research and development Chapter 8 Management of research and development

Structure of lecture Introduction Background: The management of R&D within organisations R&D and the link with corporate strategy R&D strategic planning R&D operational activities Allocating funds to R&D Summary and recap

Nov 2007 US leads way as global R&D spending rises 10% China and India both recorded growth of more than 30 per cent, albeit from low bases – £766m for China and £268m for India.

R&D in organisations: Expenditure in 2005 $bn % sales Ford 8.0 5 Pfizer 7.4 15 Siemens 6.5 7 Johnson & Johnson 6.3 12 Microsoft 6.1   16 GlaxoSmithKline 5.7 14 Samsung 5.4 7 Nokia 4.7 11

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)

Extended product life cycle Basic research: scientific suggestion, discovery, recognition, new concept. Applied research: laboratory verification Development: demonstration of application and product engineering ROI Revenue Introduction Growth Maturity Decline Investment Accumulated investment Time -12 -10 -8 -6 -4 -2 2 4 6

R&D expenditure (mean) across industries Industry % Pharmaceuticals 15 Aerospace 5 Automotive 5 Chemicals 8 Electrical and electronics 7 Food 1.5 General manufacturing 6 Computers 12 R&D as % of sales = (R&D expenditure/total sales income × 100%) Source: UK R&D scoreboard 2001, DTI (2002). Crown copyright material is reproduced with the permission of the Controller of Her Majesty’s Stationery Office and the Queen’s Printer for Scotland

Classification of new product development activities across different industries Industrial products Pharmaceutical industry Technological activities Electronics industry Balance of activities White goods and domestic appliance industries Marketing activities FMCG Food and drinks industries

Strategic management of research and technology What are we trying to do in this business? How can R&D contribute? What will we support in R&D? What are the costs, benefits and risks? What can we afford?

Strategic role of R&D N.B It’s the businesses R&D and that pay for it its link with businesses 1. R&D for existing businesses. This will ensure the businesses are able to compete and to exploit all opportunities available to it. 3. Exploratory research. This helps to develop understanding of technology that the business is using or may use. 2. Drive new businesses. Business opportunities will continually arise. R&D will ensure that these can be exploited.

R&D strategic planning means developing a technology portfolio 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

Classification of research knowledge and concepts R&D continuum Basic research Applied research Close to market Development Technical service Physical products Product tangibility low high

R&D 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.

Resource allocation to R&D Inter-firm comparisons A fixed relationship to turnover A fixed relationship to profits Reference to previous levels of expenditure Costing of an agreed programme Internal customer–contractor relationship

Key points from the lecture R&D can be managed and is managed Technology for today, tomorrow and the future R&D operational activities R&D Project evaluation

References Roussel, P.A., et al. (1991) Third Generation R&D, Harvard Business School Press, Boston, MA. Trott P (2005) Innovation Management & NPD 3rd ed., Prentice Hall. Twiss, B. (1992) Managing Technological Innovation, Lithedin FT: Pitman publishing, London. UK R&D scoreboard 2001, DTI (2002).