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)

introduction growth maturity decline development demonstration of application and product engineering applied research laboratory verification basic research scientific suggestion, discovery, recognition, new concept. time accumulated investment ROI revenue investment Where does R&D fit in an organisation’s activities? Extended Product Lifecycle Research and Development

£bn% sales Siemens GlaxoSmithKline Microsoft Ericsson Boeing Procter & Gamble Unilever Dyson How important is R&D in organisations: Expenditure in 2003

How important can R&D be to the value of a company? R&D Intensive Companies (R&D >5% sales) FTSE 100 companies Share price index Caution

Industry% Pharmaceuticals15 Aerospace5 Automotive5 Chemicals8 Electrical & electronics7 Food1.5 General manufacturing6 Computers12 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?

technological activities marketing activities balance of activities 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 trying to do in this business? What are the costs benefits and risks? What will we support in R&D? What can we afford? How can R&D contribute? 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 ensure that 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 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 R&D Strategic Planning means developing a Technology Portfolio (a range of technologies) Music

R&D continuum knowledge & concepts physical products product tangibility Basic research Applied research Development Technical service low high Close to market How can we classify research activities? Pharmaceuticals What does an R&D lab look like? Discovery

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. How can we describe R&D’s operational activities?

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

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 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 Number of research areas

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 projectsOperational 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?