Internal Acquisition: R&D Management: Technology Management Activities and Tools

Internal Acquisition: R&D Management
Technology Management Activities and Tools
Contents

Why R&D? Project types Project portfolio Assessment of projects Project selection
Why R&D?
Discuss:
Advantages and disadvantages of R&D
R&D 1000, 2005
Kaynak: DTI, 2006
Research and development
Making good decisions requires knowledge, and the systematic creation, retention, and application of this knowledge requires a targeted process. 2 types of knowledge:
domain-specific,
generalizable knowledge context-specific, system knowledge
Absorptive capacity and R&D investment (Cohen and Levinthal, 1990)
R&D must satisfy: new knowledge + absorptive capacity 3 classes of industry-level determinants of R&D intensity:
Demand Technological opportunity Appropriability
Absorptive Capacity
An ability to recognize the value of new information, assimilate it, and apply it to commercial ends. Firms with internal R&D are better able to use externally available info. Absorptive capacity might be a byproduct of a firms R&D or a firms manufacturing operations or directly by training.
Absorptive capacity
Own R&D
Technical knowledge
Spillovers of competitors knowledge Extraindustry knowledge
Steps in R&D
Discuss: What are the decision processes involved in R&D management
pre-project
or front-end planning project execution post-project learning
1) deciding on the mix and proportion of project types, highlighting what individual projects are intended to accomplish. 2) providing and allocating resources. Compute the implied capacity utilization and make the adjustments to bring supply and demand into balance. 3) measurement & evaluation
R&D Project types
Project types:
3 central ones are commercial development projects: derivative/enhancement/hybrid platform/next generation unique/radical
Source: Adapted from Wheelwright and Clark (1992)

More
Research and advanced Development projects
Process change Next generation process Addition to product family
Less
New core process Breakthrough Projects
Derivaties and enhancements
More
New core process
Product change
Next generation process
Platform projects
Single department upgrade
Derivative projects
Less
Incremental change
Technology types
CLASSIFICATION OF THE COMPETITIVE POTENTIAL FOR TECHNOLOGIES
Low,but essential
ENABLING TECHNOLOGIES
PRESENT
Competitive Impact
High, a driver Of cost or differentiation
CRITICAL TECHNOLOGIES
TECHNOLOGY Proven and Could be high FUTURE Potential Competitive Impact Unproven but promising
PACING TECHNOLOGIES
EMERGING TECHNOLOGIES
Source: Lindsay (2000)
Product-process innovation
Source: Utterback, 1994
Stage-gate tool
Source: Cooper, 2008
Project portfolio
Objectives of portfolio management (Cooper and Edgett, 1997):

(1) maximizing the value of the portfolio (2) achieving the right balance and mix of projects (3) linking the portfolio to the business' strategy
Portfolio management problem:

uncertain and changing information dynamic opportunities multiple goals and strategic considerations interdependence among projects multiple decision makers multiple locations The problem is one of constrained optimization under conditions of uncertainty: a multi-project, multi-stage decision model solved by mathematical programming
Maximizing the value of the portfolio

Expected Commercial Value Decision tree analysis (future stream of earnings, commercialization costs and development costs) Take the ratio of what it is trying to maximize - namely the ECV -- divided by the constraining resource, namely the capital cost per project. Projects are rank-ordered according to this ratio.
Productivity Index The Productivity Index = [ECV *P[sub ts] -R&D]/R&D ECV is a probability-weighted stream of cash flows from the project P[sub ts] is the probability of technical success R&D is the R&D expenditure remaining in the project Projects are rank-ordered according to this index in order to arrive at the preferred portfolio.
Dynamic Rank Ordered List Rank-order according to several criteria (such as internal rate of return) concurrently Take the mean of multiple rankings Scoring models A list of criteria is developed to rate projects Projects are then rated by evaluators on each criterion These scores are multiplied by weightings Scores summed across all criteria to yield a project score for each project.
Issues in maximizing:
The dependence on financial and other quantitative data. Does not look at the balance of the portfolio All methods lack the optimal balancing and aligning with the strategy.
Achieving the right balance and mix of projects
Visual charts were favoured for displaying balance in new-product project portfolios. These visual representations include the portfolio maps or bubble diagrams which are an adaptation of:
the four-quadrant (star, cash cow, dog, wildcat) diagrams, traditional pie charts and histograms.
COMPANY PORTFOLIO MATRIX
Market Dominance
Low
High
Stars
High
Market Growth
Low
Problem Children
Dogs
Cash Cows
COMPANYS ABSOLUTE STRENGTH
Infancy Leader
Companys Relative strenght
Early Highly Partially Well development developed developed refined
MEDIUM
HIGH
LOW
HIGH
Industry Average
LOW
LOWEST
LOWEST
MEDIUM
Follower
Obsolete
Mature
Evolving
Embryonic
TECHNOLOGY MATURITY
Any pair can be the X and Y-axes for a bubble plot:

