Chapter 3

Management of Research and Development

What is Research and Development

Research and development has traditionally been regarded by academics and industry alike as the management of scientific research and the development of new products. Twiss (1992) offers a widely accepted definition: R&D is the purposeful and systematic use of scientific knowledge to improve mans lot even though some of its manifestations do not meet with universal approval.

What is Research and Development

A more contemporary definition is offered by Roussel et al. (1991), who define the concept as: To develop new knowledge and apply scientific or engineering knowledge to connect the knowledge in one field to that in others.

The traditional view of R&D

After the Second World War, Technical developments in industries such as chemicals, electronics, automotive and pharmaceuticals led to the development of many new products, which produced rapid growth.
For a while it seemed that technology was capable of almost anything. The traditional view of R&D has therefore been overcoming genuine technological problems, which subsequently leads to business opportunities and a competitive advantage over ones competitors.

The traditional view of R&D

Traditionally, it has been viewed as a linear process, moving from research to engineering and then manufacture. Vast amounts of money were poured into R&D programmes in the belief that the interesting technology generated could then be incorporated into products. There were also many examples of exciting technology developed purely because it was interesting, without any consideration of the competitive market in which the business operated.

Hence, many business leaders began to question the value of R&D.

R&D investment and company growth

R&D expenditure now consumes a significant proportion of a firms funds across all industry sectors. This is principally because companies realize that new products can provide a huge competitive advantage.

R&D investment and company growth

Firms are also uneasy about R&D, or to be more accurate a lack of R&D. Ever since 1982 when ICI completed a study into the effects of stopping product innovation, companies have viewed innovation and R&D investment with some anxiety. The results of the study showed that profits would decline very slowly for around 15 years, before falling very sharply.

The ICI study also posed another important question. How long, it wondered, would it take for profits to recover, if after the 15 years the company magically resumed its product innovation at three times its previous rate?
The study revealed that it would take another 25 years for profit to recover.

R&D investment and company growth

A study by Geroski et al. (1993) did reveal a positive relationship between R&D expenditure and long-term growth. R&D expenditure should be viewed as a longterm investment
Company accountants increasingly question the need for large sums to be invested in an activity that shows no obvious and certainly no rapid return.

Classifying R&D
Over the years industrial research and development (R&D) has increasingly been guided by the aims of its financiers via its business strategy, and to a lesser extent by the pursuit of knowledge. The main activities of industrial R&D have included the following:

discovering and developing new technologies; improving understanding of the technology in existing products; improving and strengthening understanding of technologies used in manufacturing; and understanding research results from universities and other research institutions.

The operations that make up R&D

This section explains what activities one would expect to find within each type of R&D operation. Basic research This activity involves work of a general nature intended to apply to a broad range of uses or to new knowledge about an area.

The operations that make up R&D

Applied research This activity involves the use of existing scientific principles for the solution of a particular problem. It is sometimes referred to as the application of science. Development This activity is similar to applied research in that it involves the use of known scientific principles, but differs in that the activities centre on products. It may also involve various exploratory studies to try to improve a products performance.

R&D management and its link with business strategy

Planning decisions are directed towards the future, which is why strategy is often considered to be as much an art as a science. The R&D function also has to make some assessment of the future in order to perform effectively. Senior R&D managers have to build into their planning process a conscious view of the future. However imprecise, this will include: environmental forecasts comparative technological cost-effectiveness risk capability analysis

R&D management and its link with business strategy

Environmental forecasts These are primarily concerned with changes in technology that will occur in the future. But this cannot be considered in isolation and other factors such as economic, social and political factors also have to be considered. Who will be our competitors in five or ten years time? What technologies do we need to understand to avoid technological surprises? What will be the new competitive technologies and businesses?

R&D management and its link with business strategy

Comparative technological cost-effectiveness It is argued that technologies have life cycles and that after a period further research produces negligible benefit.
Today, for example, many car manufacturers are increasing their research efforts in electrical power technology.

R&D management and its link with business strategy

Risk The culture of the organization and its attitude to risk will influence decision making. Usually risk is spread over a portfolio of projects and will include some exploratory high-risk projects and some developmental low-risk ones. Planning cannot remove risk but it can help to ensure that decisions are reached using a process of rational analysis. Capability analysis

Companies have to consider their own strengths and weaknesses. This analysis should help them ensure that they have the necessary capabilities for the future.

Which business to support and how?

It is well understood that technological developments can lead to improved products and processes, reduced costs and ultimately better commercial performance and competitive advantage.
The effect of corporate strategy is usually most noticeable in the selection of R&D projects. For example, a corporate decision by Unilever to strengthen its position in the luxury perfume business may lead to the cancellation of several research projects, with more emphasis being placed on buying brands like Calvin Klein.

Which business to support and how?

Technology leverage and R&D strategies The state of a business in terms of its markets, products and capabilities will largely determine the amount of research effort to be undertaken. Research by Scholefield (1993) suggests that there are essentially two forms of activity for a R&D department, growth and maintenance. Within these two groups it is possible to conduct significantly different types of activities, hence they are divided into different groups.