lecture 8 the importance of r&d

Chapter 8:

The Importance of Research andThe Importance of Research and

Development (R&D)Development (R&D)

Introduction

In the past, technology was absent in strategic management thinking and practice

“Technological innovation traditionally had been potrayed largely as a subject separate from other management practices, including strategy”

“A strategy when related to technology was considered as belonging to the realm of R&D”

“Technology was treated as implementation issue: a firm determines its strategy and this drives how technology will be used”

However, since early 1980s there has been a real acceptance of technology’s strategic importance in decision making.

3

What is Research?• Research

– Discover new knowledge – Seek answers to questions

• Basic research– Goal: Expand man’s knowledge (e.g., which genes control social

behavior of honey bees? )– Often driven by curiosity (but not always)– High impact examples: relativity theory, DNA, …

• Applied research– Goal: Improve human condition (i.e., improve the wolrd) (e.g., how to

cure cancers?)– Driven by practical needs– High impact examples: computers, transistors, vaccinations, …

• The boundary is vague; distinction isn’t important

Why Research?

Amount of knowledge

Advancement of Technology

Utility of Applications

Quality of Life

Basic ResearchApplied Research

ApplicationDevelopment

Curiosity

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5 Elements of a Research Proposal

• Problem statement– Motivation: Raise the research question– Define the question – Benefit of solving the problem

• Previous/Related work– What do we already know about the problem? – How would the proposed research increase our knowledge?

• Research plan– How do you plan to solve the problem? – Justify your plan (analytical, preliminary results)– Evaluation plan

• Research management– Schedule, milestones, fallback plans

• Resource needs

R&D Strategy

“ Definition of the set of R&D projects required to achieve the fixed objectives in terms of technology acquisition defined within the overall strategic framework of the firm”

Key terms:•A set of R&D projects is the actual output of the R&D strategy •Technology acquisition refers to acquisition of technology, either internally developed or externally acquired (including the variety of collaborative forms that are needed)•The technology is not good per se, but has to be useful to achieve the firm’s overall objectives and therefore there needs to be consistent between the decision of technology acquisition (and ultimately the set of R&D projects planned) and the firms’ overall strategy.

Note: Take note, that the ultimate objective of R&D management inthe context of firms is to create sustainable financial profit for the firm – profit oriented.

R&D Strategy

Organisation e.g: a firm

External environment

Internal environment

R&D Strategy

Formulation of the firm’s technology strategy

Fixes the overall framework and objectives of the process of technology acquisition, and therefore identifies the technologies to be developed/acquired.

R&D project portfolio definition

Structure such strategy into “projects” and allocate the resources available among these projects.

Stages of technology development

• Basic research– Generic knowledge– Exploration of curiosity

• Applied research– Specific knowledge for mission purposes or

breakthrough• Development

– Proprietary knowledge of novel application systems, or products

• Technological enhancement– Continuous innovation for market value

Technology portfolio• Diversity of technology investments

Basic/applied Research Emerging technology

New generation technology Product/process innovation

Technology transfer

Maintenance of competitive advantage (product/process/market)

Emerging stage

Growing stage

Mature stage

Justification of R&D expenditure

Commitment

Uncertainty

Low Middle Large

High Overhead expense

Middle Options of Strategic R&D

Low Return of investment

Commercialization oriented R&D

Exploration oriented R&D

Conservative approach

for shareholders’ interests

Risky approach for

seizing potential

opportunity

The government and military role in R&D

• Mission-oriented R&D– Meeting the exploration task & functionality

requirement regardless of cost• Diffusion-oriented R&D

– Commercialization purpose– Employment consideration– GDP growth – Industry reformation & transformation– Competitive advantage for global exports/market entry – Cost sensitivity

Global management of R&D• Consideration of technology acquisition

– Technology-push innovation• Coping with the variation of local customer preference

– Market-pull innovation• Meeting the transformation of regulation (host & guest

countries)• Outsourcing the manufacturing partners• Japanese style global R&D: establish the information

division for product differentiation • European style global R&D: acquiring the entire sources

of startups• American style global R&D: hunting the oversee talents

through global R&D laboratories

The R&D continuum

Europe’s R&D expenditure league (2010)

R&D expenditure across industry sectorsSource: www.innovation.gov.uk/rd_scoreboard (2010).

