Managing R&D Projects - Topic 6 Chapter 9 PDF

Slide 9.1 Chapter 9 Managing R&D projects Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.2 Trott, Innovation Management and New Product Development, 5th Edition, © Pearso...

Slide 9.1 Chapter 9 Managing R&D projects Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.2 Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.3 Successful technology management Companies do not have a completely free choice about the way they manage their technologies (Pavitt, 1990: 346) In many areas it is not clear before the event who is in the innovation race, where the starting and finishing lines are, and what the race is all about. Even when all these things are clear, companies often start out wishing to be a leader and end up being a follower! Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.4 Successful technology management There are 2 key technology risks that managers need to evaluate. First, ‘the appropriate risks’ reflect the ease with which competitors can imitate innovations. These are managed through patent and copyright protection or through controlling complementary assets (such as branding, distribution, specialised services etc). Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.5 Successful technology management The second risk is ‘competence destruction’. This reflects the volatility and uncertainty of technical development that vary greatly between technologies, both in terms of the technological trajectories being followed and market acceptance. When technological uncertainty is high, it is difficult to predict which investments and skills will be effective and firms be able to change direction at short notice. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.6 The changing nature of R&D management The past 10 years have witnessed enormous changes in how companies manage their technological resources especially in their R&D. The 3 key factors contributed to these changes are: Technology explosion – an estimated that 90% of the present technical knowledge were generated during the past 60 years. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.7 The changing nature of R&D management  Shortening of the technology cycle – the cycles have been slowly shortening, forcing companies to focus their efforts on product development. E.g. cars manufacturers shorten their models from 10 year in 1960 to 3 years in 2000s.  Globalisation of technology – east Asian countries have demonstrated an ability to acquire and assimilate technology into new products. This has resulted in substantial increase in technology transfer in the form of licensing and strategic alliances. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.8 The changing nature of R&D management In addition the following specific changes are facing R&D managers today: The increasingly distributed and open nature of networked research and innovation; The growth of externally sourced R&D within firms; Overcoming barriers towards the increased productivity and effectiveness of R&D; Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.9 The changing nature of R&D management The continued globalisation of R&D, particularly in terms of its spread and reach, associated with R&D offshoring; The relative shift from manufacturing-centred R&D towards more service-oriented R&D; R&D projects are managed by continuous feedback and information evaluation from stakeholders and sponsors. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.10 The changing nature of R&D management Figure 8.3 shows the traditional areas of research activity for universities and industry. University emphasise on discovering new knowledge and industry exploiting these discoveries. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.11 Figure 9.1 Acquisition of external technology/knowledge matrix Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.12 The changing nature of R&D management However, the effect of these macro-factors is a shift in emphasis within industrial R&D from an internal to external focus. The Japanese (after 2nd World War) has been successfully acquired and utilised technology from other companies around the world. Granstrand et al. (1992) suggest that the external acquisition of technology exposes technology managers to new responsibilities. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.13 The changing nature of R&D management Given the growing use of external sources of technology, the R&D manager has to determine which form of R&D is most appropriate for the organisation (see Figure 9.2). For internal R&D, organisation needs to consider whether it should be: – Centralised laboratories – Decentralised laboratories – Internal R&D market Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.14 Figure 9.2 Organising industrial R&D Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.15 The acquisition of external technology There is a significant difference between acquiring externally developed technology and external R&D. This difference lies in the level of understanding of the technology involved, often referred to as prior knowledge. E.g. the purchase of new computer software will lead to the acquisition of new technology; irrespective of their prior knowledge of technology. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.16 The acquisition of external technology However, developing an R&D strategic alliance or an external R&D contract with a third party requires a high level of prior knowledge of technology concerned. Additionally, the level of prior knowledge of the external third party also influences the choice of method to acquire the technology concerned. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.17 The acquisition of external technology Level of control of technology required In acquiring externally developed technology, a business must also consider the extent of control over the technology that it requires. E.g. if a research project shows promising results for new product, the business would want to keep such research close control and internal. However, if a project requires expertise in area of technology beyond the scope of business, ideally it suited a research contract with the university (see Figure 9.3). Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.18 Figure 9.3 Technology acquisition: how much control of the technology is required? Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.19 The acquisition of external technology Forms of external R&D There may be occasions when the company does not have the in-house expertise to undertake the research. In this case some form of external R&D will be necessary:  Contract R&D  R&D strategic alliances and joint ventures  R&D consortia  Open source R&D Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.20 The acquisition of external technology Forms of external R&D – continued Contract R&D In a situation where the business has a low level of understanding of technology, contracting the R&D to a third party is most suitable, such as contracting to the university. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.21 The acquisition of external technology Forms of external R&D – continued R&D strategic alliances and joint ventures For strategic alliances, this was discussed in Chapter 7. With a joint venture, the costs and possible benefits from an R&D project would be shared. They usually established for a specific project and will cease on its completion. E.g. Sony-Ericsson, both were former competitors but were able to share their expertise and reduce costs associated with any R&D project. The disadvantages are either company could inadvertently pass knowledge to the other and receive little in return. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.22 The acquisition of external technology Forms of external R&D – continued R&D consortia In Japan, the called it keiretsu (societies of business) consisting of 20-50 companies involving suppliers, distributors and final product producers. In Korea, chaebols are based on family ties and are financed by the government, not the bank or trading company. In Europe, the European Union offers a number of programmes to encourage R&D cooperation. In US, there are 200 R&D consortia. