harnessing innovation r&d in a global growth economy

Harnessing innovationR&D in a global growth economy

An Economist Intelligence Unit white papersponsored by Agilent Technologies

© The Economist Intelligence Unit 2004 1

Harnessing innovation

R & D in a global growth economy

Harnessing innovation: R&D in the global growth

economy is an Economist Intelligence Unit white

paper, sponsored by Agilent Technologies.

The Economist Intelligence Unit bears sole

responsibility for the content of this report. The

Economist Intelligence Unit’s editorial team executed

the online survey, conducted the interviews and wrote

the report. The findings and views expressed in this

report do not necessarily reflect the views of the

sponsor. John du Pre Gauntt was the author of the

report.

Our research drew on two main initiatives:

● We conducted a global online survey in

March/April 2004 of 188 senior executives on the

topic of R&D strategies and best practice.

● To supplement the survey results, we also

conducted in-depth interviews with senior

executives at a number of R&D-oriented

companies.

Our thanks are due to all survey respondents and

interviewees for their time and insights.

May 2004

Preface

2 © The Economist Intelligence Unit 2004



Developing new products, services and

business models is the fuel that fires

corporate growth, in good times and bad.

Even over the past three years, a period of

ruthless cost-cutting, innovation has proceeded

apace. According to a survey of almost 200 senior

executives conducted especially for this Economist

Intelligence Unit white paper, sponsored by Agilent

Technologies, almost 50% of current corporate sales

are accounted for by products that are less than three

years old.

“Innovation is a continuous process that you can’t

stop and restart easily”, says Dr Frank Niederlaender,

Director of R&D strategy for BMW in Germany. “We

don’t cut back on R&D even in difficult economic times

because innovative features and design are the main

reasons why people buy premium cars.”

Continuous the process may be, but unchanging it

is not. The evidence of the survey shows that research

and development (R&D) models have shifted, away

from the supply-side approach of big firms funding

ambitious projects that create large barriers to entry

and towards a demand-driven approach focused more

on speed and need. A more market-oriented approach

to R&D is taking root and driving closer collaboration

between researchers, partners and customers.

The previous system of researchers developing a

prototype and then throwing it over the wall to

production, sales and marketing is no longer relevant.

“The idea of technology transfer really isn’t used

around here any more,” says Dr Paul Horn, senior vice-

president of IBM Research. “Our researchers stay with

a product all the way into the market”.

Top R&D executives are still being asked to research

innovations that create new markets several years out,

of course. But they are also being prodded to design

round-the-clock global organisations that can

innovate in swift and affordable response to current

market pressures. The survey results, and a series of

in-depth interviews conducted for this paper, suggest

three forces that will shape the world of R&D over the

coming years:

● Responsiveness to the market. The survey clearly

indicates that R&D is high up the hierarchy of

corporate priorities—asked to identify their overall

strategic priorities, respondents put product

development third, just behind cost-cutting and

strengthening customer relationships. But the

emphasis rests heavily on the D(evelopment) part

of the equation. Market pressures to keep up with

competitors’ innovations and to satisfy more

demanding customers are the two top drivers of

R&D activity, according to survey respondents. In

this environment, anything companies can do to

reduce the odds of failure as they embark on new

research projects is critical.

● Globalisation. Competition for talent, new

technologies and easier market access have

accelerated the process of R&D globalisation, with

countries such as India and China hosting

significant volumes of R&D activity for

multinationals. Cost is a driver of globalisation

too, but its significance can be overplayed as far as

R&D goes. Once infrastructure and coordination

costs for managing distributed R&D facilities are

included, the total savings are not as huge as

Executive Summary




popular headlines suggest. Speed of development

is a more important benefit of the global research

economy.

● Customer collaboration. A more market-oriented

approach to R&D is driving R&D leaders to work

more closely with customers as they develop new

products and services. But there are challenges in

this approach. While collaboration is key for

creating demand-driven innovations, survey

participants also noted that maintaining customer

involvement ranked as one of the leading

roadblocks to successful R&D projects.

This evolving innovation landscape promise a more

effective R&D process, one that sharpens the

decision-making process as firms choose where to

allocate their R&D spend and that increases the

chances of launching commercially viable new

products. It may also encourage an even more

pronounced division of labour in the world of

research, with governments, universities and start-up

companies focusing on “blue-sky” research projects

and companies working on more incremental

development activities. The old adage, that genius is

99% perspiration and 1% inspiration, looks truer than

ever of corporate R&D.

