RampD Competence ampAbsorptive Capacity

The ideal RampD Organization is

bull Fastbull Efficientbull Close to the leading edge

of sciencebull Generating critical 1048784

knowledge internally bull Creative and freewheelingbull Staffed by the best

people 1048784

But close to the business and the customer

But able to take advantage of outside developments

But disciplined amp focused

But not dominated by prima donnas

Managing RampD thus means managing tension bull Between the long and the short term

bull Between ldquobasicrdquo and ldquoappliedrdquo research

bull Between the inside and the outside

bull Between pure technology focus and pure market focus

bull Between managing by results and managing by effort

Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui

t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers

Where on the S curve is basic researchlikely to be most important

Performance

Time

Takeoff

Ferment

Maturity

Disruption

But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work

Basic Applied

Understand the world Use that understanding to make widgets

How easy is it to make money from basic research

Appropriability is

Tight

Loose

Complementary assets are

Freely available

Tightly held

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

The ideal RampD Organization is

bull Fastbull Efficientbull Close to the leading edge

of sciencebull Generating critical 1048784

knowledge internally bull Creative and freewheelingbull Staffed by the best

people 1048784

But close to the business and the customer

But able to take advantage of outside developments

But disciplined amp focused

But not dominated by prima donnas

Managing RampD thus means managing tension bull Between the long and the short term

bull Between ldquobasicrdquo and ldquoappliedrdquo research

bull Between the inside and the outside

bull Between pure technology focus and pure market focus

bull Between managing by results and managing by effort

Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui

t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers

Where on the S curve is basic researchlikely to be most important

Performance

Time

Takeoff

Ferment

Maturity

Disruption

But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work

Basic Applied

Understand the world Use that understanding to make widgets

How easy is it to make money from basic research

Appropriability is

Tight

Loose

Complementary assets are

Freely available

Tightly held

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Managing RampD thus means managing tension bull Between the long and the short term

bull Between ldquobasicrdquo and ldquoappliedrdquo research

bull Between the inside and the outside

bull Between pure technology focus and pure market focus

bull Between managing by results and managing by effort

Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui

t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers

Where on the S curve is basic researchlikely to be most important

Performance

Time

Takeoff

Ferment

Maturity

Disruption

But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work

Basic Applied

Understand the world Use that understanding to make widgets

How easy is it to make money from basic research

Appropriability is

Tight

Loose

Complementary assets are

Freely available

Tightly held

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Basic amp Applied researchbull Basic (Tier 1) ndash Often ldquoupstreamrdquo to ldquoappliedrdquo research ndash Often motivated by curiosity rather than by the pursui

t of profit ndash Often focused on the longer term ndash Often generates significant ldquospilloversrdquobull Applied (Tier 3) ndash Usually more ldquodownstreamrdquo and closer to the market ndash Often engaged in in the hope of profit ndash Less likely to generate spillovers

Where on the S curve is basic researchlikely to be most important

Performance

Time

Takeoff

Ferment

Maturity

Disruption

But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work

Basic Applied

Understand the world Use that understanding to make widgets

How easy is it to make money from basic research

Appropriability is

Tight

Loose

Complementary assets are

Freely available

Tightly held

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Where on the S curve is basic researchlikely to be most important

Performance

Time

Takeoff

Ferment

Maturity

Disruption

But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work

Basic Applied

Understand the world Use that understanding to make widgets

How easy is it to make money from basic research

Appropriability is

Tight

Loose

Complementary assets are

Freely available

Tightly held

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

But does ldquobasicrdquo research alwaysprecede ldquoappliedrdquo work

Basic Applied

Understand the world Use that understanding to make widgets

How easy is it to make money from basic research

Appropriability is

Tight

Loose

Complementary assets are

Freely available

Tightly held

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

How easy is it to make money from basic research

Appropriability is

Tight

Loose

Complementary assets are

Freely available

Tightly held

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Is ldquobasicrdquo research always ldquopublicrdquo research

Work for prestige pleasure

Curiosity driven

Directly applied make the widget work

Work for money

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Research before the World Wars Goal Understand the world

First ldquogentlemenrdquo

amp then Universities Foundation

s

Incentive prestige fun the social good

Firms

Incentive Make $$

Goal Make the widget work

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Research before the World Wars

ldquoBasicrdquo ldquoCuriosity drivenrdquo research

ldquoAppliedrdquo research

Researchers motivated by the intrinsic interest of the problem orientated to their peers not to application

Choice of problems dictated by individual researchers on the basis of curiosity

Researchers motivated by the desire to make money have an impact on the world

Choice or problems motivated by the needs of the market place

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Research before the World Wars

bull ldquoBasicrdquo research makes enormous progress but few firms invest in it

ndash Except the German chemical industrybull Many major technological advances driven by en

gineers ldquotinkeringrdquo ndash Steel Steambull And technological advances that do use science

use old publicly available science ndash Electricity ndash Telephony

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Sputnik and the World WarsGoal Understand the world

Incentive prestige fun the social good

Goal Make the widget work

Incentive Make $$

Firms

RadarThe Atom BombPenicillanThe man on the moon

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

After the WarsGoal Understand the world

Incentive Make $$

Goal Make the widget work

Incentive prestige fun the social good

CentralResearch Labs

UniversitiesFoundations

Office of Naval Research

NIH

NASA DOD TraditionalApplied Research

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Corporate Research Labsin the Golden Agebull Bell Labsbull RCA Sarnoff Labsbull Xerox Parcbull IBM amp the Watson Labsbull GEbull Alcoabull DuPontbull Kodak

