Research & development strategies across different industries

Vaishakh P.Vathsalan
Research &
Development
Strategies……
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Investigative activities that a business chooses to
conduct with the intention of making a discovery
that can either lead to the development of new
products or procedures, or to improvement of
existing products or procedures. Research and
development is one of the means by which business
can experience future growth by developing new
products or processes to improve and expand their
operations.
(Source: www.investopedia.com)
Definition of 'Research And Development -
R&D'

• The research and development (R&D, also called research and
technical development or research and technological development,
RTD in Europe) is a specific group of activities within a business.
• The activities that are classified as R&D differ from company to
company, but there are two primary models.
• In one model, the primary function of an R&D group is to
develop new products.
• In the other model, the primary function of an R&D group is to
discover and create new knowledge about scientific and
technological topics for the purpose of uncovering and enabling
development of valuable new products, processes, and services.
What is R&D?????
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• First Generation: distinct from corporation
(‘Bright scientists always come up with something new, don’t
disturb them’)
• Second Generation: R&D Marketing Interface
(For R&D, making Lead from Gold is just as challenging as
Gold from Lead, for us only the second conversion is of
interest’’
• Third Generation: R&D integrated in Corporate Strategy
(How to implement real technological change?)
(Source: ‚R&D Strategy in Companies‛ by Karel Mulder,
January 7, 2010 of Delft University of Technology.)
R&D Strategy in Companies
Development
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Strategy
• A strategy is nothing more than a commitment to a pattern of behavior
intended to help win a competition.
• Apple’s strategy, for instance, is to develop easy-to-use, aesthetically-
pleasing products that integrate seamlessly with a broader system of
devices in the consumer’s digital world.
• This strategy provides a guiding orientation for a broad range of Apple’s
business decisions such as the selection of new R&D projects, the design
of products, the composition of project teams, the choice of suppliers, the
focus of marketing campaigns, the layout of Apple’s retail stores, and
even hiring of people.
Creating an R&D Strategy……
(SOURCE: “Creating an R&D Strategy” by Gary P. Pisano, Working Paper 12-095, April 24, 2012, HARVARD
Business School.)

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There are three essential purposes (and requirements) of a good strategy. A
good strategy provides consistency, coherence, and alignment.
• Consistency: A good strategy provides a framework for making
consistent decisions over time that build cumulatively toward a desired
objective.
• Coherence: Strategy provides an integrating mechanism to ensure these
tactical decisions are coherent. Without a strategy, it is impossible to
achieve coherence.
• Alignment: An R&D organization needs to have a strategy that is aligned
with the broader business strategy of the organization in which it
operates. A strategy should help drive alignment.
Creating an R&D Strategy……(SOURCE: “Creating an R&D Strategy” by Gary P. Pisano, Working Paper 12-095, April 24, 2012, HARVARD
Business School.)

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• All strategies—whether for a game, a whole business, or a function like R&D—
come down to certain ‚core hypotheses‛ about what it takes to win.
• Apple’s strategy of providing easy to use, aesthetically pleasing, integrated
system is predicated on a core hypothesis that customers will be willing to pay
a significantly higher price for products with these attributes.
• Apple has made a ‚bet‛ around the virtues of integrated hardware and
software systems.
• Boeing is making a ‚bet‛ that new composite materials will offer superior flight
performance in airframes.
• Different automobile companies are making different technical ‚bets‛ on
different engine systems to achieve higher environmental performance
(hybrids, fuel cells, all electric, diesel, etc.).
• Some pharmaceutical companies are ‚betting‛ heavily that genomics will lead
to personalized medicine.
• There is often no way to ‚test‛ these hypotheses in advance. Thus, at some
level, all strategies are ‚bets‛. Experience executing a strategy provides ‚data‛
that may cause you to revise your core hypotheses.
Core Hypotheses of R&D Strategy……(SOURCE: “Creating an R&D Strategy” by Gary P. Pisano, Working Paper 12-095, April 24, 2012, HARVARD
Business School.)

