Research and Development

1

Lecture 5

Research and Development

Chapters 8 and 9

Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008

2

Best Practice in Innovation
 Understand customer & market needs. How?
 Culture of innovation> vision, leadership & support.
Commercial imperatives to innovate, flrxibility.
 Open innovation- collaboration model, partnerships
 Funding. Willingness to invest in R&D, balance
current and future needs.
 Execution. Commit resources, continuous
improvement, benchmark, goals, strategy.
 Creativity. Skills, knowledge base, learn, change
 Intellectual property. Manage and protect


3

Structure of lecture

1. Introduction
2. Background: The management of R&D within
organisations
3. R&D and the link with corporate strategy
4. R&D strategic planning
5. R&D operational activities
6. Allocating funds to R&D
7. Summary and recap


4

Nov 2007

US leads way as global R&D spending rises 10%

China and India both recorded growth of more
than 30 per cent, albeit from low bases – £766m
for China and £268m for India.


5

R&D in organisations: Expenditure in 2005

$bn % sales
Ford 8.0 5
Pfizer 7.4 15
Siemens 6.5 7
Johnson & Johnson 6.3 12
Microsoft 6.1 16
GlaxoSmithKline 5.7 14
Samsung 5.4 7
Nokia 4.7 11


6

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)


7

R & D in Pharmaceuticals

Research = basic experimental research
 Eg identification of possible chemical compounds

 Theoretical mechanisms

 Universities

Development = exploitation of discoveries
 Mainly private sector

 Proof of concept

 Safety testing (eg drugs)

 Delivery mechanism (eg how to administer a

drug)

8

R&D in Business
 Critical for marketing
 Competition has made R&D important
 Consumers trends, needs, demands
 No guarantees that higher spending on R&D will
lead to:
 high profits
 greater market share
 more creativity
 better products and services


9

Definition
 Investigative activities that a business makes a
deliberate decision to conduct
 Intention is generally strategic (future growth)
 Aim is to make a discovery that can either lead
to the development:
 new products or
 procedures, or
 to improvement of existing products or
procedures.


10

R&D in Australia
 $10.1 b of business spending on R&D in 2006-06
 Manufacturing $3.9b
 Property & business services $1.7b
 Mining industries $1.7b
 Mining R&D fastest growing
 In Australia in 2004-05, 119000 FT employed in
R&D activites
 Government direct funding + tax subsidies
 2007 – 6295 reported R&D expenditure

 Source: ABS


11

Government incentives & priority areas
 Allows companies 125% deduction on
expenditure
 Aim is to make firms more internationally
competitive
 ICT
 Biotechnology
 Food sector
 Nanotechnology


12

Examples of Aussie innovations
 Industrial refrigeration
 Ready-mix system of transporting concrete
 Use of polymer for printing money
 Synroc system for storing radioactive waste
 Black box flight recorder
 Mining software, equipment, processing
 Ultrasound scanners
 Cochlear implant


13

Innovation in consumer goods firms
 R&D is often associated with high-tech firms that are
on the cutting edge of new technology
 But many established consumer goods companies
spend large sums of money on improving old
products.
 For example, Gillette spends quite a bit on R&D each
year in ongoing attempts to design a more effective
shaver.

On average, most companies spend only a
small percentage of their revenue on R&D (usually
under 5%). However, pharmaceuticals, software
and semiconductor companies tend to spend quite a bit
more.

14

Why is R&D important?
 Crucial to survival
 Fast changing environment
 Continuous technology change
 Competition
 Changing consumer preferences
 Fundamental to “marketing”
 Advantage is markets come from:
 Understanding what markets need (MR)
 In case of technology – selling what is possible to
make
 Efficient production processes


15

Who are the Key Players?
 Companies
 Governments eg CSIRO
 Universities

 Future oriented
 Long-term activities


16

R&D in Industry
 More about application of old science and new
science to produce new products
 R&D is continuous process, difficult to define
start and end times
 Measure outcomes in terms of new products
 Large proportion of R&D in industry is technology
based
 The diversity of technology means no one firm
can gain expertise in all areas. So there is
greater reliance on alliances