Of the following priorities, indicate the three that are most important to your company's current strategy

(% respondents)

Cost cutting 50

Improving customer relationships 46

R&D/product development 45

Entering new markets 44

Brand-building 38

Entering new alliance partnerships 25

Outsourcing non-core processes 24

Improving compliance and risk management 12

Mergers & acquisitions 10

Source: Economist Intelligence Unit survey, March-April 2004




In a world of dwindling natural resources, there

is no shortage of human ingenuity—just ask the

overworked US Patent and Trademark Office. It

registered over 350,000 patent applications in

2003, while granting over 180,000 patents for

inventions deemed “new, useful and not obvious”.

But there is often a yawning gap of time,

investment, and energy between an initial bout of

inspiration and a product’s eventual entry into a

market. This level of uncertainty and risk unnerves

executives, who know that new products are the

competitive lifeblood of their companies and that the

marketplace is increasingly unforgiving of delay and

deficiencies in product development.

Asked to identify the drivers of R&D activity, the

survey respondents rated the most significant forces

as more demanding customers, market pressure to

keep up with competitors, the development of new

technologies and shorter product life cycles. With

the stakes so high—traditional R&D budgets amount

to 5-10% of companies’ annual sales and market—

it’s little wonder organisations are obsessed with

getting the choice of research direction to pursue

right.

Finessing the front endTheir answer is to move R&D planning and projects

closer to the market than has traditionally been the

case. Although many companies retain a central R&D

unit to take a longer-term research perspective, R&D

funds now tend to get distributed across a mix of

business unit and basic research programmes that

resemble stock portfolios in terms of their timescale,

risks, and expected returns. “In the business units, the

typical lifecycle for innovation is to look forward about

18-36 months depending on the particular

technology, while the central R&D labs take a view of

three, five or seven years out to concentrate on what is

going to radically change the price or performance of a

technical area,” says John Eaton, vice-president for

corporate development at Agilent Technologies, a

solution provider for the communications, electronics

From inspiration to income

What percentage of your company’s current sales is represented by products less than three years old?

(% respondents)

1-10% 21

11-15% 8

16-20% 10

21-25% 14

Over 25% 48





and life sciences industries.

In similar vein, most R&D planning exercises try to

combine both top-down and bottom-up strategies. In

IBM’s case, for instance, there is an annual review of

strategic research areas called the Global Technology

Outlook, a document that helps synchronise the

objectives of IBM Research and corporate

management from a product, marketing and strategy

standpoint. According to Dr Horn, the Global

Technology Outlook is not a shopping list of R&D

projects so much as an attempt to answer where IT is

going: which areas are likely to be commoditised;

which areas should remain high-margin; and where

IBM needs to compete based upon the market

opportunity and the resources it can bring to bear.

Based upon the key priorities identified in the Global

Technology Outlook, a bottom-up process is launched

to translate those insights into research programmes

and specific projects.

Other companies plan their R&D initiatives through

a more bottom-up approach. Agilent creates a

statement of business goals and then pushes decision-

making responsibility for research programmes and

projects as far down the organisation as possible.

However, sometimes the company overrides this

process and deliberately allocates more investment

dollars at the top in a particular technology area.

When the camera phone market launched in Asia,

for example, the company decided to accelerate

investment in optical sensors with the aim of

commercialising its technology via this market, a

decision that probably would have not been made

under a classic “bottom-up” model. “If the decision to

invest in optical sensors had been left solely to the

business units, it might not have been seen as a big

enough opportunity to justify R&D funding. So even

though the general model of innovation is a bottom-

up approach, there are exceptions where a top-down

strategy may be more desirable”, says Mr Eaton.

Top-down or bottom-up, the decision to place an

R&D bet is fundamentally a business or strategy

question rather than a design problem. According to

James Andrew, head of the Boston Consulting Group’s

Innovation and Commercialisation Area, the task for

R&D managers is to see beyond scientific or

engineering milestones in order to understand just

how a given innovation might play out in the market.

So while firms generally retain a preference for

innovating and developing products in-house, they

also recognise the value of external input. Some

companies have formal structures to capture

innovation by external companies. Most source new

In general, what do you believe are the forces driving R&D today?

