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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'

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• 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?????

4Source: Wikipedia

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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 CompaniesDevelopment

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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.

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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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.”

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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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.

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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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.

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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• 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).

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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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).

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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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

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