Comparison of share price performance of R&D-intensive firms and the FTSE 100 firms

Classification of areas of research emphasis in industry and university

Strategic role of R&D as viewed by the businessSource: EIRMA (1985) ‘Evaluation of R&D output: working group report, 29’, European Industrial research Management Association, Paris; P.A. Roussel, K.N. Saad and T.S. Erickson (1991) Third Generation R&D, Harvard Business School Press, Boston, MA.

Description of five generations of the R&D processSource: Nobelius, D. (2004) Towards the sixth generation of R&D management, International Journal of Project Management, Vol. 22, 369 –75.

Strategic pressures on R&DSource: Adapted from G.R. Mitchell (1988) ‘Options for the strategic management of technology’, UNESCO Technology Management, Interscience Enterprises Ltd, Geneva.

The R&D strategic decision-making process

Classifying the level of research using technology leverage

Comparison of R&D expenditure within the European pharmaceutical industrySource: www.innovation.gov.uk/projects/rdrscoreboard (2006).

The Basic R&D Process

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

The Basic R&D ProcessRecording

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

CRIS (“a CurrentResearch Information System, commonly known as "CRIS", is any information tool dedicated to provide access to and disseminateresearch information”)

The Basic R&D Process+ Feedbacks

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

CRIS

The Basic R&D ProcessReview

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreationreview review review review

The WorkProgrammeWorkProgramme Process

Workprogramme

Economic factors

Societal factors

Technology Foresight

CRIS

World / Country State DBWorld / Country Models DBTechnology Prediction DB

Solicited Advice

The Proposal Process

ProposalProposal

IdeaIdea

Review Previous WorkReview Previous Work

ObjectivesObjectives

MethodMethod

Resources andResources anddependenciesdependencies

CRIS

Previous Results DBPrevious Projects DB

Human Resources DB Finance DB

The Project Process

Project

CRIS

Previous Results DBPrevious Projects DB

Human Resources DB Finance DB

Project ManagementSystem

The Results Process

Results

CRIS

Previous Results DBInitial Results

Internal Review

Peer Review

Publication orRegistration

The Exploitation Process

Exploitation

Marketing Information DBEconomic Information DB

CRIS

Results

Business Plan

Finance

Production

Marketing

Selling

The Wealth Creation Process

Exploitation

WealthCreation

Marketing Information DBEconomic Information DB

CRIS

marketing

production

employment

The Basic R&D ProcessRecording WorkProgrammeWorkProgramme

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

ProgrammeName

Funding

OrgUnit

Person responsible

Contact

The Basic R&D ProcessRecording Proposal

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

Title

Abstract

Person(s)

OrgUnit(s)

The Basic R&D ProcessRecording Project

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

Title

Abstract

Person(s)

OrgUnit(s)

Funding

The Basic R&D ProcessRecording Results-Product

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

Title

Abstract

Person(s)

OrgUnit(s)

Project(s)

The Basic R&D ProcessRecording Results-Patent

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

Title

Abstract

Person(s)

OrgUnit(s)

Project(s)

The Basic R&D ProcessRecording Results-Publication

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

Title

Abstract

Person(s)

OrgUnit(s)

Project(s)

Bibliographic Information

The Basic R&D ProcessRecording Results-Publication

• Bibligraphic Information• Have already

– Person: [author|editor], OrgUnit: publisher, Title, Date• Need

– Persistent URL / DOI (for e-repository)– Full bibliographic reference in components

• journal | conference proceedings | book | monograph• Series (if any), volume, issue number, pages…

The Basic R&D ProcessRecording Exploitation

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

Business planFinance

MarketingProduction

Sales

The Basic R&D ProcessRecording Wealth Creation

Workprogramme

Proposal

Project

Results

Exploitation

WealthCreation

Annual Reports/AccountsEmployment

Dividends

Firms’ R&D Firms’ R&D cooperation cooperation strategies:strategies:

