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A new economics and integrated business model is possible.
Research and Development
R&D Under Management's Microscope From "International Management", February
1979, David Clutterbuck, Associate Editor, page
18-22
Research and development (R&D) has traditionally escaped many of tile management controls imposed on other corporate functions because of the supposed difficulty of applying them in a creative environment. Now, however, R&D is coming firmly under the management microscope. Companies are attempting to draw it much more into the mainstream of corporate activities. They are designing productivity and control procedures specifically tailored for their research departments. The reason is the escalating cost of R&D. Although some considerable increases in productivity in the laboratory have been brought about by the introduction of computers, research remains highly labour-intensive. One estimate, for example, puts salary expenditure on researchers and support personnel at nearly 60% of total R&D spending in the US chemicals, instrument and car manufacturing industries. As a result, R&D is extremely sensitive to wage inflation. And the rising level of skills required by sophisticated research units is pushing these costs even higher. At the same time, the expensive equipment and instrumentation needed for pioneering research is also raising costs. The need to meet rigorous government health and environmental requirements is another strain on research resources. According to Richard Schulz, director of the European Industrial Research Management Association (EIRMA) in France, "pharmaceuticals, chemicals, foods and car companies in particular are being forced to spend more and more of their research budgets on meeting new regulations." The immediate response may be to cut back on real R&D expenditure. "Research is one of the easiest departments in which to save money without immediate effects on an organization," says Dr. J.G. Wissema, a management consultant with Netherlands-based Bakkenist, Spits & Co. Even a rise in an R&D budget may actually represent a fall-off in effort. "For example," says Wissema, "the chemicals industry in the US is really toning down its R&D spending, although the actual amount of money is marginally up. With the increased cost of services and labour, the number of people in chemicals research may actually fall." But a cut-back in R&D effort can lead to product obsolescence and a loss of market share in the future. Rather than risk making hasty cuts that they may regret later, many companies are attempting to optimize the effectiveness of their R&D departments. The introduction of management controls into R&D, however, does not have a happy history. A study on R&D productivity by Hughes Aircraft Co. in the US suggests that efforts to establish management by objectives (MBO), a system in which subordinates agree goals with their superiors and performance is monitored at regular review sessions, in research departments have frequently failed. New techniques are obviously needed. One company that has combined tight managerial control of R&D with successful product innovation is US-based coatings manufacturer Dexter Corp. Over the past five years a flood of new products has helped the company expand 250%. "About half of our products have been introduced in that period," says Dexter's president, Worth Loomis. One of the most important R&D control mechanisms Dexter has introduced is its "innovation index." Developed by corporate adviser Milton Glaser, the index is a way of assessing whether a project will succeed, and if not, where its faults lie. Glaser
devised the index after analysing a large number of Dexter's past
research projects to isolate common causes of success or failure. At
regular intervals during a research project either Glaser or the
responsible divisional head of R&D scores the project on each of the
eight factors. · Scientific and technical competence (maximum value 20 points). Are the research workers both adequately skilled and well motivated? Do they have a record of good innovation? · Effective communication (maximum value 20 points). Are the technical and marketing people who are working on the project co-operating? Do they understand each other's problems? Are the technical people in constant contact with the customer? · Presence of a "champion" (maximum value 15 points). Is there a senior manager who will help push the project through against any opposition or difficulties? · Does the project fulfil a real market opportunity? (maximum value 15 points). · Is there a real opportunity for technical innovation? (maximum value ten points). · Top management interest (maximum value ten points). Is the company sufficiently committed to the project to provide it with the resources it needs? · Competition (maximum value five points). Are competitors working on similar projects of their own? Competition can be a spur. The tougher it is, the higher the score. · Timing (maximum value five points). How much lead time can be gained over competitors? Is the market ready for the products?
Dexter calculates that its percent age of successful innovation projects has risen from 10% to 50% through using the index. The time spent on research has also declined markedly. Dr. Albert Paolini, a divisional vice-president for R&D, comments: "We have just produced a water-based epoxy coating for two-piece and three-piece cans in one year. Such a project would normally take two years at least." Dexter's innovation index, however, is concerned only with monitoring existing projects that have already been sanctioned by senior management. It cannot help in assessing a company's overall R&D effort. One attempt to help senior executives do this has been made by management consultant Wissema. He advises companies to make an annual appraisal of their R&D activities and has designed a grid system to help identify where gaps need to be filled or where there is over-commitment.
