Development of Concepts for R&D Management R&D in an Individual Enterprise

2nd Generation R&D Management 2

Paradigm 2, 1970s s Perceived failure of technology-push thinking Flatter R&D budgets Move in management thinking and practices towards ‘market focus’ Decentralization and business unit dominance 3

2nd Generation R&D Management 2nd Compared to 1st Generation Biggest difference (2nd versus 1st): in 2nd generation joint consideration by business managers and R&D managers concerning – project costs over their lifetimes – projects’ impact on business – projects’ uncertainties, management, execution, etc Both (1st and 2nd) recognizing the discrete project-nature of R&D 4

2nd Generation R&D Management Customers to R&D The business or the corporation is made to be ”external” customers for R&D practitioners; R&D management remains as the ”internal” customer 5

2nd Generation R&D Management Project Management Emphasis on project-by-project management versus aggregate management Matrix management of projects Increasing responsibility of project managers Combined business insight and R&D insights at project level 6

2nd Generation R&D Management Interrelationships and Communication Enhancing interrelationships among organizational functions Improvement of communication between business and R&D 7

2nd Generation R&D Management Projects versus Corporate Level Good results on a project-by-project basis does not necessarily bring the optimum strategy in the corporate level Neglecting the interrelationships among projects within a business, across businesses, and in the corporation as a whole 8

2nd Generation R&D Management Problems in Project Selection Difficulty to optimize R&D resources for the corporation as a whole: how to decide between Project A and Project B What about projects important in the corporation level but not directly related to the existing businesses? 9

2nd Generation R&D Management Managing Each Project or Managing All Projects Portfolio management concept missing Only partial strategic framework for the R&D function 10

Portfolio Management Determining the mix of assets to hold in a portfolio is referred to as portfolio management A fundamental aspect of portfolio management is choosing assets which are consistent with the portfolio holder's investment objectives and risk tolerance. The ultimate goal of portfolio manage- ment is to achieve the optimum return for a given level of risk. Investors must balance risk and performance in making portfolio management decisions 11

2nd Generation R&D Management Buying R&D from Outside A limitation: the R&D ”customer” can not buy outside services if internal services are available 12

2nd Generation R&D Management Measuring Results Results measured by quantifying the costs and benefits of each project Difficult to quantify in the early stages of the project Monitoring results against milestones and objectives Formalized peer-review systems – internal experts – external experts 13

2nd Generation R&D Management Long-term View Weak Market intelligence gap in long-term R&D – Marketing: ”If you can tell us what you expect to achieve, we can tell you what the market might be.” – R&D: ”If you can tell us what the market will value in five years, we will be in a better position to give the market what it wants.” 14

2st Generation R&D Management Fundamental R&D (R&d) Funds provided centrally by the corporation or the division The amount of funding based on how much ”the company can afford” Amount of fundamental R&D often an (arbitrary) percentage of the total R&D budget Priorities set by central R&D management 15

2st Generation R&D Management Radical R&D (R&D) Funding by the business and the corporation to share risks Amount of funding depends a) on the needs of the existing businesses and b) on the importance that the new businesses or technologies have to the corporation Priorities set jointly by the ”customers” and ”suppliers” of R&D 16

2st Generation R&D Management Incremental R&D (r&D) Mostly done at business unit level Funding negotiated between business managers and R&D managers Aggregate allocation done in the context of the yearly budget 17

2nd Generation R&D Management Organizing R&D in General Project manager is responsible for what, when, and at what cost Line manager is responsible for by whom and for the quality of the output 18

2nd Generation R&D Management Transition Stage in R&D Management Transition from 1st generation to 3rd generation R&D management From intuitive to purposeful management 19

2nd Generation R&D Management General Principles Customer-supplier relationship between R&D and the businesses Matrix management of projects Integration is missing in the corporate level 20

Thank you! Acknowledgements Main source: Roussel, P.A. & Saad, K. N. & Erickson, T. J. (1991) Third Generation R&D: Managing the Link to Corporate Strategy, Boston, Massachusetts, USA, Harvard Business School Press, 192 pages. 21