17

Traditional R&D

 About gaining competitive advantage
 Technical developments in industries such as
chemical, electronics, auto, pharmaceuticals, was
responsible for economic growth of nations
 R&D was seems as a staged process: moving from
research to engineering to manufacture
 Large investments in R&D such as the space race,
which resulted in many products and fueled
economic growth


18

University vs Industry research
 Universities provide the fundamental and basic
research, which tends to be more general
 Universities concentrate on pursuit of knowledge
 Industry research focuses more on:
 product development
 new technologies
 understanding of technologies in existing products
 technologies in manufacturing
 application of knowledge for commercial purpose


19

Classification of research

knowledge and R&D continuum
concepts
Basic research
Applied research Close to market
Development
Technical service
Physical
products
Product tangibility
low high


20

R&D operational activities

Basic research
Work of a general nature intended to apply to a broad range
of uses or to new knowledge about an area.

Applied research
Work involving basic knowledge for the solution of a problem.

Development
The application of known facts and theory to solve a particular
problem through exploratory study.

Technical service
Cost and performance improvements to existing products,
processes or systems.

21

Components of R&D (1)
 Basic research:
 general in nature, apply to a broad range of uses
and technologies
 Universities and large corporations
 New scientific discoveries eg antibiotics

 Applied research:
 Apply existing principles to find new solutions,
application of science
 Moving basic research towards new products eg
Dyson vacuum cleaner


22

Components of R&D (2)
 Development:
 Focuses on products and commercialising these
 Several prototypes may be developed
 Design improvements occur
 Trials, modifications and improvements occur
 Technical service:
 Service support systems around existing products
and processes
 Cost and performance improvements
 Modifications to specifications to improve costs
 Marketing considerations


23

Business strategy
 A parallel support infrastructure required to
ensure business success
 Need to Match R&D to market realities and
opportunities
 Study and forecast state of the operating
environment
 Capacity to adjust to changes eg climate change
 Risk analysis
 Capability analysis


24

Integrating R&D to overall business
strategy
 R&D should not be independent of business
strategy
 R&D is part of the business support infrastructure
 AIMS:
 Provide support of existing businesses by keeping
them competitive and supporting efficiencies
 Drive new businesses and opportunities eg 3M’s
discovery of temporary adhesive led to creation of
Post-it notes.
 Broaden and deepen technological capability for
long-term benefits


25

Extended product life cycle

Basic Applied research: Development:
research: laboratory demonstration of ROI

Introduction
scientific verification application and
suggestion, product Revenue
engineering Growth
discovery,
recognition, Maturity
new concept. Decline

Investment

Accumulated investment

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


26

R&D expenditure (mean)
across industries
Industry %
Pharmaceuticals 15
Aerospace 5
Automotive 5
Chemicals 8
Electrical and electronics 7
Food 1.5
General manufacturing 6
Computers 12
R&D as % of sales = (R&D expenditure/total sales income × 100%)

Source: UK R&D scoreboard 2001, DTI (2002). Crown copyright material is reproduced with the permission of the Controller of Her Majesty’s Stationery Office and the
Queen’s Printer for Scotland


27

Classification of new product development
activities across different industries

Industrial products

Technological Pharmaceutical industry
activities
Electronics industry
Balance of
activities White goods and
domestic appliance industries

Marketing FMCG
activities
Food and drinks industries


28

Strategic management of research
and technology

What are we trying
to do in this business?

How can R&D
What will we
contribute?
support in R&D?

What are the costs,
What can we benefits and risks?
afford?


29

Strategic role of R&D

R&D and N.B It’s the businesses
its link with that pay for it
businesses

1. R&D for existing businesses.
This will ensure the businesses 3. Exploratory research.
are able to compete and to This helps to develop
exploit all opportunities understanding of technology
available to it. that the business is using
or may use.
2. Drive new businesses.
Business opportunities will
continually arise. R&D will
ensure that these can
be exploited.


30

R&D strategic planning means
developing a technology portfolio
• Core technologies
Central to all or most of the company’s products

• Complementary technologies
Additional technologies

• Peripheral technologies
Whose application contributes
to the business

• Emerging technologies
Long-term significance


31

Types of technology
 Core: central to most if not all products of
company. Eg photographic technologies are core
to the photocopying industry
 Complementary: eg microprocessor technology
and paper-handling technology in photocopying
(lifting, turning, stapling etc)
 Peripheral: eg computer software. The
photocopying industry is using software to add
features and benefits to its products, eg security,
emailing etc
 Emerging: In photocopying more use of
telecommunications as standard features, pdf


32

What to spend on R&D?