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.23 The acquisition of external technology Forms of external R&D – continued R&D consortia – continued The main disadvantage is the potential for reducing competition. The US and EU government spend a great deal of time and money trying to detect those organisations operating a cartel. As such, R&D consortia are closely monitored and have to be registered. The main advantage is the ability to reduce costs and risks, the ability to access technologies and to influence industry standards on new technology. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.24 The acquisition of external technology Forms of external R&D – continued Open source R&D The term ‘open source’ derived from open source software development which has resulted in many ‘free to use’ software application such as, web browsers and emails. Wikipedia is another example of open source encyclopedia. Think Cycle is an open source aeroplane design. Open source is a ‘giant’ focus groups that involve thousand of people feedback or solutions and allows ideas to build cumulatively. It depends on people who are articulate, passionate and enthusiastic. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.25 The acquisition of external technology Forms of external R&D – continued Open source R&D In some ways open source can be thought of as a suggestion box scheme – albeit one with a giant transparent box. A topic is posted on a website, and anyone form industry experts to members of the public can contribute to the solution. Everyone is transparent in the sense that all ideas are shared and discussed in public. In some instances, people will do this for nothing, while in others they will ultimately have to be paid in some way. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.26 Effective R&D management Skunk works Technology-intensive companies recognise that if they are to attract and retain the best scientists they have to offer scientific freedom. Moreover, experience has shown that scientists will covertly undertake these projects if autonomy is not provided. The designation "skunk works" or "skunkworks" is used to describe a group within an organization given a high degree of autonomy and unhampered by bureaucracy, tasked with working on advanced or secret projects. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.27 The link with product innovation process The accumulation of knowledge is the key part of R&D process and the process of developing new products. Often, R&D and new product development is viewed as separate subjects. They are in fact interlinked. This is known as extended product life cycle (see Figure 9.5). Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.28 Figure 9.5 Extended product life cycle Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.29 The link with product innovation process Accumulated investment – Consists of total financial investment spent on the R&D initial research to product introductory stage. This includes the applied research, development and application of the product. A company requires financially investment for basic research that is carried out by their R&D department. This includes investment on equipment, patent search, market survey, etc. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.30 The link with product innovation process Investment – when company discovers a new concept or product, more money is invested in the laboratory for product verification and development. This investment must be sufficient up to the product introductory stage. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.31 The link with product innovation process Return of investment (ROI) – also known as the positive payback period of investment on product development. Different products have different ROI. E.g. Mobile phone vs cereal. The company target product life cycle will determine the time horizon over which it should expect to see a positive return on product development investment. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.32 The link with product innovation process Revenue – it concerns with how much the new products raise after expense. Company aims to reduce the time of new product to market, improve product quality, reduce prototyping costs, identify potential sales opportunities and revenue contributions, and reduce environmental impacts at end-of-life. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.33 Evaluating R&D projects Figure 9.6 shows how project ideas are dropped out. The remaining 3 will receive the project funding for prototypes and market testing. Subsequently, 2 remain for product launch and lastly, 1 is successful. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.34 Figure 9.6 Drop out rates for R&D projects Source: Adapted from D.L. Babcock (1996) Managing Engineering Technology: An Introduction to Management for Engineers, 2nd edn, Prentice Hall, London. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.35 Evaluating R&D projects Evaluation criteria Cooper (2001) identifies 3 broad categories of screening methods: 1) Benefit measurement models 2) Financial/Economic models 3) Portfolio selection models Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.36 Evaluating R&D projects 1) Benefit measurement models These models are derived from a group of well informed and experienced managers identifying variables shown in Table 9.3. by making subjective assessments of the project. Comparisons of projects are scored by mathematics, scoring, and decision-trees. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.37 Table 9.3 R&D project evaluation criteria Source: Adapted from Seiler, R.E. (1965) Improving the Effectiveness of Research and Development: Special Report to Management, McGraw-Hill Book Company, New York. © The McGraw-Hill Companies, Inc. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.38 Evaluating R&D projects 2) Financial/economic models Financial and economic model is used to analyse project planning and evaluation. It provides a partial view of projects which complements analyses by technical, social and environmental specialists. The purpose is to determine, as accurately as possible, the costs, benefits, efficiency of resource use (especially the financial and economic return on investments), in order to facilitate certain decisions which have to be made throughout the project cycle. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.39 Evaluating R&D projects 2) Financial/economic models The use of financial formulas are used to assess the projects. These models have limitations. First, its inherent short-term bias. Second, limited accurate future financial data, which lead to inaccurate estimates of future revenues. Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.40 Evaluating R&D projects 3) Portfolio selection models These models attempt to find ideas that ‘fit’ with the business strategy and attempt to balance the product portfolio. They consider a business’s entire set of projects rather than viewing new research projects in isolation. Projects are viewed by: Newness – how new is the product? Time of introduction – is the new product portfolio going to continuing or stop after launching? Markets – are the different markets and business areas of the company receiving resources same as the size and importance? Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013 Slide 9.41 Technology in the eye of an expert Stephen Hawking: ‘Artificial Intelligence Could Spell The End Of The Human Race’ https://www.yahoo.com/tech/s/stephen-ha wking-artificial-intelligence-could-1500244 78.html Trott, Innovation Management and New Product Development, 5th Edition, © Pearson Education Limited 2013