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R&D strategies, like all strategies, must start with the devilishly simply question: ‚how do
we intend to win?‛ The ‚game plan‛ for an R&D organization can be broken down into 4
strategic levers: architecture, processes, people, and portfolio. Together, decisions made in
each of these categories constitute the R&D strategy
Elements of an R&D Strategy……(SOURCE: “Creating an R&D Strategy” by Gary P. Pisano, Working Paper 12-095, April 24, 2012, HARVARD
Business School.)

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1. Architecture refers to the set of decisions around how R&D is structured.
• This category includes decisions such as centralization vs. decentralization
of R&D.
• Whether R&D units report to business units or are autonomous.
• There is no single best architecture for an R&D organization.
• For instance, a highly centralized R&D organization facilitates
communication and integration across different functional groups; at the
same time, centralization forfeits the benefits of having a geographically
diversified ‚footprint‛ of R&D facilities located close to different global
technology hotspots.
• If it is betting on integration, then the centralized model is better. If it thinks
tapping geographically diverse knowledge bases is the key to winning,
then the decentralized model is a better route.
Business School.)

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2. Processes are the formal and informal ways that R&D is carried out.
• Too often, certain kinds of development processes are pitched as ‚best
practice‛ when, in fact, process design is very contingent on the overall
R&D strategy.
• There are two choices for the type of processes one a highly ‚structured‛
R&D process (with tightly specified procedures, review points, etc.) and
a more ‚flexible‛ process.
• An R&D organization working on highly novel (and highly uncertain)
technologies may need much more process flexibility so that it can have
the latitude to explore and iterate. In contrast, where R&D must be
tightly coordinated with other functions (like manufacturing), a more
tightly specified process may be necessary to ‚keep everyone on the
same page.‛
Business School.)

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3. People are obviously an enormously important aspect of an R&D
system.
• Despite the growing use of sophisticated instrumentation, computer
simulation, and laboratory automation, R&D is still a labor intensive
process.
• Choices about human resources- such as the mix of generalists vs.
specialists, technical backgrounds and training, work styles, career paths,
lay off policies, etc.—have a significant impact on R&D performance.
Business School.)

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4. Portfolio refers to the desired resource allocation across different types
of R&D projects and the criteria used to sort, prioritize, and select
projects.
• The R&D portfolio should reflect the priorities of the R&D strategy.
• For instance, a pharmaceutical company that ‚intends to win‛ by
discovering its own first-in-class drugs should have a very different
portfolio allocation than a company that is trying to win by developing
follow-on drugs in already established drug classes.
Business School.)

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• Be the first firm to market new technological products
• Be an innovative imitator of successful products, thus minimizing the
risks and costs of start-up
• Be a low-cost producer by mass-producing products similar to but less
expensive than products recently introduced
R&D Approaches for Implementing
Strategies

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• Despite its relevance, we often see that R&D is not aligned with a
company’s overall business strategy.
• On one hand, we may find an R&D area ‚isolated‛, with an agenda left to
their managers and with no assurance of a direct link to the business or
corporate strategy.
• On the other hand, we may see an ‚operational‛ R&D, way too focused on
the ‚day-to-day‛ activities of the company and constrained by short-term
financial goals that refrain it from having an enduring strategic impact on
the business.
• Setting a Technology Management Architecture can help a company to
link R&D to strategy and maximize its return on its R&D efforts.
• Technology Management Architecture consists of two main practices: i) A
Technology Planning practice & ii) An R&D Portfolio Management
Practice. All these elements of the architecture could and should be
customised according to the organization’s specificities.
ALIGNING R&D WITH THE COMPANY’S BUSINESS
STRATEGY
(SOURCE: October 21, 2013 by Jose Pereira Principal at Strategos’ Brazilian office, WWW.strategos.com)

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Research and Development Involvement in
Selected Strategy-Implementation
Situations

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• The European Automotive Industry takes a further step forward in
prioritizing selected aspects of this strategy, detailing some of the R&D
efforts which are now needed to deliver the smarter, safer and greener
products and services for market launch by 2020 and market penetration by
2030.
• For the next years the following R&D areas are of major interest for the
automobile industry:
1. Urban Mobility and Transport
2. Safety Applications in Co-operative Systems
3. Alternative Fuels
4. Suitable Materials
5. Electrification of the Vehicle
6. Ecological and Efficient Manufacturing.
R&D in Automobile Industry
(Source: ‘The Automotive Industry Focus on future R&D Challenges’ by
European Council for Automotive Research and Development)

