book internal acquisition
TRANSCRIPT
Internal Acquisition:R&D Management
Technology ManagementActivities and Tools
Contents Why R&D? Project types Project portfolio Assessment of projects Project selection
Why R&D?
Discuss:
Advantages and disadvantages of R&D
R&D 1000, 2005
Kaynak: DTI, 2006
Research and development
Making good decisions requires knowledge, and the systematic creation, retention, and application of this knowledge requires a targeted process.
2 types of knowledge: domain-specific, generalizable knowledge context-specific, system knowledge
Absorptive capacity and R&D investment (Cohen and Levinthal, 1990)
R&D must satisfy: new knowledge + absorptive capacity
3 classes of industry-level determinants of R&D intensity:
Demand Technological opportunity Appropriability
Absorptive Capacity An ability to recognize the value of
new information, assimilate it, and apply it to commercial ends.
Firms with internal R&D are better able to use externally available info.
Absorptive capacity might be a byproduct of a firm’s R&D or a firm’s manufacturing operations or directly by training.
Absorptive capacity
Own R&D Technicalknowledge
Spillovers of competitors’ knowledgeExtraindustry knowledge
Steps in R&D
Discuss:
What are the decision processes involved in R&D management
pre-project or front-end planning project execution post-project learning
1) deciding on the mix and proportion of project types, highlighting what individual projects are intended to accomplish.
2) providing and allocating resources. Compute the implied capacity utilization and make the adjustments to bring supply and demand into balance.
3) measurement & evaluation
R&D Project types
Project types:3 central ones are commercial development
projects: derivative/enhancement/hybrid platform/next generation unique/radical
Platform projects
Derivative projects
BreakthroughProjectsNew core
process
Nextgenerationprocess
Singledepartmentupgrade
Incrementalchange
New coreprocess
Next generationprocess
Addition toproduct family
Derivaties andenhancements
Process changeMore Less P
rodu
ct c
hang
eLe
ss
Mor
e
Research and advancedDevelopment projects
Source: Adapted from Wheelwright and Clark (1992)
Technology types
PRESENT
TECHNOLOGY
FUTURE
CompetitiveImpact
PotentialCompetitiveImpact
Low,but essential
High, a driverOf cost ordifferentiation
Proven andCould be high
Unproven butpromising
ENABLINGTECHNOLOGIES
CRITICALTECHNOLOGIES
PACINGTECHNOLOGIES
EMERGINGTECHNOLOGIES
CLASSIFICATION OF THE COMPETITIVE POTENTIAL FOR TECHNOLOGIES
Source: Lindsay (2000)
Product-process innovation
Source: Utterback, 1994
Stage-gate tool
Source: Cooper, 2008
Project portfolio
Objectives of portfolio management (Cooper and Edgett, 1997):(1) maximizing the value of the
portfolio (2) achieving the right balance and
mix of projects(3) linking the portfolio to the
business' strategy
Portfolio management problem: uncertain and changing information dynamic opportunities multiple goals and strategic considerations interdependence among projects multiple decision makers multiple locations The problem is one of constrained
optimization under conditions of uncertainty: a multi-project, multi-stage decision model solved by mathematical programming
Maximizing the value of the portfolio
Expected Commercial Value Decision tree analysis (future stream of
earnings, commercialization costs and development costs)
Take the ratio of what it is trying to maximize -- namely the ECV -- divided by the constraining resource, namely the capital cost per project. Projects are rank-ordered according to this ratio.
Productivity Index The Productivity Index = [ECV *P[sub ts] --
R&D]/R&D ECV is a probability-weighted stream of cash
flows from the project P[sub ts] is the probability of technical success R&D is the R&D expenditure remaining in the
project Projects are rank-ordered according to this
index in order to arrive at the preferred portfolio.
Dynamic Rank Ordered List Rank-order according to several criteria (such
as internal rate of return) concurrently Take the mean of multiple rankings
Scoring models A list of criteria is developed to rate projects Projects are then rated by evaluators on each
criterion These scores are multiplied by weightings Scores summed across all criteria to yield a
project score for each project.
Issues in maximizing:
The dependence on financial and other quantitative data.
Does not look at the balance of the portfolio All methods lack the optimal balancing and
aligning with the strategy.
Achieving the right balance and mix of projects Visual charts were favoured for displaying
balance in new-product project portfolios. These visual representations include the
portfolio maps or bubble diagrams which are an adaptation of: the four-quadrant (star, cash cow, dog,
wildcat) diagrams, traditional pie charts and histograms.
COMPANY PORTFOLIO MATRIX
Low
Low
High
High
Market Dominance
MarketGrowth
ProblemChildren
Stars
Dogs Cash Cows
MEDIUM HIGH
LOW LOWEST
LOW HIGH
LOWEST MEDIUM
Obsolete Mature Evolving Embryonic
TECHNOLOGY MATURITY
Follower
IndustryAverage
Company’sRelative strenght
Leader
InfancyEarlydevelopment
Partiallydeveloped
Welldeveloped
Highlyrefined
COMPANY’S ABSOLUTE STRENGTH
Any pair can be the X and Y-axes for a bubble plot:
Fit with business or corporate strategy. Inventive merit and strategic importance to the
business. Durability of the competitive advantage. Reward, based on financial expectations. Competitive impact of technologies (base, key,
pacing, and embryonic technologies). Probabilities of success. R&D costs to completion. Time to completion. Capital and marketing investment required. Risk / return
Issues in balancing:
They rely on substantial financial data when often these data are either unavailable or, at best, uncertain
There is the problem of information overload. These methods are not decision models. It was not clear what the "right balance" of projects
was. It wasn't clear in every case what one did with the
charts and maps.
Linking the portfolio to the business's strategy
Strategic fit Spending breakdown
Strategy -- R&DStrategic objective: Knowledge building (fundamental, basic,
exploratory research) Strategic positioning (focused applied research) Business investment (development and
engineering)Operational strategies: Differentiation Cost Focus
Two general approaches to achieving strategic alignment Building strategic criteria into project selection
tools Top-down strategy models:
Strategic Buckets Model StratPlan or Strategic Check (such as scoring
model or financial criteria)
Assessment of projects & selection of projects
Some project selection techniques:
1) Intuitive individual or group evaluations and selections
2) check lists3) merit numbers4) benefit-cost index methods5) risk analysis models6) risk-return profile7) statistical decision analysis models and
mathematical programming techniques
Limitations of selection techniques:
Guestimates low participation of the management snapshot view of projects unavailability of resources and a project
champion wish to maintain the status quo unwillingness until common acceptance of
technologies political considerations discouraged team members due to delays of
long approval times
Funding R&D
R&D as a necessary cost of business R&D as an investment
Post-project tasks: learning learning from experience means learning
from development projects. BUT, organizational learning is not a natural
outcome of development projects. 2 problems in general: 1) the performance that matters is often a result
of complex interactions within the overall development system.
2) incentives in the organization favor pressing forward to the next project not recording.
Two most common problems firms have in R&D Management:
Undertaking many more projects than can be completed with the available resources
Assigning critical resources to work on several projects concurrently.
Because of a lack of discipline and management’s unwillingness to make hard choices.