Please rate each on a scale of 1 to 4, where 1=significant force and 4=not a force

(% respondents)

1 2 3 4

More demanding customers, driving the need for innovative products 57 30 10 3

Market pressure to keep up with competitors’ innovation 53 30 14 3

Development of new technologies 37 42 17 5

Shorter product life cycles 27 37 28 8

Rapid commoditisation of many products 25 40 29 6

Interest in co-developing products from customers 12 35 39 15

Pressure from senior managers to boost innovation 7 37 43 13

Access to 24/7 global R&D processes 7 34 39 20

Respondents were asked to rank each answer in order. For each respondent, one point was assigned to the bottom ranked answer, two points to the next rank up, and so on.Source: Economist Intelligence Unit survey, March-April 2004




In 2002, BMW became the first non-North American company

to receive the prestigious Outstanding Corporate Innovator

(OCI) award given by the Product Management Development

Association (PDMA). According to Dr Frank Niederlaender,

Director of R&D Strategy, the award acknowledged BMW’s

distinct system for capturing new ideas and turning them

into R&D projects.

The mandate for screening R&D proposals falls largely

upon innovation councils that are organised according to

various automotive sub-systems. Innovation councils are the

main home for new ideas with the council manager ranking

relevant proposals in their specific area of responsibility.

Each year, the innovation council manager works through

their idea list with members of corporate strategy and

branding. The goal is not only to understand the engineering

or performance improvement promised by a given proposal,

but to ensure that the idea is congruent with BMW’s larger

strategic and branding goals. After the ideas are assessed and

ranked, they enter into the regular R&D budgeting process.

While this happens inside of the company, other teams are

hard at work on the outside. For example, BMW sent a

research team to live in the US for several months just to

observe the American driving experience and typical habits.

The team’s charter was to translate their observations into

specific ideas to be analysed by central R&D in Germany.

Once ideas are funded as projects, the next decision

involves where to base the R&D effort. Aside from its central

R&D labs in Munich, BMW maintains several overseas

development facilities. Dr Niederlaender remarks that

locating certain R&D operations overseas helps BMW to

understand target markets better as well as helping it source

new ideas.

A second and increasingly important reason for sourcing

outside expertise is that areas of innovation often lie at

points of convergence with other industries. An example

would be infotainment, a large growth area for carmakers but

not one readily associated with the automobile industry. The

primary innovative challenge is how to make sure that a DVD

player or other entertainment device works seamlessly with

the rest of the automotive systems. If it can’t integrate

tightly with the entire unit, it won’t make the cut. “Inside a

car, the main activity is driving”, says Dr Niederlaender.

“Everything else must support and enhance that experience.

Otherwise, it is a distraction, not an innovation.”

BMW’s innovation engine

How does your company usually come up with new product ideas?

Please rate each on a scale of 1 to 4, where 1=a very common method and 4=a very uncommon method

(% respondents)

1 2 3 4

In response to market research indicating customer demand 29 41 20 9

In response to competitors’ new products 27 38 26 9

In collaboration with customers 26 42 25 6

In collaboration with partners 23 38 25 14

By experimentation within R&D labs 21 25 25 29

By encouraging all employees to come forward with product ideas 17 40 33 11

Respondents were asked to rank each answer in order. For each respondent, one point was assigned to the bottom ranked answer, two points to the next rank up, and so on.Source: Econ-omist Intelligence Unit survey, March-April 2004




ideas from outside company walls as well as within

them. Asked how their companies came up with new

product ideas, experimentation within R&D labs

trailed in behind market research into customer

demand, reaction to competitors’ innovation and

collaboration with customers and partners.

In this market-oriented environment, the technical

challenges of coming up with new products are less of

a pre-occupation. The top two roadblocks to successful

R&D at respondents’ companies (time/cost overruns,

competing priorities) are challenges of internal

organisation. The next two (market research,

gathering end-user input) beg questions of how a

company interacts with its customers, suppliers and

other stakeholders. The least significant roadblocks

(over-engineering, designing for production)

constitute the nuts-and-bolts issues often associated

with product development. If companies get their

internal processes and orientation to the market right,

the survey suggests, the actual engineering will tend

to work itself out.

Global trends and local realities

One answer to the organisational challenges that

companies face is to internationalise R&D operations.

