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Research and Development
- 1. Slide 8.1
Lecture 5
Research and Development
Chapters 8 and 9
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 2. Slide 8.2
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 3. Slide 8.3
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 4. Slide 8.4
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.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 5. Slide 8.5
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 6. Slide 8.6
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)
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 7. Slide 8.7
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)
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 8. Slide 8.8
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 9. Slide 8.9
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.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 10. Slide 8.10
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 11. Slide 8.11
Government incentives & priority areas
Allows companies 125% deduction on
expenditure
Aim is to make firms more internationally
competitive
ICT
Biotechnology
Food sector
Nanotechnology
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 12. Slide 8.12
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 13. Slide 8.13
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.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 14. Slide 8.14
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 15. Slide 8.15
Who are the Key Players?
Companies
Governments eg CSIRO
Universities
Future oriented
Long-term activities
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 16. Slide 8.16
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 17. Slide 8.17
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 18. Slide 8.18
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 19. Slide 8.19
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 20. Slide 8.20
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.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 21. Slide 8.21
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 22. Slide 8.22
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 23. Slide 8.23
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 24. Slide 8.24
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 25. Slide 8.25
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 26. Slide 8.26
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 27. Slide 8.27
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 28. Slide 8.28
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?
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 29. Slide 8.29
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.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 30. Slide 8.30
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 31. Slide 8.31
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 32. Slide 8.32
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 33. Slide 8.33
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 34. Slide 8.34
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).
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 35. Slide 8.35
Chapter 9
Managing R&D projects
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 36. Slide 8.36
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 37. Slide 8.37
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 38. Slide 8.38
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 39. Slide 8.39
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 40. Slide 8.40
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%
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 41. Slide 8.41
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 42. Slide 8.42
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)
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 43. Slide 8.43
Organising industrial R&D
Centralised laboratories
Internal R&D Decentralised laboratories
Internal market
Industrial
R&D
Contract
Collaborative
External R&D
Consortium
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 44. Slide 8.44
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.
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 45. Slide 8.45
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 46. Slide 8.46
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 47. Slide 8.47
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
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008
- 48. Slide 8.48
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?
Paul Trott, Innovation Management and New Product Development, 4th Edition, © Pearson Education Limited 2008