One axis of the grid divides research projects into those dealing with products, processes or operational procedures. The other axis divides them into those that will enhance existing products, processes or procedures, those that will replace existing ones, and those that will result in something completely new. Each box of the grid is subdivided into four types of research: basic research; research taking existing knowledge a stage further; applied research; and "assembly research," or fitting together of proven developments from a number of different sources to produce something new. Allocating an R&D budget according to this analysis, Wissema maintains, should ensure that companies do not unwittingly create an unbalanced research mix. Strict management control based on tight systems is not the only answer to optimizing R&D output, however. As Dexter's eight factors show, considerable weight has also to be given to communication and co-operation, both within the R&D department itself and between it and other functions. This can extend even to the general working environment. The traditional laboratory building, with long corridors of closed doors is not conducive to co-operation, maintains Gordon Edge, director of Patscentre International, the research arm of UK-based PA Management Consultants Ltd. "Where you have long corridors, people don't speak to each other," he explains. "The distance people will walk to talk to a colleague is very small," says Dr. Charles Parker, a former R&D director who is now analysing the factors that influence successful innovation for the UK's Ashridge Management College. "If the laboratory is not designed so that researchers can get together easily, you have to arrange for them to meet frequently in other ways, in the canteen, for example." Patscentre's own laboratory building has been designed to allow maximum communication among research workers. The laboratories are arranged in pairs, divided only by a glass wall. "Because people can see through to each other," says Edge, "it creates a tremendous familiarity with other teams' activities". As a result, he says, they are constantly able to make useful suggestions on colleagues' projects. A number of companies are now attempting to institutionalize this type of cross-fertilization in their R&D departments. According to EIRMA's Schulz, more and more companies are using matrix arrangements to distribute projects among research staff. Rather than parcelling out individual pieces of a project among different departments, they are creating ad hoc teams whose members report to both their departmental manager and the project leader. Apart from improving communication, this type of arrangement can also save on numbers of researchers. US oil giant Exxon Corp. has in' fact organized all the basic research at its Central Research Laboratories (CRL) along these lines, with emphasis on a multi-disciplinary approach. Small groups of diverse specialists are set up to cover general research areas. Individuals from these groups are also formed into matrices for special projects. The output from research is also likely to be more effective if there are good communications between R&D and production and marketing, Patcentre's Edge advises. According to Schulz, the growing awareness of the need for improved inter-departmental communications is one cause of the current trend in some Western European countries towards attaching small R&D laboratories to the shop floor. This, it is believed, is more effective than large, centralized research facilities. West German electricals firm Siemens AG tries to keep marketing and research in touch through a constant flow of information between them. An initial R&D project proposal outlines not only the technical specifications but also the kind of market the product is intended for and how it will be used. Another method of increasing the commercial awareness of research staff is to ensure that they meet potential customers personally. Coatings firm Dexter insists that research staff spend part of their time talking to end-users about their requirements from new products. "This time can take up a considerable part of the R&D budget," says Loomis, Dexter's president. "And we get complaints from research people that they could be getting on with their research work instead." Nevertheless, the company believes that this regular contact with the market-place helps researchers keep project goals clearly in mind. Siemens also provides its researchers with market feedback. And in the UK, electronics firm EMI Ltd. tries to involve R&D staff in initial market studies before a project is approved. Awareness of the outside world and of other departments can also be encouraged through moving away from traditional career paths. Explains Wissema: "It is perfectly normal for companies to switch people from research to production or from production to commercial departments. But you hardly ever see people from production or marketing going back into research. As a result, senior research people usually don't have the broad back-ground that makes them commercially oriented." A common solution to this problem is to attach a non-scientist to a research team. He will be attuned to the needs of other departments and can shoulder many of the administrative duties for which scientists may not be suited. Both the Hughes Aircraft report and R&D analyst Parker recommend a parallel career development path, where scientists have one clearly defined career progression and the laboratory administrators another. At Exxon's CRL, for example, scientists have a dual promotion ladder. They may advance through the conventional management route or on the basis of their research talents. From being a group head, a researcher can either become administrative head of one of CRL's five laboratories or take on the prestgious title of scientific adviser, lending his research expertise to a wide range of activities. Patscentre has a similar scheme with its senior consultants college. "The titles director and manager don't represent status in our organization," says Edge, "just that someone is good at managing. It helps prevent people wanting to be promoted out of R&D simply to get the status they think they are entitled to." At Patscentre, a high-calibre research team may have a relatively junior executive as project manager. Because of the creative nature of research work, one of the most vital aspects of ensuring effective output is finding the right combination of individuals within an R&D department. The Hughes Aircraft study of R&D productivity, which surveyed over 2,000 senior researchers in 59 organizations, cautions: "While few individuals are indispensable to an organization, certain