Partner SelectionPartner Selection

CooperationCooperationo Extend technological capabilitieso Integrate into firm production processes technological

knowledge coming from different sources;o R&D alliances strategies followed starting from the late '80s

2 aspects inherent to the R&D cooperation

process: the needthe need to share costs and risks with partnersto share costs and risks with partners

to access to complementary knowledge to access to complementary knowledge

Aim of Firms’ cooperation Aim of Firms’ cooperation strategies strategieso Introduce a new product (or process) in a brief time span; o Have a rapid and privileged access to new knowledge increasing

the firms' understanding of scientific developments (Belderbos)

The main research interest resides in four broad areas:

1. The motives which induce firms to form these alliances; 2. the selection of partners; 3. the management of the alliances,4. the measurement of alliance performance (Bayona et al.,

2001)

PROCEED

PartnerPartner selectionselection• The partner selection is one of the most critical

decision for a firm when forming an alliance as the simultaneous management with multiple partners cause a rise in complexity and coordination costs

• use of a multinomial logit model

Three different cooperation strategies:

market cooperation

mixed cooperation

science cooperation

R&D cooperation with market partners (suppliers, clients or competitors)

The choice among The choice among three main strategiesthree main strategies

R&D cooperation with science partners (public research institutes and universities)

with both market and science partners.

Theoretical Approaches Theoretical Approaches in the Analysisin the Analysis

1. The industrial organization literature (IO)has focused on incoming and outgoing spillover incoming and outgoing spillover as the major determinants of R&D cooperation strategies.

2. The second theoretical approach followed is grounded in the management literature. It applies transaction transaction cost approachcost approach that may favour the sharing of costs and risks among partnership participants (e.g. Das and Tend, what determines how firms choose different partners)

2

Firms cooperating with…Firms cooperating with…o

PublicPublic institutions institutions

Universities Universities

Foreign and Foreign and Domestic Domestic

partners partners

Lhuillery and Pfister (2009) collaboration with competitors may induce failures differentiating among vertical partners.

CompetitorsCompetitors

Face less cost constrains while it is not the case for firms cooperating with rivals.

Cincera et al., (2003) found negative result on firms' productivity collaborating with foreign partners and may be affected even by international R&D cooperation

are targeted in order to pool complementary resources together.

Determinants of R&D cooperationDeterminants of R&D cooperationo Incoming spilloverso Approprialityo Firm sizeo Cost of innovationo Subsidieso Participation in a multinational groupo International statuso R&D expenditures

MAJOR FACTORSMAJOR FACTORS

INCOMING SPILLOVER: external flows of knowledge that a firm may be able to grasp directly from partners or from other sources of technology such as patents, publications, meetings and so on….

COST OF INNOVATIONS: high costs for innovation induce firms to search for a partner to alleviate financial problems and reduce costs

Incoming spillovers Incoming spillovers If they are high: may induce firms to collaborate and it may result more profitable than non cooperating strategy. Firms in high-tech sectors prefer horizontal cooperations especially when the costs of innovation are high .

oOn the other hand, the possibility of knowledge leakages may increase firms' willingness to take advantage of partners R&D investments. ocollaborating with research organizations = higher incoming spilloversoFirms attempt to minimize outgoing spillovers and maximize incoming spillovers.

EU GUIDELINES FOR R&D EU GUIDELINES FOR R&D COOPERATIONCOOPERATION

“Collaboration in the field of research and development as well as knowledge transfer activities between the

Community and third countries should be based on clear and uniform recommendations and practices that ensure

equitable and fair access to intellectual property generated through international research collaborations, to the mutual

benefit of all partners involved.”

o Identification of the respective interests of the parties

o Participant’s knowledge transfer policy

o IP* strategy and exploitation model of the partner

o Identification of background IPo Identification of personnelo Identification of the partnerso Due diligence evaluation of new

partners o Freedom-to-operateo Analysis of the legal system,

particularly the IP framework, of a o partner's countryo Cultural issues relating to contract

negotiation and execution of o contracts o Drafting R & I collab.agreement

*intellectual property

STAGES TO CHOOSE A PARTNERSTAGES TO CHOOSE A PARTNER

Science CooperationScience Cooperation

UCB and Harvard University UCB and Harvard University announce new research allianceannounce new research alliance

The new alliance creates a unique drug discovery bridge between industry and academia. It pairs Harvard’s long-standing excellence in medical research with UCB’s expertise in drug development

-It’s about collaboration-It’s about collaboration-it’s about innovation -it’s about innovation -it’s about sharing ideas. -it’s about sharing ideas.