• Inter-firm comparisons
• A fixed relationship to turnover
• A fixed relationship to profits
• Reference to previous levels of expenditure
• Costing of an agreed programme
• Internal customer–contractor relationship


33

Key points from the lecture

 R&D can be managed and is managed
 Technology for today, tomorrow and the future
 R&D operational activities
 R&D Project evaluation


34

References

Roussel, P.A., et al. (1991) Third Generation R&D,
Harvard Business School Press, Boston, MA.
Trott P (2005) Innovation Management & NPD 3rd ed.,
Prentice Hall.
Twiss, B. (1992) Managing Technological Innovation,
Lithedin FT: Pitman publishing, London.
UK R&D scoreboard 2001, DTI (2002).


35

Chapter 9

Managing R&D projects


36

Introduction to Research & Technology
management
1. Introduction
2. Background: The Management of R&T within
organisations
3. R&D and the link with corporate strategy
4. R&D strategic planning
5. R&D operational activities
6. R&D project selection criteria
7. R&D evaluation
8. Summary and recap


37

R&D expenditure in 2003

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


38

Technology Risks

 Can technology be easily copied? How easy is it
for others to imitate?
 Can be managed via patents and copyright
protection
 Or through better management of branding,
distribution, marketing management
 Risks of uncertainty and volatility in technical
developments.
 Need capacity to change directions quickly, so
need expert staff


39

Extended product life cycle

Basic Applied research: Development:
research: laboratory demonstration of ROI
scientific

Introduction
verification application and
suggestion, Revenue
product engineering
discovery, Growth
recognition, Maturity
new concept.
Decline

Investment

Accumulated investment

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


40

R&D expenditure (mean) across industries

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

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

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


41

R&D strategic planning and a
technology portfolio
• Core technologies
Central to all or most of the company’s products

• Complementary technologies
Additional technologies

• Peripheral technologies
Whose application contributes to the business

• Emerging technologies
Long-term significance


42

Technology life cycles and S-curves:
Supercomputer

Communication bottlenecks

Multi-processor
Rate of Speed of light
computer
technological
progress
Single-processor
computer

Amount of effort

Source: Utterback & Abbernathy (1992)


43

Organising industrial R&D

Centralised laboratories
Internal R&D Decentralised laboratories

Internal market
Industrial
R&D
Contract
Collaborative
External R&D
Consortium


44

Technological collaboration

• Internal R&D is now only one of the many
technology development options available to
companies.

• The technology base of a company is viewed as an
asset that represents the technological capability of
that company.

• The focus of these new activities is on external
knowledge acquisition and assimilation.


45

R&D investment supports 2 business activities
The main business Licences and technology
activity transfer Technology based
diversification

Business 1
Corporate objectives Business 2
•objectives Unplanned projects worth exploiting
•strategy
•plans

Provision Projects warranting
Projects stated of funds modification of existing
selected to corporate to R&D corporate plans (B and Y)
meet corporate needs
needs (1–10)

Research and development
Allocation of funds to projects Loosely controlled
to satisfy corporate needs Unplanned value
funds
1 2 3 4 5 YX A B CD E no value
6 7 8 9 10 Z

46

Evaluating research projects

60 ideas are evaluated
for: Technical
feasibility Financial
feasibility Suitability

12 ideas worthy of evaluation
Number of through: Technical evaluation and
research market research analysis
ideas
6 potential products worthy of further
development and analysis

3 prototypes for technical and market testing

2 products launched

1 successful
product
Evaluation of research project ideas


47

R&D project evaluation criteria

• Technical
• Research direction and balance
• Competitive rationale
• Patentability
• Stability of the market
• Integration & synergy
• Market
• Channel fit
• Manufacturing
• Financial
• Strategic fit


48

How Pfizer’s Viagra almost slipped away

• Viagra one of the world’s most recognised brands
• A social icon with sales >$2bn
• An unintended discovery
• 13 years to market
• How to attract consumers without alienating them
• But impotence market was small!
• Why spend valuable R&D money on such a small market?


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