groups or combinations of individuals frequently are." Management consultant Wissema has identified four personality types that are essential to a creative and innovative R&D department: Generators. These are people who are full of ideas. They view reality from a different angle to ordinary people and have a natural curiosity. Integrators. These are individuals who have few ideas of their own. They do, however, pick up the ideas of others and integrate them into a proposal or theory that makes sense to other people. They have a good memory, work hard and are systematic. Developers. These personality types follow up the proposals of integrators. They are obsessed by the idea of creating something. Often, the subject of their efforts becomes a "a sacred cow," whose fate they see as linked with their own. Perfectors. These people will improve the quality and lower the production costs of anything given to them. Perfectors are good administrators. They consolidate an innovation and expand its scope. One reason that many research organizations are not sufficiently productive, says Wissema, is often because of poor communication between these personality types or because management has assigned a one-sided mixture of personalities to a particular project. "The value of integrators, and especially generators, is often not recognized or is even ridiculed," he says. "It is a wise manager who tries to benefit from their capabilities by giving them specific roles and getting these roles recognized by their staff." Sometimes, however, senior management needs to intervene directly in the research function to obtain results. Swedish engineering company ESAB AB, for example, often finds researchers hold on to projects to do "just one more experiment" to improve a new product when what is really needed is to get it on the market as quickly as possible. When ESAB established a joint company, Sarclad International Ltd., with British Steel Corp., to develop a new welding technology, it was determined to cut product development time. Dr. Kenneth Ridal, executive director of Sardad, believes that research departments hold on to projects because of a fear of taking risks. They want to perfect the product and protect themselves from any criticism from production or marketing departments. "In general, though," says Ridal, "you do not want R&D people to play safe. You want them to back their judgement." At Sarclad, Ridal cut out laboratory testing altogether. Convinced that the theory would work, he went straight from the theory to a pilot plant in the UK. The new technology was to be proven at the same time as the plant produced saleable welded steel rolls. In the event, the sale of pilot production covered more than 80% of development costs before Sarclad began marketing its new technology. One of the keys to this success was Ridal's choice of foremen. He appointed young science and engineering graduates who would become emotionally involved in the project. Another company that operates along similar lines is US computer manufacturer Data General Corp. According to president and chief executive Edson de Castro, "innovation flourishes in our company because we try not to structure our environment." With an R&D staff of 500, Data General brings out an enhanced or totally new product every 15 days on average. Seventy-five percent of these arise from ideas generated in its own laboratories. The company allocates research projects to small teams, who divide the work among their members themselves. Normally, a team will do everything from circuit design to materials testing and designing packaging. Researchers have considerable freedom to select for themselves the projects they will work on, as long as these fit within broad company objectives. Individuals are also given the opportunity to follow through their own ideas. "We try to leave the development of an idea with the man who thought of it," says Carl Carman, engineering vice-president. "We keep him at the focal point, even though he may not have much experience or weight. He is the man who believes in it most strongly." David Bernstein, for example, had been with the company R&D department only two years, straight from university, when he came up with a new computer design which is now one of Data General's main selling lines. Despite his lack of experience, Bernstein was made project leader. As the project gained in importance, the group under Bernstein met weekly with a top-level management team, including de Castro. The executives gave advice and helped smooth out any problems of co-operation and communication with other departments. Not all the flood of ideas from an R&D department can be used by a company. Data General, for example, recoups some of its research expenditure by licensing ideas it cannot use itself. Although many companies have licensing departments, however, few go to much trouble to ensure they know all the viable ideas that are produced in their expensive research laboratories. One organization that has unrivalled experience in this kind of innovation-gathering is the US National Aeronautics & Space Agency (NASA). NASA spends $10 million annually on monitoring and distributing the results of research it has funded in universities and companies. At each of its eight field centres, where NASA develops some of these ideas itself, there is a technology utilization officer to help in the dissemination of innovations. Louis Mogavero holds this post at NASA headquarters in Washington. He believes that industry can learn a lot from how the agency transfers technology, and he suggests the following check-list for companies wanting to squeeze the last drop of productivity out of their research. · Install a rigorous system that forces people to report innovations. · Make sure supervisors are aware that reporting new ideas is part of everyone's job. · Reward the innovator. The most effective way is through allowing him the acknowledgement of his peers. · Set up an independent division with the sole task of exploiting "spin-off" ideas. The future will see an increasing desire by companies to bring R&D more directly in line with corporate objectives and to learn from others' experiences of R&D management. And yet, even as this is happening, another trend is emerging. Says R&D analyst Parker: "There is increasing emphasis now on acquiring small companies with an innovative product as an alternative to using corporate R&D resources. It is generally less risky. And it can also often be much less costly." David Clutterbuck, Associate Editor, International Management, February 1979 2005 http://www.clutterbuckassociates.com "A new Information Revolution is under way.
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