From Bangalore to Beijing, R&D organisations are

splitting up research and design work, distributing it

around the globe, and re-assembling the results.

Around half of the survey group manage R&D

multinationally, either through global teams that work

on pieces of the same problem or via regional R&D

resources that support several national markets.

Some parts of the R&D process are likelier to be

done remotely than others, of course. There are times

when a company intends to change its basic R&D

direction. Fundamental shifts in research direction

rarely occur without high level buy-in from corporate

management. Hence, those decisions are less likely to

occur far from the home office.

But there are also areas of R&D that concentrate on

extending an existing product line’s functionality, or

producing it at lower cost, or stripping out certain

What are the roadblocks to successful R&D at your company?

(% respondents)

Time and cost overruns 60

Competing development priorities 53

Poor upfront market research 52

Failure to gather sufficient or relevant end-user input 44

Poor inter-departmental communications 39

Over engineering 24

Lack of design-for-manufacture 20





features to reposition it for another market. These

projects tend to be done in a lower-cost country than

in the originating country.

Production engineering is another area that lends

itself to offshoring. Given the fact that many mass

production facilities are located in developing

countries, it makes sense to conduct process R&D

(how to produce the same unit more cheaply or more

units for the same price) close to the facility where the

units are being made.

Unlike some other business processes, however,

low wages are not the main catalyst for the

“If you want something done right, you have to do it

yourself” is a philosophy that has guided a host of innovative

companies right over the cliff. Past success often blinkers

firms to what the market might demand and encourages

them to focus on logical extensions of what they’ve already

done. This is the hallmark of closed innovation.

On the other hand, open innovation advocates that there

are too many good ideas generated by people who don’t

work for you to ignore. Even the most talented companies

have to take external knowledge and ideas into account

when they embark on innovation. Nokia, a Finnish

telecommunications giant, has an increasingly external

orientation through Innovent, an innovation team that

combines seed-level VC investment with hands-on

development to help early-stage companies evolve into

innovation partners for Nokia. Stephanie Keller-Bottom,

director of Innovent, notes that one of Innovent’s key tasks

is to access people inside Nokia who are working on a

particular problem and show them the tangible benefits of

working with a given start-up’s technology.

At any given time, Ms. Keller-Bottom expects to see at

least 30-40% of the Innovent portfolio engaging in some

type of innovation transfer with the Nokia mother ship. These

actions could be delivery of a prototype, running a pilot, or

entering some kind of co-development licensing agreement.

“To demonstrate the value of open innovation, one simply

cannot come into a large company armed with just

concepts”, says Ms Keller-Bottom. “You have to come into

the company with a tangible demonstration of value.”

Why go through the trouble of trying to convince a

hardened corporate engineer of the merits of an external

innovation? “Many of these technologies may not yet be

perfect and an incumbent might say, ‘gee, it’s not perfect

and in a year we’ll have something better’”, says Ms Keller-

Bottom. “But the reality is that if you don’t get an innovation

out working in the market fast and let it begin to evolve with

the market, somebody else is going to do it and it is generally

a start-up that one of your competitors is about to acquire.”

Open or closed?

If you have research and development activities in time zones around the world, how do you coordinate that activity?

(% respondents)

Research and development is coordinated on a regional basis (eg, EMEA, the Americas) 30

Research and development is managed globally, with round-the-clock teams who work consecutively on the same projects 30

Research and development is carried out separately in each country 25

Other 16





Some two-thirds of the US economy now depends on

providing services ranging from haircuts to Initial Public

Offerings (IPO). Similar trends hold in other advanced

economies. If the service economy has become such a

powerful economic force, why hasn’t more service-oriented

R&D been conducted? Is there a difference between how a

company innovates to produce a better silicon chip and how

it innovates around the process of filing an insurance claim?

Such problems are receiving increased analysis and

investment. In the case of R&D giant IBM, over half of the

company’s revenue is derived from services. Getting IBM

Research into the services business has meant putting

researchers in direct contact with customers to help solve a

problem before a commercial solution exists, a practice

dubbed “rent-a-researcher” by the media when it first began.