Fit with business or corporate strategy. Inventive merit and strategic importance to the business. Durability of the competitive advantage. Reward, based on financial expectations. Competitive impact of technologies (base, key, pacing, and embryonic technologies). Probabilities of success. R&D costs to completion. Time to completion. Capital and marketing investment required. Risk / return
Issues in balancing:
They rely on substantial financial data when often these data are either unavailable or, at best, uncertain There is the problem of information overload. These methods are not decision models. It was not clear what the "right balance" of projects was. It wasn't clear in every case what one did with the charts and maps.
Linking the portfolio to the business's strategy

Strategic fit Spending breakdown
Strategy -- R&D
Strategic objective:
Knowledge building (fundamental, basic, exploratory research) Strategic positioning (focused applied research) Business investment (development and engineering) Differentiation Cost Focus
Operational strategies:

Two general approaches to achieving strategic alignment
Building strategic criteria into project selection tools Top-down strategy models:
Strategic
Buckets Model StratPlan or Strategic Check (such as scoring model or financial criteria)
Assessment of projects & selection of projects
Some project selection techniques:

1) Intuitive individual or group evaluations and selections 2) check lists 3) merit numbers 4) benefit-cost index methods 5) risk analysis models 6) risk-return profile 7) statistical decision analysis models and mathematical programming techniques
Limitations of selection techniques:
Guestimates low participation of the management snapshot view of projects unavailability of resources and a project champion wish to maintain the status quo unwillingness until common acceptance of technologies political considerations discouraged team members due to delays of long approval times
Funding R&D

R&D as a necessary cost of business R&D as an investment
Post-project tasks: learning
learning from experience means learning from development projects. BUT, organizational learning is not a natural outcome of development projects. 2 problems in general:
1) the performance that matters is often a result of complex interactions within the overall development system. 2) incentives in the organization favor pressing forward to the next project not recording.
Two most common problems firms have in R&D Management: Undertaking many more projects than can be completed with the available resources Assigning critical resources to work on several projects concurrently. Because of a lack of discipline and managements unwillingness to make hard choices.

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Internal Acquisition: R&D Management

Technology Management Activities and Tools

Advantages and disadvantages of R&D

R&D 1000, 2005

Kaynak: DTI, 2006

Research and development

generalizable knowledge context-specific, system knowledge

Absorptive capacity and R&D investment (Cohen and Levinthal, 1990)

Spillovers of competitors knowledge Extraindustry knowledge

Discuss: What are the decision processes involved in R&D management

or front-end planning project execution post-project learning

R&D Project types

Source: Adapted from Wheelwright and Clark (1992)

Process change Next generation process Addition to product family

New core process Breakthrough Projects

Derivaties and enhancements

New core process

Next generation process

Single department upgrade

High, a driver Of cost or differentiation

Source: Lindsay (2000)

Source: Utterback, 1994

Source: Cooper, 2008

Objectives of portfolio management (Cooper and Edgett, 1997):

Portfolio management problem:

Maximizing the value of the portfolio

Achieving the right balance and mix of projects

COMPANY PORTFOLIO MATRIX

COMPANYS ABSOLUTE STRENGTH

Early Highly Partially Well development developed developed refined

Any pair can be the X and Y-axes for a bubble plot:

Linking the portfolio to the business's strategy

Strategic fit Spending breakdown

Two general approaches to achieving strategic alignment

Assessment of projects & selection of projects

Some project selection techniques:

Limitations of selection techniques:

R&D as a necessary cost of business R&D as an investment

Post-project tasks: learning

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