R&D Research & Development Strategy & Management

1Jay Martin Month Year FileName.ppt
Date: November 2000
Presentation:
Jay Martin
R&D Strategy & Management
A huge thanks for my friend and colleague Philip Roussel, author of 3rd Generation R&D (with Tammy & Kamal)
He was a great guy, and sorry for those who will never get to meet him. Most of this was his.
R&D Strategy & Management

The following presentation uses many slides from the book “Third
Generation R&D” and this methodology is from a competitor.
Remember, in using these slides, they are almost directly out of Phil’s
book and we do not want to be doing marketing for competitors.
Emphasize that they are not focused on results, but on reports!!
• The book is worth a read if you are working in an R&D area, but using the
concepts is tricky because EVERYONE knows it is an A.D. Little book.
• The methodology was developed by the former head of Cambridge Consulting in
England (now an Arthur D. Little Senior Vice President and well-known speaker)
and is not publicly available material. He and I used this methodology in Seoul in
1996 and I rewrote after re-reading the book and thinking back to our Program.
• Fourth Generation R&D was written by a firm called KBS on the West Coast with
Harvard Business. If anyone buys it, let me know. I think it is more involved with
the touchy-feely side of Innovation.
R&D Strategy Third Generation R&D

The following slides are some of the more pertinent points of the
book “Third Generation R&D.” (just some reminders below)
Remember, in using these slides, they are almost directly out of Phil’s
book and we do not want to be doing marketing for competitors.
Emphasize that they are not focused on results, but on reports!!
• They are in order of where things appear in the book
• They present some good tools with respect to managing an R&D assignment
• Do not include anything in the area of Technology Strategy. The types of tools I
am familiar with are not shown in the book and are right out of the Arthur D. Little
product tools from Europe (for that reason I did not put much in, but I am happy to
speak with anyone about how to do these types of assignments).
• The book is worth a read if you are working in an R&D area, but using the
concepts is tricky because EVERYONE knows it is an AD Little book.
• Fourth Generation R&D was written by a firm called KBS on the West Coast with
Harvard Business. If anyone buys it, let me know. I think it is more involved with
the touchy-feely side of Innovation.
Research & Development Third Generation R&D

R&D Organizations are most commonly found to fall into one of the
three categories described below.
R&D Strategy Three Basic Types of R&D
Source: Philip A. Roussel, Third Generation R&D, Harvard Business School, Page 15-16.
Incremental R&D: Small ‘R’ and Big ‘D’
The goal here is small advances in technology, typically based
on an established foundation of scientific and engineering
knowledge. The challenge here is apply existing knowledge,
not uncovering anything new.
Radical R&D: Large ‘R’ and Often Large ‘D’
Undertaking the challenges of new discoveries to produces the
desired/expected results characterizes this category. These
usually involve severe technical risk, and are usually followed
by low hits on very high margin products. High odds & payoffs.
Fundamental R&D: Large ‘R’ and No ‘D’
This is the scientist’s R&D department. Here the goals are first
to develop specific expertise and competence in a field which is
believed to have significant strategic impact for the company
and secondly prepare to commercially exploit expected results.
R D
R D
R D?
Small ‘R’
Big ‘D’
Large ‘R’
Big ‘D’
Large ‘R’
No ‘D’

R&D has three main strategic purposes to a business.
R&D Strategy Purposes of R&D
Source: Philip A. Roussel, Third Generation R&D, Harvard Business School.
Defend, Support,
and Expand
Existing Business
Drive New
Business
Broaden/Deepen
Technological
Capability

The effective use of R&D naturally parallels the business cycle for a
product or industry.
R&D Strategy R&D and the Industry Cycle
Source: Philip A. Roussel, Third Generation R&D, Harvard Business School, Page 19.
EMBRYONIC GROWTH MATURE AGING
Launch new business
Establish competitive
position
Grow new business
Improve competitive
position
Sustain competitive
position
Rejuvenate?
Renew?
Abandon?
Industry Maturity
The R&D
Mission

The R&D strategy cycle is an iterative and continual process.
R&D Strategy R&D Strategy Cycle
How can R&D
contribute?
What are the
costs/benefits
and risks?
What can we
afford?
What will we
support in R&D?
What are we
trying to do in
the business?