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• Because of the high levels of uncertainty in pharmaceutical R&D, attrition rates and the timing
of attrition dominate the effect of direct project costs in pharmaceutical R&D productivity.
Examples
1. GlaxoSmithKline: Breaking R&D Up into Smaller Unit
• In January 2000, after the merger of Glaxo and Smithkline Beecham, the newly
formedGlaxoSmithKline (GSK) restructured R&D around organizational focused therapeutic
area units (cancer, neurology, etc.).
• These were initially called Centers of Excellence in Drug Discovery (CEDD). Each CEDD was
responsible for the development of molecules in its designated therapeutic realm, from
discovery through proof of concept.
• Each CEDD had its own leader and management team, and possessed most of the functions
required to move a molecule from discovery to proof of concept.
• The CEDDs model was predicated on the assumption that smaller, focused, autonomous, and
more accountable units would make more efficient decisions regarding portfolio advancement.
• The CEDDs model later evolved into what GSK called into Discovery Process Units (DPUs) that
were smaller, and even more focused therapeutically than the original CEDDs.
R&D in Pharmaceutical Industry(SOURCE: “Creating an R&D Strategy” by Gary P. Pisano, Working Paper 12-095, April 24, 2012, HARVARD
Business School.)

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2. Wyeth: A Metrics Based Approach
• Instead of restructuring R&D around focused units, Wyeth chose to attack the
problem through standardized development processes, metrics and
performance targets, and incentive schemes aligned with those objectives.
• R&D remained centralized.
• Under the Wyeth strategy, the R&D organization received specific target
objectives for molecules at each phase of the development cycle. If this level of
performance was achieved, the entire R&D organization was eligible for a
financial bonus. If the target was not hit, no one got a bonus.
• The Wyeth model was predicated on an assumption that it would be possible
to make the drug R&D process more predictable by using a more ‚repeatable‛
process, by setting clear performance objectives, and by clarifying decision-
making. Decisions regarding project advancement were governed centrally
(unlike the CEDDs/DPU model).
Business School.)

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3. Novartis: Betting on Science
• The Swiss-based company decided to move its research headquarters from its home in
Basel to Cambridge.
• Being geographically close to biotechnology companies and institutions like the Broad,
Harvard University, MIT, and the academic medical centers like Massachusetts General
Hospital was viewed as essential to accessing and absorbing the relevant science.
• It hired over 1000 scientists to staff its Cambridge research laboratories.
• Novartis pursued a decentralized research model.
• Discovery research was organized under the auspices of the Novartis Institutes of
Biomedical Research (NIBR), headquartered in Boston, and under the leadership of
Fishman.
• Focal areas for research were determined by NIBR, and based on two basic criteria: large
unmet medical need and an opportunity to develop deep biological insight.
• The Novartis research strategy addressed architecture (separate NIBR), people (locate
where the talent is), process (establish proof of mechanism in well-defined patient
populations first), and portfolio (select projects based on scientific attributes).
Business School.)

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Strategy 1: Learn cheap through rapid experimentation.
Strategy 2: Fail early and cheap.
Strategy 3: Connect & Develop.
Strategy 4: Bring ‚Silicon Valley thinking‛ inside.
Strategy 5: Get the cost right as early as possible.
Strategy 6: Obsolete yourself before competition obsoletes you.
R&D Strategies in Food & Beverage Industry(SOURCE: “R&D Strategies for the New Millenium” by Nizar El-Khoury, Associate Director, Food & Beverage R&D –
Asia, P&G Far East, Inc., Japan)

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VISION
Through improvements of conventional technology, as well as pioneering
efforts in the application of new technologies, Toyota is taking great
steps to develop eco-cars which will help us become a low carbon
society.
Mission for Technologies
Introduction of mission for technologies to realize the global vision.
TOYOTA GLOBAL

