Research & Development Management

Structure of Lecture

1. What is R&D and why is it important (and how does this importance differ between industries?

2. How does it link with corporate strategy?3. What types of activities must we

strategically plan for R&D to be effective?4. What are the operational activities of R&D?5. How do we allocate funds to R&D?

What is R&D?

…and how important is it?

What is R&D?“R&D is the purposeful and systematic use of scientific

knowledge to improve man’s lot even though some of its manifestations do not meet with universal approval”

(Twiss, 1992)

“To develop new knowledge and apply scientific or engineering knowledge to connect the knowledge in one

field to that in others”(Roussel et al., 1991)

intr

oduc

tion

growthmaturity

decline

developmentdemonstration ofapplication andproduct engineering

applied researchlaboratory verification

basic researchscientific suggestion, discovery,recognition,new concept.

time

0-2-4-6-8-10-12 2 4 6

accumulated investment

ROI

revenue

investment

Where does R&D fit in an organisation’s activities?Extended Product LifecycleResearch and Development

£bn % salesSiemens 3.792 11GlaxoSmithKline 2.936 18.7Microsoft 2.675   17.9Ericsson 2.090 22Boeing 1.018 4.9Procter & Gamble 0.994 8.2Unilever 0.760 5.1Dyson 0.008 9.6

How important is R&D in organisations: Expenditure in 2003

How important can R&D be to the value of a company?

1991

2001

2000

2003

R&D Intensive Companies (R&D >5% sales)

FTSE 100 companies

Share price index

50

100

150

200

Caution

Industry %Pharmaceuticals 15Aerospace 5Automotive 5Chemicals 8Electrical & electronics 7Food 1.5General manufacturing 6Computers 12

source: UK R&D scoreboard 2001, DTI (2002)

R&D as % of sales = (R&D expenditure/ total sales income X 100%)

R&D Expenditure (mean)Across Industries

Differences

Why?

technologicalactivities

marketingactivities

balance ofactivities

Industrial products

Pharmaceutical industry

Electronics industry

White goods and domestic appliance industries

FMCG

Food and drinks industries

Classification of New Product Development Activities Across Different Industries

How does R&D contribute to the business?

…and how does it contribute?

What are we tryingto do in this business?

What are the costsbenefits and risks?

What will we support in R&D?

What can weafford?

How can R&Dcontribute?

How does Research and Development help a firm?

R&D and its link with businesses

1. R&D for existing businesses.This will ensure the businesses is able to compete and to exploit all

opportunities available to it.

2. Drive new businesses.Business opportunities will

continually arise. R&D will ensurethat these can be exploited.

3. Exploratory research.This helps to develop

understanding of technology that the business is using or may use.

N.B It’s the business’that pay for it

What is the strategic role of R&D to organisations?

How does R&D manage itself?

How does this convert into activities that R&D must undertake?

……What does an R&D department do?

      Core technologiesCentral to all or most of the company’s products       Complementary technologiesAdditional technologies       Peripheral technologiesWhose application contributes to the business       Emerging technologiesLong-term significance

R&D Strategic Planning means developing a Technology Portfolio (a range of technologies)

Music

R&D continuumknowledge &concepts

physicalproducts

product tangibility

Basic research

Applied research

Development

Technical service

low high

Close to market

How can we classify research activities?

Ph

arm

ace

utic

als

Ph

arm

ace

utic

als

What does an R&D lab look like?

Discovery

Basic ResearchWork of a general nature intended to apply to a broad range of uses or to new knowledge about an area.  Applied ResearchWork involving basic knowledge for the solution of a problem. DevelopmentThe application of known facts and theory to solve a particular problem through exploratory study. Technical ServiceCost and performance improvements to existing products, processes or systems.

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

Example: R&D within thePharmaceutical industry

How do we manage investment in R&D?

…and which products do we invest in?

How do we allocate resources to R&D?

1) Inter-firm comparisons -Looking at competitors spending-Spend +/- or =-Must be based on firms strategy (relative to competition)

2) Fixed relationship to turnover -Based on a % of turnover-Normally a reasonably stable figure-Focused on past?!

3) Fixed relationship to profits -Based on what company can afford?-Undesirable?-No consideration of future!?

4) Reference to previous level of expenditure

-Looking back to previous years expenditures-e.g. plus inflation

5) Costing an agreed programme -Base investments on a project by project basis-Then come to overall figure-Negotiations may be required

6) Internal customer-contractor relationship

-Business units pay for research carried out on their behalf (by R&D)-Like outsourcing?!-Additional general funding to R&D to build overall knowledge base

Based on Trott (2007)

Key Points from the Lecture R&D can be managed and is managed Technology for today, tomorrow and the

future R&D undertakes a number of

operational activities Effective R&D project evaluation is key

ReferencesTwiss (1992) Managing Technological Innovation, FT:

Pitman.Roussel et al. (1991) Third Generation R&D, Harvard

Business School Press.UK R&D scoreboard 2001, DTI (2002)Trott (2005) Innovation Management & NPD, Financial

Times.

Additional Slides

The main businessactivity

Business 1Corporate objectives•objectives;•strategy;•plans.

Business 2Unplanned projects worth exploiting.

Licences & technologytransfer

technology baseddiversification

Provisionof funds to R&D

Projects selected to meet corporateneeds (1-10)

Projects warrantingmodification of existingcorporate plans (B&Y)

Research & DevelopmentAllocation of funds to projectsto satisfy corporate needs1 2 3 4 5 Y X6 7 8 9 10 Z

Loosely controlledfundsA B C D E

Unplanned value

no value

statedcorporateneeds

Which projects?R&D Supports 2 Business Activities (allowing for scientific freedom)

Strategic Pressures on R&D

Building knowledge for entire business

Gaining greater depth of knowledge for a particular business

Funding per area

Num

ber o

f rese

arch

are

as

R&D Link with Corporate Strategy: The Decision Making Process

Corporate Strategy

Business Strategies

Allocation of Resources to R&D

Research & Technology Strategy

What are the aims of the business?

How can R&D contribute?

What can we afford?

Management of research projects

Operational Activities

Existing Projects

Selection of new projects

Technical Service

Technology scanning

-What business are we in?-What business could we be in?-What business do we want to be in?-What must we do to get into or consolidate in that business?

-What are the needs of the business?-What should R&D do?-What can R&D do?

How many projects do we invest in?

•Invest in many to avoid missed opportunities

•Investment spread thinly

•Invest heavily in fewer projects

•Potential for missed opportunities

When should key evaluations be undertaken?Evaluations & the Cumulative Expenditure Curve

Late expenditures

Average Expenditures

Early expenditures

What is cost of next stage?