Technologies, like industries, can be characterized by their maturity.
R&D Strategy Technology Stages
Time
Embryonic Growth Mature Aging
ScopeforAdditionalTechnologicalAdvances
Natural Limit of the Technology
Example:
Thermal
Pasteurization of
Milk

A key piece of analysis in allocating resources to R&D projects is the
understand of the ‘risks versus rewards’ of the individual projects.
R&D Strategy Relationship between Risk and Reward for R&D
Excellent
R&D
Investment
Good-Excellent
R&D
Investment
(Possibly) Good-
Excellent
R&D
Investment
Good R&D
Investment
Acceptable-Good
R&D
Investment
Acceptable
R&D
Investment
High
Moderate
Low
Low Moderate High
Potential
Reward
Risk

Developing a Technology Strategy has as its major objective the
marrying business objectives to technology expenditures.
R&D Strategy Top-Level Methodology
Review Business
Strategy and
Objectives
Our Business Goals?
Understand Needs
for Applying
Technology
Future tech needs?
Examine Previous
Years Information
What did we try to do?
Identify Industry and
Technology Trends
What is going on?
Identify Technology
Requirements
What will we need?
Assess Current
Technology
Capabilities
Where do we stand?
Develop
Technology
Strategy
What will we do?
1A
1B
1C
1D
2A
2B
1C

Review Business Strategy and Objectives
R&D Strategy Review Business Strategy
• Need to understand exactly what the business is trying to do
• What are the bases of competition in our markets?
• How are we planning to do it, compete with the market
• Lowest costs – focus technology on process improvements
• Differentiation – focus technology on product differentiation
1A

Understand Needs for Applying Technology
R&D Strategy Understand Needs for Technology
• This is where the Bases of Competition Analysis comes in
•This is very hard, and requires a lot of work/knowledge of industry
• Understand what drives your customers to purchase your product and
what are the ‘basic, performance and excite attributes’ that will be able to
contribute to the top line
• Also understand those things, particularly product simplifying
technologies and process improvements which will drive the bottom line
and the technologies which support them
• With these two, you can understand all of the technologies that create
value for the businesses
1B

Examine Previous Years Information
R&D Strategy Examine Previous Years Information
• What were we going to do?
• What did we get done?
• What has changed?
• Where do we want to try to go next?
• How has our direction changed?
• How has our competitive position in technologies changed?
1C
What info?
What Are we
looking for?
Considerations
for
technology
Strategy
(new one or revision)

To make the best decisions, you must do a good just understanding
what is, and will be, happening with you customers and competition.
R&D Strategy Industry and Technology Trends
• What things within our industry are/will be important?
• What technology developments have occurred or are being worked on
that could have a significant impact on bases of competition or on our
competitive position?
• What are our customers needs and how are they changing?
• Where is everyone else investing their money?
• What other sources of technology exist in the areas where we require
help and how is their quality and terms for possible acquisition?
1D

Identify Technology Needs Required
R&D Strategy Identify Technology Needs
2B2A
Identify Technology
Requirements
What will we need?
An understanding must be had of both the current
competitive impact of each of the technologies, as well as
your position with respect to the market. Once this has
been completed, you can map it similar to the map on the
other side (see following page).
Assess Current
Technology
Capabilities
Where do we stand?
After getting an idea of what the future business
environment is, what customers are going to want and
how known technology areas are going to change in
importance, you can then develop your target state map
of these technologies which will support how you are
going to achieve this (see following page).

The Baseline Technology Competitiveness and Positions need to be
mapped. This enables the Target ones to be selected
R&D Strategy Assess Capabilities
2B
Pace
Key
Base
WeakTenableFavorableStrongLeader
A
C
B
X XBaseline Target (3 year, 5 year, select a planning horizon)
C
B
A
2A

Technologies can also be classified by their ability to impact.
R&D Strategy Competitive Impact of Technologies
Description Competitive Impact
Pacing Technologies
Potential to change the basis of technological competition
• Could change entire industry, but not yet embodied in a product or
process to a large extent by anyone in the industry
• These technologies ‘often’, but not always, become Key ones
Key Technologies
Embodied in products and processes, differentiated in leading
companies
• Technologies most critical to success because they offer proven
advantages in product or process differentiation
• Technologies yield an advantages with increased competence
Base Technologies
Essential, but known to and practiced by all competitors
• Technologies, that although necessary and essential to practice
well, offer little or potential for competitive advantage
• The technologies are typically widespread and shared. Past a
certain point, benefits of increased competence are not justified.
Those familiar with the Kano Diagram from Japan will recognize that
basis of logic in applying it to the area of science and technology.

In developing your Technology Strategy, the major objective of all of
the analysis is to allow you to take one of four actions for each area.
R&D Strategy Technology Decisions
Technology
A
Technology
B
Technology
C
Technology
D
Technology
E
Technology
F
Screening
Develop Acquire
Monitor Hold
Technology
F
Technology
C
Technology
B
Technology
D
Technology
A
Technology
E

The action groupings are completely independent, and inclusive of all
possible decisions to be made with respect to technology fields.
Though there is ‘Kill’ is not included in there, it is actually part of
‘Hold’, which shows current recognition but postpones investment.
R&D Strategy Action Definitions
Develop
Acquire
Monitor
Hold
These are the technologies that it makes sense to pursue
development on with your own internal resources or contracted
resources (example, paying someone else to work on this is
develop, since it is not being offered).
When a technology is commercially available (from supplier,
competitor or other party), and its acquisition makes more
sense than internal development, we refer to this as ‘Acquire’;
purchasing ‘Development’ capability belongs in ‘Develop’.
Technologies that could provide benefit in the future, or whose
development could be a threat belong in the ‘Monitor’ category.
Here resources are being allocated to watch the market and
competitors, understand the progress/results and inform others.
Current development areas where investment should be
stopped, with or without expectation future re-starts, or areas
that were considered and have been given a ‘red light’ rest in
the ‘Hold’ section, showing no action needed/resources spent.
1C