Currently, there are around 13 “micro-practices” within

the R&D group where research is proceeding on projects that

IBM hopes will blossom one day into stand-alone service

businesses. “The present and future challenge for this type of

R&D is innovating to provide the same level of differentiation

for a service as we do for a product”, says Dr Paul Horn, senior

vice-president of IBM Research. One example would be the

field of text analytics, where software analyses both the

structure and meaning of a section of text. Combining this

software with media consulting from IBM Global Services, a

major record label discovered that the level and nature of

conversation in Internet chat rooms spiked about two weeks

before a hit record was released.

What about lousy service?

globalisation of R&D. Although there are clear

economic reasons for locating certain R&D work in

lower-cost countries, relocating R&D resources solely

because of labour costs is a losing proposition. “There

is no such thing as low-cost intellectual property”,

declares IBM’s Dr Horn. Aside from the travel,

coordination and communications expense, the labour

rate itself is climbing as recipient countries become

more sophisticated economies. The current rule of

thumb among India’s IT professionals is to expect a

15% pay rise every year. Such narrowing becomes even

more pronounced once top management cost is

included.

More important to the globalisation trend is the

ability to innovate around the clock. But it is no small

task to manage this process. According to Fred Weber,

chief technology officer for AMD, a leading

semiconductor manufacturer, companies must avoid

the pitfalls of compartmentalisation. “Whenever

possible, we try to ensure that a remote site does not

build up its own little fiefdom of products that it is

making. Rather we aim to develop an integrated global

engineering force. So we might split projects across

multiple locations.”

AMD’s latest Opteron processor resulted from teams

working simultaneously in Texas, California, Singapore

and Dresden in Germany, for example. But the

challenges posed by this structure can be formidable,

acknowledges Mr Weber. “When you see somebody

everyday and you have lunch with them, you

understand them a lot better than when you talk on

the phone to them once a week and see them once a

year.” Cultural differences further exacerbate this lack

of face-to-face contact.




Customer collaboration

If constructive interaction with colleagues is vital,

collaboration with customers is also seen as

increasingly critical. No matter where they sit in a

value chain, differentiation boils down to how firms

optimise three types of knowledge: domain knowledge

of a particular topic area; process knowledge for

innovating better, faster and cheaper than the

competition; and customer knowledge of what the

end-user demands or is about to demand. Very few

firms can claim world-class expertise in all three areas,

hence the drive to collaborate with customers at the

concept and prototyping stages.

It hasn’t always been so. Henry Ford once quipped

that if he had listened to his customers, he would have

invented a faster horse. In 1997, Professor Clayton

Christiansen jolted numerous boardrooms by arguing

in The Innovator’s Dilemma that listening too much to

customer input is a recipe for disaster. Somewhere

between Mssrs Ford and Christiansen’s circumspect

views and sugar-coated management treatises about

becoming intimate with customers, R&D executives

must balance often conflicting priorities.

One of the strongest arguments for collaboration is

that an initial buy-in via a large customer can be

crucial to jump-start an innovation. “The value behind

involving customers is that there is strong validation

of a technology’s potential early in the process”, says

Gordon Aspin, chief operating officer for TTPCom, an

independent technology developer for mobile devices.

Such validation is easier to come by when there is a

simple direct relationship between the innovator and

the direct customer. But it is often the case that the

innovator must get feedback from the customer’s

customer.

Take semiconductors, which used be seen as pieces

of plumbing that could be mixed and matched to

create a given system. But now that more advanced

functions such as graphics and audio have been

integrated into single chips, it has become much more

difficult to separate chip design from the eventual

system design and it has become much more critical to

validate a particular innovation earlier in the process

because it affects everything else downstream.

The telecoms industry is another case in point.

When Japan’s Sharp corporation won the contract to

supply handsets for Vodafone Live!, they used internal

software from TTPCom. Early in the process, TTPCom

engineers had to interact with Vodafone’s technical

staff even though the UK carrier was officially a

customer of Sharp. “Sometimes this causes a bit of

tension”, admits Mr Aspin. “But since it’s more

important to everyone concerned that the product

works, there is more flexibility on the part of the

terminal manufacturers that we are connected with

the end customer.”

Successful R&D collaboration with customers

carries other challenges. While obvious concerns for

the protection of intellectual property (IP) come to

If you are collaborating with customers on R&D, what benefits do you expect as a result?

