Conventional R&D in organisations can no longer thrive in today’s VUCA world. Dynamic R&D strategies need to be adopted to succeed in the new global world ecosystem.
While economic growth rises in the contemporary volatile, uncertain, complex and ambiguous (VUCA) global ecosystem, competitiveness can be furthered by investments in science, technology, and innovation (STI). The global early pandemic investment in R&D is astounding with organisations around the world contributing USD 2.3 trillion to R&D. However, to properly reap the merits of innovation, developing and executing R&D strategies are vital to an organisation’s overall success.
R&D REVOLUTION
Generally, research and development (R&D) encapsulate activities that organisations take on to innovate and introduce new products and services, usually as the first stage of the development process. The term R&D is linked not only to innovation both in the corporate arena but public sector as well. The end goal is typically to take new products and services to market by allowing a company to stay ahead of its competition by designing new solutions and improving current offerings.
With long-term profitability in mind, R&D divisions may lead to patents, copyrights and trademarks as inventions created that generate value. This requires companies to employ entire R&D departments and commit substantial capital to the effort or outsource their tasks to third-party organisations for reasons including size and expenditure.
While companies across all sectors and industries undergo R&D activities, pharmaceuticals, semiconductors, and software/technology companies tend to spend the most on R&D. According to public company filings, these companies carried out the greatest research and development expenditures in 2020: Amazon (USD 42.7 billion), Alphabet, Inc. (USD 27.6 billion), Huawei (USD 22.0 billion), Microsoft (USD 19.3 billion), Apple (USD 18.8 billion), Samsung (USD 18.8 billion) and Facebook (USD 18.5 billion).
ADVANCING STRATEGICALLY
Strategy, in its very basic sense, is nothing more than a commitment to a pattern of behaviour intended to help win a competitive game i.e. the end objective of the organisation. Gary P. Pisano in his Harvard Business School working paper, ‘Creating an R&D Strategy,’ mentions that R&D organisations’ performances are dependent on the consistency between the components such as any other system. As they face trade-offs, R&D organisations cannot be designed to do everything with equal merit, thus giving every approach individual strengths and weaknesses.
Pisanno believes that as a result of coherent requirements to deal with trade-offs, R&D strategy is a core component for achieving superior R&D performance. The author states that there are 3 core requirements of a good strategy: consistency, coherence, and alignment.
Consistency: A good strategy should provide a framework for making consistent decisions over time that cumulatively build toward a common objective.
Coherence: In complex organisations, daily decisions that shape competitive capabilities from all departments ranging from hiring to finance must be integrated to ensure tactical coherence. This can only be ensured with a good strategy.
Alignment: An R&D organisation needs to be aligned with the broader business strategy of the organisation in which it operates and the environment in which it operates. The strategy should help drive alignment.
All these strategies for functions like R&D come down to specific ‘core hypotheses’ about what it takes to come out on top and win.
Strategy, in its very basic sense, is nothing more than a commitment to a pattern of behaviour intended to help win a competitive game i.e. the end objective of the organisation.
LEVERAGING R&D STRATEGY
To come up with the ‘game plan’ for how the R&D organisation can win, Pisanno breaks down 4 strategic levers in his working paper – architecture, processes, people, and portfolio.
ARCHITECTURE
This is the set of decisions around how R&D is designed both organisationally and geographically. This category includes decisions such as centralisation vs. decentralisation of R&D; the size, location, and focus of R&D units by market and technology; reporting; separation of research and development; and R&D degree of external resources and partnership utilisation. The optimal approach depends on the organisation’s ‘core hypotheses’ about what it takes to win.
PROCESSES
This refers to the formal and informal means by which R&D is executed and includes decisions about project management systems and project governance. For example, organisations working on novel ideas may not be more flexible when standardised manufacturing units need to have everyone working in harmonious sync.
PEOPLE
R&D is still a labour-intensive process and people are an extremely vital part of the R&D system. Despite the growing use of technology and automation, the choices about human resources including the mix of generalists vs. specialists, technical backgrounds and training and work methodology have great sway on R&D performance. While there is no one who knows the best human resource strategy for R&D, attracting and retaining talent will depend on architectural factors and benefits given to the team.