Develop Technology Strategy is the taking of one of four decisions
and a level of resource commitment with respect to a technology.
R&D Strategy Develop the Technology Strategy
1C
After these are decided how you are going to allocate resources in
priority and what specific projects will be undertaken.
Action Technology Resources
Develop
• Technology description need to be
spelled out so that what exactly is being
acted on can be understood
• Resources – this can
be priority, level of
commitment (hi/md/lo)
or a dollar amount
Acquire
• Technology 4
• Technology 5
• Technology . . . . . . . . .
• Priority 1-X of action
• High/Medium/Level
• Dollars to be spent
Monitor
• Technology 8
• Technology 9
• Technology . . . . . . . . .
Hold
• Technology 14
• Technology 15
• Technology . . . . . . . . .

Technologies, like industries, can be characterized by their maturity.
R&D Strategy Technology Stages
Technological Uncertainty Increases
Embryonic Growth Mature Aging
TechnologicalCompetitivePosition
Dominant
Strong
Favorable
Tenable
Weak
Technological Uniqueness Increases
ProbabilityofTechnological
SuccessIncreases
Note:
Circle size represents
budget needs Technical
Service to
Customers

Technologies can be thought of as ‘we know how to ……’
R&D Strategy Technology Unbundling
Area
“We know
how to…”
Sub Area 1
(science)
Sub Area 2
(science)
Sub Area 3
(science)
To complete the technology unbundling, you need to dissect each
area with respect to the sciences related to supporting technologies.

The typical organizational issues within the R&D function usually have
broader strategic issues needing to be understood and resolved.
Research & Development R&D Organizational Issues
Typical Organizational
Questions
• Should we centralize or
decentralize control of application
development?
• Should we integrate the R&D
ability of our recent acquisition or
manage it at arm’s length?
• What changes in organization
might reduce product
development lead-time?
• Should we establish a market
research capability within R&D?
• Where, geographically, should we
locate our R&D capabilities?
Underlying Strategic Issues
• Is R&D responding adequately to
business needs?
• Is R&D responding adequately to
corporate goals?
• Is R&D communicating effectively,
internally & externally?
• Is R&D attracting top scientists and
engineers?
• Is R&D using resources efficiently?

Organizing a R&D Department requires an understanding of the
benefits and disadvantages of different structural options . . . .
. . . all of which should be managed simultaneously, like a
five-dimensional chess game.
Research & Development Five Structural Elements of the R&D Organization
1 Internal/
External
Management must decide whether to expend internal R&D resources
to develop certain expertise, technologies, or products, or whether to
go outside for them. This is the basic analysis input for ‘make/buy.’
2 Funding
Control
Outside of actual physical distribution of R&D assets (number 3) is
the decision making authority on what gets funded. Coordination and
communication is key for the ‘corporate benefit’ to be optimized.
3 Concentrated/
Distributed
This is the age old question of ‘centralized’ versus ‘decentralized.’
Both have merit, but the weaknesses need to be evaluated with
respect to the particular situation of the company.
4 Orientation
Input/ Output
The question as to whether to organize people by product and
customer group (output) or technical or scientific disciple (input)
needed to be addressed. Both make sense, but balance is needed.
5
Balance Line &
Project
Management
Obtain ‘project’ results while optimizing and fertilizing ‘functional’ or
‘discipline’ knowledge requires the selection of one of three options;
the pure project, pure functional or a well-managed matrix org.
Source: Philip A. Roussel, Third Generation R&D, Harvard Business School, Page 126-142.

CEOs and R&D Managers can follow the following Seven Key
Practices to better utilize their R&D assets.
1. Create a common vocabulary for describing and characterizing R&D projects and
their objectives, allowing rigorous communication.
2. A process that jointly develops clearly articulated, mutually agreed-upon,
strategically evaluated project objectives, with clearly defined results.
3. A process for setting priorities and allocating scarce resources – capable of change
in response to market, strategic, technological, and competitive developments
4. A backlog of ideas
5. An aggressive approach to project design that addresses most significant technical
uncertainties as early as possible – that is, a willingness to ‘stand ‘em up and shoot”
6. A practical approach to individual project planning, reporting, measurement, and
control, aided by appropriate information systems
7. An appropriate project-team structure, composition, and authority – the professional
management of complex projects – along with the appropriate integrative
mechanisms
Research & Development Seven Key Practices

R&D Research & Development Strategy & Management

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