Harvard will benefit from UCB’s strengths and industry experience in drug discovery and development; while Harvard’s exceptional research will complement UCB’s internal expertise.’’

Case StudiesCase Studies

MarketMarket cooperationcooperation

+

Matheson Tri-Gas, Inc., a global manufacturer and supplier of industrial, medical, electronics and specialty gases and welding supplies headquartered in Basking Ridge, N.J., has announced the completion of the acquisition of Continental Carbonic Products Inc., an Illinois-based manufacturer and supplier of dry ice and liquid carbon dioxide.

Going forward, CCPI presents a tremendous opportunity for MATHESON by providing a new platform for growth and extension of our product offering.

Mixed cooperationMixed cooperation

+ Prompt, Québec’s premier ICT R&D consortia, altogether with McGill University and the California Institute for Telecommunications and Information Technology has announced another key milestone towards the development and application of environmentally sound ICT-based infrastructure and networks

Benefits•increase energy efficiency •reduce carbon emissions across university campuses, companies and government departments.

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• Focus on maximizing the positive environmental benefits of ICT

• Building on the results of an initial strategic planning meeting hosted in October in San Diego, California, the workshop brought together more than 35 participants from industry, academia and government. This included representatives from emerging companies across Quebec to multinational industry leaders such as Ericsson, IBM and DMR-Fujitsu that maintain a strong R&D presence in the province.

Delegates identified three key priorities for the proposed consortium:

• green telecommunications, • wireless access, • intelligent transportation systems.

Partnerships create Partnerships create new opportunitiesnew opportunities

• "This workshop enabled us to develop specific tactics that will help translate our vision into action, while making important progress on the implementation of our Green ICT Strategy,” Together with our partners, we will focus on technological collaboration, governance and intellectual property management support the launch this new Canada-California Consortium, and provide entrepreneurs with new opportunities to capitalize on growing market for Green ICT.”

• said Dr, Charles Despins, President and CEO of Prompt.

• “The University of California recently hosted the Third Governors’ Global Climate Change Summit, which called for collaborative action that enables the development of a green economy; technology will play an important role in this equation,” said Jerry Sheehan, Chief of Staff at Calit2. “This workshop reinforced how Canada-California R&D cooperation in green ICT could help to achieve this goal and influence others around the world.”

• “This bilateral consortium promotes the development of a sustainable environment and global ICT industry,” said Pierre Coderre, Sr. Director of Technology with DMR-Fujitsu, which has three offices in Quebec. “It will enable multinational companies such as Fujitsu to leverage a network of Green ICT partners, optimize the development of new technology-based, climate change solutions, and demonstrate Fujitsu leadership in green ICT.”

ContinueContinue…

References

• Reading on «Firms’ R&D cooperation strategies:Partner Selection, written by Gussoni and Franco

• http://promptinc.org/documents/pressrelease_033110_eng.pdf• http://knowledge.essec.edu/research-highlights/research-and-development-

do-alliances-always-help.html• http://ec.europa.eu/research/innovation-union/pdf/

international_cooperation_guidelines_erac_kt_group.pdf• http://win-health.org/ucb-and-harvard-university-announce-new-research-

alliance-demonstrating-how-academia-and-industry-team-up-with-the-interest-of-the-patient-in-mind/

• www.rdmag.com• http://www23.statcan.gc.ca/imdb/p3Instr.pl?

Function=getInstrumentList&Item_Id=137294&UL=1V&

• http://www23.statcan.gc.ca/imdb-bmdi/instrument/5171_Q1_V2-eng.pdf

• http://www.youtube.com/watch?v=fMnhEfvF3og