Please rank from 1 (most important) to 4 (least important)

Rank Points

Better products 1 499

Stronger validation of the product in the market 2 493

Stronger relationship 3 448

Quicker time-to-market 4 335





mind, one of the greatest challenges is maintaining a

sense of urgency after the initial collaboration deals

have been struck. Survey participants rated the

problems of keeping both the customer and their own

top management engaged in the innovation process as

one of their biggest headaches.

Another key obstacle to successful collaboration is

striking the right balance between innovating to help

a customer overcome a problem versus the need for

the innovator to create something that can be sold on

to other customers. “There has to be a balance struck

between the needs of a customer to have a solution

carefully tailored to their requirements and our need

to ensure that the core technology remains compatible

with various platforms so that we can sell it across

multiple customers”, says Mr Aspin. Often this balance

is struck through a risk-sharing agreement, under

which the specific implementation of a technology is

owned by the customer while the innovator is able to

replicate the generic solution.

Company size is a critical variable in determining

the ability of companies to orientate their innovation

efforts around customer requirements. If firms are too

small, they cannot innovate at a systems-level, where

some of the most value is added. But if they grow too

large, their need to feed the earnings machine each

quarter often compels them to create solutions for the

widest possible market. Responding to specific

customer requests for innovative, tailored solutions

becomes that much harder.

Matching the marketMuch of R&D folklore is built on stories of unexpected

discoveries and maverick inventors. It remains the case

that between inspiration and income lies uncharted

territory where luck and sheer bull-headedness can be

as critical as formal knowledge and access to capital.

But successful R&D in the 21st century is not only

judged by what companies discover but how they do so,

whether applying themselves to customer problems,

compressing innovation timescales through

globalisation or allocating research budgets through

systematic prioritisation of ideas.

Romantics need not despair, however. Market-

driven R&D does not mean a future trend towards

mental “sweatshops”, where global firms steadily

extract innovation as if it were some sort of mineral.

“The thing to remember is that customer environments

change as often as ours do,” says Mr Eaton at Agilent.

“They experience changes in cost, performance and

skill needs for their markets. So their problems are

constantly evolving.” For that bit of continuity, R&D

practitioners can only be grateful. There will never be

a shortage of work.

What are the biggest challenges you face in collaborating with your customers on R&D?

Please rank from 1 (most challenging) to 5 (least challenging)

Rank Points

Sustaining customer participation throughout the innovation lifecycle 1 605

Customer input is too narrowly focused 2 596

Convincing top management on both sides about the value of collaboration 3 595

Intellectual property rights 4 447

Compensating alpha or beta customers for participating while keeping future profit potential 5 437

Respondents were asked to rank each answer in order. For each respondent, one point was assigned to the bottom ranked answer, two points to the next rank up, and so on.


Appendix: Survey results

A total of 188 executives worldwide participated in our survey, which took place in March-April 2004.

Our thanks are due to all respondents for their time and insights.

Please note that not all answers add up to 100, because of rounding or because respondents could give multiple

answers to some questions.





Demographics

What were your organisation's global revenues in US dollars in 2003?

(% respondents)

$250m or less 46

$250m-$500m 8

$500m-$1bn 7

$1bn-$3bn 8

$3bn-$8bn 12

$8bn or more 20

In which region are you personally based?

(% respondents)

Western Europe 34

Asia-Pacific 32

North America 27

Middle East and Africa 7





Which of the following best describes your title?

(% respondents)

Manager 37

CEO/COO/President/Managing director 17

SVP/VP/Senior executive 17

CIO/Technology director/Chief knowledge officer 8

CFO/Treasurer/Comptroller 6

Board member 5

Other 10

What are your main functional roles?

(% respondents)

Business development 45

General management 34

Marketing and sales 31

Strategy and planning 33

IT 14

R&D 14

Finance 14

Operations and production 14

Customer service 13

Supply-chain management 10

Human resources 7

Risk 5

Legal 2





What is your primary industry?

(% respondents)

IT and computer services 28

Automotive 25

Telecoms 15

Entertainment, media and publishing 9

Aerospace and defence 5

Electronic and electrical equipment 5

Energy 3

Materials science (eg, nanotechnology, smart materials) 1

Other 9

R&D in the global growth economy

What percentage of your company’s current sales is represented by products less than three years old?