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

The Golden Age Research Model ldquoBuild it and they will comerdquo

Do the very best science

Make major breakthroughs

Take them to the marketAnd get really rich

For Example

The transistorThe CAT scanner CohenBoyer patent NylonProtease Inhibitors

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Core assumptions of ldquogolden agerdquo researchbull Curiosity driven ndash understand the probl

ems and the applications will follow

bull Not overly constrained by financial or cost goals

bull Hire the very best people and give them freedom

bull Stay closely connected to the university and to the community of public science

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

More recentlyThe Golden Age model in questionbull Many firms unable to capitalize on major discove

ries or benefits take years to emerge ndash The RCA disc ndash Xerox PARC ndash Kevlar ndash Lucent amp Bell Labsbull A significant number of breakthroughs come thro

ugh close usermarket contact not from the corporate labs

ndash EVH examples othershellip

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Why would a private firm ever invest in basic researchbull Monopoly power

ndash (Tight appropriability or tightly held complementary assets)

bull Maintain amp attract key people

ndash (Do scientists pay to do good science)

bull Build absorptive capacity

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Absorptive Capacity

bull What

ndash The ability to take advantage of knowledge generated outside the boundaries of the firm the function or the business unit

bull Why

ndash Much key knowledge generated outside

raquo ldquoBasicrdquo research

raquo Competitive research

raquo Knowledge elsewhere in the firmbull How

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Building absorptive capacity

bull Reading the journals is not enough to understand outside developments one must invest in the science

- ldquoto decode the signal one must build a receiverrdquobull Thus it may be necessary to ndash Invest in ldquobasicrdquo or leading edge research ndash Reward individuals on the basis of their standing outside the firm -- and to allow publication ndash ldquoGive awayrdquo key ideas in order to be a ldquoplayerrdquo ndash Take part in joint ventures or industry consortia th

at keep the firm ldquoin the looprdquobull Notice that such ldquoresearch tourismrdquo will have to be mana

gedincented differently

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Current ldquobest practicerdquo attempts tobalance amp integrate the two poles

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Some firms continue to fund centralresearch aggressively

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Genomics Photonics Msoft PampG

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

But others have moved away from central research completely

ldquoBasicrdquoor ldquofundamentalrdquoscience

ldquoAppliedrdquoresearch

Intel

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

A variety of approaches are used tobalance this tensionbull Explicit funding levels (Tier 1 Tier 2 Tier

3)

bull Organizational structure

bull Control over the central research budget

bull Processes or temporary structures cross functional teams working groups

bull ldquoIn-boundrdquo marketing

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Many companies set explicit funding levels

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Many firms give some control over central research funding to the business units

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Or experiment with alternativeorganizational forms

AR

Science

AR AR

PD PD PD

AR= Applied ResearchPD = Product developmentA= Acquisitions

A A A

Science

AR AR AR

PD PD PD

A A A

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Other firms have experimented with hybrid organizational structures

Pros Supports necessary scale for critical technologies Manage career paths Avoid redundancy

Focused cross functional coordination More efficient development Development of teamand management skills

Focused attention to multiple objectives Best of both worlds coordination and specialization

Cons Difficult inter-unit communication Restricted view of whole Can become too removed from the business

Confusion of team roles Shortage of good project management Death by many teams Degradation of fxnl skills

Confusion of roles High overhead Powerful individuals tip the balance of power Worst of both worlds

Centers of Excellence Teams Matrix

CEO

BVA BVB BVC

function 1

function 2

function 3

CEO

BV1 BV2 BV3

RampD Area 2

RampD Area 3

Heavyweight Project Team

Degree of TeamLeader Influence

Team Leader ENGINEERINGMFGMKG

Market

concepts

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

All RampD structures have limitations that can (in principle) be managed with the right processes

Making Central Research more Decentralized Making Decentralized Research more Central

Institute ldquocontractingrdquo mechanismwhereby Business Units can invest their RampD dollars by sponsoring projects in central researchCreate Councils comprising senior technical members (eg TDOs) from the business units to win endorsement for Research programs and ensure relevanceProvide communication mechanisms for central Research to showcase their programs (conferences ldquotechnology fairsrdquo ldquocatalogsrdquo ldquotrollingrdquo)Institute funding mechanisms that require project transfer to the business at a future date or require projects to win matching funds from the businessSupport internship programs that lend researchers to the businessesOrganize by product technology

Employ Portfolio process that ensures balance between platforms derivatives and breakthroughsCreate cross-Business Councils responsible for synergies between research done within the businessesFund outside research in universities start-up companies or other outside organizationsCo-locate Decentralized RampD resources within central labs to promote synergy and preserve critical mass in scientific disciplines

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Pay for PerformanceManaging technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Pay for Performance

bull Assume that

ndash Output y = a +

ndash Where a is the ldquoactionrdquo taken by the employee

ndash And is noise

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Pay for Performance (2)

bull Assume that compensation w is

ndash w = s + by

ndash Where s is salary

bull Where ldquowrdquo includes not only ldquowagesrdquo but all forms of compensation

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Pay for Performance (3)

bull Will technical professionals (scientists engineers) work harder if b is increased

bull What will happen if b = 0

bull Are there any circumstances in which a technical professional would work as hard for the ldquoownerrdquo as they would if they were self employed

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Getting what you pay forManaging technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Getting what you pay for

bull Suppose that we cannot measure (in a way that would hold up in court) the agentrsquos contribution to firm value y

bull But we can measure p an approximation to y

bull Let w = s + b(p)

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Getting what you pay for (2)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 +

ndash What will happen

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Getting what you pay for (3)

bull Suppose

ndash y = a1 + a2 +

ndash p = a1 + a3 +

ndash What will happen

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Getting what you pay for (4)

bull Suppose

ndash y = a1 + a2+

ndash p = a3 +

ndash What will happen

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals

Getting what you pay for (5)

bull How likely are these problems to arise when managing technical professionals