PORTFOLIO
The desired resource allocation across several types of R&D projects and the criteria used to sort, prioritize, and select projects is known as the portfolio function.
All of the above should highlight the priorities of the R&D strategy. Therefore, it is important to ask a few core questions at this point. Firstly, is there clarity on what to win and does everyone understand expectations? Secondly, is the decision we are making about architecture, processes, people, and portfolio in coherence? Have conflicts in policies been accounted for? Thirdly, do all the choices form a united ‘system’ focus on the fundamental priority areas? Finally, as the ‘hypothesis,’ the R&D strategy must be evaluated again or against performance data, and make the call when the time has come to discard our initial hypothesis, and adopt new strategies.
TACKLING ROADBLOCKS
Now that we have understood how to develop and structure our organisation the next step is to address the challenges that come along the way. A 2020 Mckinsey report highlights a few issues.
Keeping pace with accelerating innovation cycles: Companies must catch up with the increasing innovation expenditure on rapidly developing technologies by both the private and public sectors. Being stagnant today may result in being redundant tomorrow.
Bridging R&D’s connection to the customer: R&D units cannot be isolated from the end customer and messages from intermediaries must reflect the needs of the beneficiary.
Improving project accountability metrics: R&D success must be better quantified as a value of success. For example, patents by R&D units are not easily comparable to profits by the sales division.
Distributing priority to projects with different levels of risk: According to the 2020 Mckinsey research, it was revealed that more than 50% of investments in incremental projects, as opposed to aggressive and bold risks, had higher chances of returns. This attitude needs to change to come out as an innovative leader in the market.
In complex organisations, daily decisions that shape competitive capabilities from all departments ranging from hiring to finance must be integrated to ensure tactical coherence.
DYNAMIC DELIVERY
The Mckinsey article further asserts the need to grasp the following in terms of delivery from R&D organisations when planning for delivery:
What we want: Commercial and corporate strategy functions need to collaborate closely to understand what a company wants to do and what it can deliver. Commercial and corporate strategy teams must anchor the R&D division on the organisation’s priority list for the R&D team to reveal what is possible.
What we need: This segment in strategising determines what capabilities and technologies the R&D organisation must have in place to bring the desired solutions to market.
How we will do it: The choices of operating models and organisational designs will ultimately determine how well the R&D strategy is implemented. Nevertheless, during the strategy development phase, the emphasis should be on enablers that represent cross-cutting skills and ways of working.
EXECUTING EXCELLENCE
Matthew Stanton, Forbes Councils Member of the Forbes Business Development Council believes that there are three important steps (and time-savers) to deploy an R&D strategy that is effective and successful for your organisation’s needs.
CLEAR STRATEGIC FRAMEWORK
Stanton mentions in his article that the primary step toward building an organisation’s strategic framework is to comprehend which aspects need R&D focus. When there are objectives and goals, intrinsic issues of success, measurements and reporting can be deep-dived into. Stanton believes that it is all about the allocation of scarce resources, so it’s vital to be selective, test appropriately, analyse the metrics, identify what doesn’t work and allocate resources to resolve those issues.
DEDICATED R&D STRATEGY MANAGEMENT TEAM
The working paper asserts the need to have a devoted team to manage R&D with carefully assigned roles, responsibilities and accountability that will help determine whether or not the R&D program is implemented effectively. Designated individuals need to know the structure of the group with defined research, design, and new product, process or service implementation roles. Moreover, they need to understand the testing methodology.
PROPER TESTING ENVIRONMENT
The conclusive part of understanding the effectiveness of R&D organisations is ensuring the right test environment. For instance, if you have an FMCG product and add a new item to the product line but if the market does not respond well, it is not the only good measure of the product’s quality. Looking at the whole package, questions need to be raised about the marketing, training of sales and promotion staff and more. A proper test environment will visibly highlight where you need to make adjustments by taking all of these factors into account to ascertain whether a tweak is needed for a better offering.
THE BOTTOM LINE
Given the exponential rate of technological advancement, R&D is important for companies to stay competitive. The risk of stagnation is always greater than the risk of innovation, so executing defined and dynamic R&D strategies is the call of the status quo.
The Writer is the CEO of MCFG and the Executive Director of Global Chamber © Dhaka. He can be reached at maimun@globalchamber.org