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Activities
• Provide world-class safety to protect the lives of customers.
• Provide optimization of energy/infrastructure to local communities.
• Putting high priority on safety and promote product development with the
ultimate goal of ‚completely eliminating traffic casualties‛.
• Deliver cars that will stimulating and even inspiring and that will thereby earn
smiles from our customers.
• Addressing employees education under ‚Genchi-genbutsu‛ philosophy, which
is to go to the source to find the facts to make correct decisions, build consensus
and achieve goals at our best speed.
• Through true mutual trust with partners, contribute to development of new
technology and improved expertise.
• Contribute for economic development of local communities with R&D
operations functioning effectively in each region.
TOYOTA GLOBAL

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1. Environmental Technology
From hybrids and electric vehicles to fuel cell technology, learn how Toyota
automobiles are the key for tomorrow's eco-driving.
• Hybrid Vehicle (Fuel efficiency)
• Electric Vehicle ( eco-conscious vehicle)
• Plug-in Hybrid Vehicle (Mixing the proven engineering of current
Hybrids with home recharging)
• Fuel Cell Vehicle (Using hydrogen for energy)
• Next-Generation Secondary Batteries (Progress Toyota has made in
finding better alternatives to lithium-ion batteries as a power source for
electric vehicles.)
TOYOTA GLOBAL & R&D

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2. Safety Technology
Toyota has been developing various safety technologies by using different
measurements towards realizing the ultimate goal of making a vehicle
that is safe for everybody.
• Safety Measurements (Aiming for a society with no traffic accidents.)
• Safety Technology (Toyota is aiming to develop safe vehicles and
technology based on the "Integrated Safety Management Concept.‚)
TOYOTA GLOBAL & R&D

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3. Intelligent Transport Systems
Even outside of the vehicle, Toyota is actively developing systems which make
driving safer and more convenient for everyone.
• Harmonious Mobility Network ‚Ha:mo‛ (An urban transport system
friendly both to the people and environment.)
• Society in a new future (Next-generation, environment-friendly vehicles will
play an important role in realizing a low-carbon society.)
• Vehicle-infrastructure Cooperative Systems that Support Driving (The
Vehicle-Infrastructure Cooperative Systems support driving, and aim to
avoid traffic accidents.)
• Safety Efforts (Our approach is to promote three-part initiative consisting of
vehicle, people and traffic environment, and continue our pursuit.)
TOYOTA GLOBAL & R&D

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4. Smart Grid envisioned by Toyota
Toyota proposes a comfortable and friendly living environment by making good use of renewable natural energy.
TOYOTA GLOBAL & R&D

• http://en.wikipedia.org/wiki/Research_and_development
• http://www.investopedia.com/terms/r/randd.asp
• http://www.thefreelibrary.com/Centralized+versus+Decentralized+R%26D%3A+Benefits+and+Drawbacks....-
a080346403
• http://www.strategos.com/aligning-rd-with-the-companys-business-strategy/
• http://www.eucar.be/publications/EUCAR%20FOCUS%202009_Web.pdf
• http://www.toyota-global.com/innovation/vision/
• “R&D Strategy in Companies” by Karel Mulder, January 7, 2010 of Delft University of Technology.
• “Creating an R&D Strategy” by Gary P. Pisano, Working Paper 12-095, April 24, 2012, HARVARD Business School.
• ‚Centralized versus Decentralized R&D: Benefits and Drawbacks‛; EIRMA Working Group 56 Report, 2000.
• ‚Multinational knowledge spillovers with centralized versus decentralized R&D : a game theoretic approach‛ by
Sanna-Randaccio, F Veugelers & Reinhilde, 2001, Departement toegepaste economische wetenschappen Research
Report 0146 pages:1-58.
• ‚R&D Strategies for the New Millenium‛ presented by Nizar El-Khoury, Associate Director, Food & Beverage R&D –
Asia, P&G Far East, Inc., Japan to the 11th World Congress of Food Science and Technology Seoul, South Korea
• Fred R David 10th Edition Startegic management concepts and basics.
• Strategic Management Text and Cases by V S P Rao & V Hari Krishna
References
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Research & development strategies across different industries

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