The challenges of managing R&D
Product development is a critical function for product-based businesses. The ability to develop new products with features and functionality that are valued by customers and users, to bring them to market quickly, cost effectively and at acceptable quality and then to support and enhance them during their lifetime has always been a complex undertaking.
Today’s additional requirements to serve a global market, to exploit new technologies to meet ever higher customer expectations, to consider the opportunities for complementary digital services and to compete against new low cost, but increasingly high value, rivals from China and other emerging economies simply add to the challenge.
To achieve business goals for profit and growth from new and existing products, there are major responsibilities placed on the Research & Development (R&D) function and its management team. The R&D function has two fundamental goals:
- To develop, bring to market and support new value propositions
- To do this in an effective and efficient way
In delivering new value propositions to the market, R&D management needs to be able to link research and technology possibilities with customer needs. It needs to have deep insight into the wants and needs of the users of its products and technologies. It needs to understand the unmet needs of users who are not yet its customers and where future growth can come from. It needs to be able to innovate to formulate technologies and product concepts that best meet these unmet needs, select the most promising and bring them to market.
Effective and Efficient R&D
Being effective is a key requirement for R&D – to focus on the ‘right’ technologies, to select the ‘right’ product concepts and to get the ‘right’ balance between investment in new products with support and enhancements to existing products. But in addition, R&D efficiency is a key requirement. In developing new products there are critical resources which have to be efficiently used if the business is to realise the promise of its R&D potential:
- Time – particularly time to market
- People – particularly key research and development skills
- Intellectual Property (IP) – how to exploit and protect it
- Knowledge of the requirements of Customers and Users
- Relationships with suppliers of technologies, components and services
- Competitive analysis – of existing, as well as emerging and potential, rivals
- The capabilities of internal functions – such as Marketing, Sales and Manufacturing – that provide the key resources across the value chain
Measuring R&D performance
To consider how well an R&D function is meeting these goals, there are some key outcomes that can be reviewed:
Is R&D creating value propositions that the market wants?
A key measure here is the % of revenue from products launched in the last three years. If the % of revenue contributed by new products is low, then this indicates that the new product portfolio is not meeting user requirements in ways that are superior to the firm’s existing products – or rival products. This metric can be complemented by surveys among existing customers and also non-customers. In-depth understanding of user requirements (including unmet needs) and application knowledge are critical here. In meeting user needs, there is a balance to be struck between developing a new product and enhancing an existing one – or by providing a service-based solution. Increasingly digital services are playing a key role in meeting customer requirements. R&D operations now need to consider how to create ‘platforms’ that bring together hardware, software and service elements to meet user requirements in effective and reconfigurable ways that enable fast time to market.
Does R&D bring new products to market quickly?
Key measures here are: How does the firm’s time to market compare to rivals? Has time to market reduced over the past 5 years? A fast time to market enables a company to met emerging customer needs before rivals – and thus achieve a higher profitability whilst there is less competition. A focus on getting a ‘core product’ to market fast – and then follow with enhancements is an effective approach. Lessons can be learned here from the ‘Lean Startup’ movement regarding the use of the ‘Minimum Viable Product’ (MVP) approach. With the increased in servitization, user needs may be met by a software/digital service solution that is ‘wrapped around’ an existing product platform. Service-based solutions can be brought to market much faster than product-based ones. R&D Management need to decide how this service element is provided – internally or through partners.
Is R&D on-time to market?
Predictability is important – to fit with customer needs but also to align with the plans of internal support functions such as Manufacturing and Sales. Is R&D meeting defined project timescales? Failure to do so results in internal costs to replan and realign internal resources – with likely impacts on other products – and also can result in customer opportunities being missed.
Is R&D delivering quality products?
How well are new products meetings their target performance? What is the level of their reliability, measured by field failures and returns? Trading quality for a fast time to market is a short-term solution. New technologies will have inherent risks which need to be identified and addressed – through rigorous trial and testing – prior to their use in new products.
Are products being developed by R&D within budget?
This is key to R&D delivering across its portfolio of planned and existing products. If new products overrun their development budget, the shortfall is typically met by reducing the planned budgets on other products or projects. R&D management need to consider how to get the best ‘bang for the buck’ from their budget – which requires a strategic view of their product portfolio and key decisions to be made on ‘make v buy’ policy, in-house development v external, new product v enhanced existing product and product v service solution.
Assessing your R&D operation
An effective way to ensure that your R&D operation is ‘fit for purpose’ is to assess it against best practices and also to determine how well defined practices are deployed in daily work (e.g. is FMEA applied effectively, is application expertise embedded in concept development, are design reviews regularly held?).
An outside view can be powerful in such assessments – bringing an independent eye and experience from other businesses and sectors. Codexx has performed a number of assessments of R&D operations in Western and Eastern Europe, China and the USA, making use of our licensed PROBE benchmarking solution for R&D and our F4i (‘Foundations for innovation’) assessment for innovation practices.
We also worked with the Universities of Exeter and Aalborg between 2010-13 to study the ‘journey’ of new products from concept to market, covering 43 UK and Danish technology-based businesses, using a best practice model of the innovation journey. We have subsequently used this model to help companies assess their product development practices and performance.
The core of this article is an excerpt from the forthcoming book ‘Sowing the seeds of business transformation’ by Alastair Ross, to be published in 2017.