(% respondents)

1-10% 21

11-15% 8

16-20% 10

21-25% 14

Over 25% 48





How long, on average, does it take your company to develop a product, from conception to commercial launch

(% respondents)

Under 3 months 5

3-6 months 11

6-9 months 14

9-12 months 23

12-18 months 16

18-24 months 15

Over 24 months 17

Of the following priorities, indicate the three that are most important to your company's current strategy?

(% respondents)

Cost cutting 50

Improving customer relationships 46

R&D/product development 45

Entering new markets 44

Brand-building 38

Entering new alliance partnerships 25

Outsourcing non-core processes 24

Improving compliance and risk management 12

Mergers & acquisitions 10

How much is invested annually by your company in R&D as a percentage of sales?

(% respondents)

1-5% 41

6-10% 25

11-15% 15

16-20% 8

Over 20% 12





In general, what do you believe are the forces driving R&D today?

Please rate each on a scale of 1 to 4, where 1=significant force and 4=not a force

(% respondents)

1 2 3 4

More demanding customers, driving the need for innovative products 57 30 10 3

Market pressure to keep up with competitors’ innovation 53 30 14 3

Development of new technologies 37 42 17 5

Shorter product life cycles 27 38 28 8

Rapid commoditisation of many products 25 40 29 6

Interest in co-developing products from customers 12 35 39 15

Pressure from senior managers to boost innovation 7 37 43 13

Access to 24/7 global R&D processes 7 34 39 20


What is your company’s preferred method for innovating and producing new products?

(% respondents)

Innovate and develop products in-house 53

Work with partners to co-develop products 26

Buy or license existing technology and customise it 11

Acquire new innovative capabilities through joint-venture or investment in a target market 6

Sponsor universities or institutions to undertake research 2

Other 2





In which industries do you believe corporations will make the greatest R&D strides over the coming three years? Choose up to threeindustries

(% respondents)

Materials science (eg, nanotechnology, smart materials) 54

IT and computer services 51

Telecommunications 45

Electronic and electrical equipment 29

Automotive 28

Energy 25

Aerospace and defence 23

How does your company usually come up with new product ideas?

Please rate each on a scale of 1 to 4, where 1=a very common method and 4=a very uncommon method

(% respondents)

1 2 3 4

In response to market research indicating customer demand 29 41 20 9

In response to competitors’ new products 27 38 26 9

In collaboration with customers 26 42 25 6

In collaboration with partners 23 38 25 14

By experimentation within R&D labs 21 25 25 29

By encouraging all employees to come forward with product ideas 17 40 33 11


If you have research and development activities in time zones around the world, how do you coordinate that activity?

(% respondents)

Research and development is coordinated on a regional basis (eg, EMEA, the Americas) 30

Research and development is managed globally, with round-the-clock teams who work consecutively on the same projects 30

Research and development is carried out separately in each country 25

Other 16





What are the roadblocks to successful R&D at your company?

(% respondents)

Time and cost overruns 60

Competing development priorities 53

Poor upfront market research 52

Failure to gather sufficient or relevant end-user input 44

Poor inter-departmental communications 39

Over engineering 24

Lack of design-for-manufacture 20

What are the criteria against which new product development processes are measured?

Please rank each factor from 1 (most important) to 4 (least important) as it applies to your company’s product innovation goals

Rank Points

Quality 1 516

Cost 2 491

Uniqueness 3 433

Time-to-market 4 433


If you collaborate with customers on R&D, at what stage do they become involved?

(% respondents)

Concept 46

Prototype 26

Testing 18

Pre-commercial launch 9





If you are collaborating with customers on R&D, what benefits do you expect as a result?

Please rank from 1 (most important) to 4 (least important)

Rank Points

Better products 1 499

Stronger validation of the product in the market 2 493

Stronger relationship 3 448

Quicker time-to-market 4 335


What are the biggest challenges you face in collaborating with your customers on R&D?

Please rank from 1 (most challenging) to 5 (least challenging)

Rank Points

Sustaining customer participation throughout the innovation lifecycle 1 605

Customer input is too narrowly focused 2 596

Convincing top management on both sides about the value of collaboration 3 595

Intellectual property rights 4 447

Compensating alpha or beta customers for participating while keeping future profit potential 5 437






Whilst every effort has been taken to verify the

accuracy of this information, neither the Economist

Intelligence Unit Ltd. nor the sponsor of this report

can accept any responsibility or liability for reliance by

any person on this white paper or any of the

information, opinions or conclusions set out in the

white paper.

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