In STILE Point 23, we provided an overview of the 7 steps to developing a winning strategy shown in the figure below. The strategic planning process starts with the development or updating of the organization’s mission, vision and values and finishes with a strategy designed to fulfill its mission and achieve its vision. The mission is usually a variation of developing, deploying and exploiting science and technology to create value for the organization depending on the industry sector. In the case of government research institutions, the mission is often expanded to include recommending policies and commercializing technologies based on sound science to stimulate economic and social development.
STEP 1 SELF ASSESSMENT: A thorough understanding of the organization’s strengths, weaknesses and assets/resources available to it.
STEP 2 COMPETITOR ANALYSIS: The strengths, weaknesses and strategy of competitors’ products and services fighting for the same market space.
STEP 3 CLIENT FEEDBACK: Gaining Intelligence from existing clients on their current problems and future opportunities and the value you bring to their organization.
STEP 4 TECHNOLOGY TRENDS: An awareness of competing and emerging technologies that could disrupt the strategy.
STEP 5 MARKET ANALYSIS: A thorough knowledge of market and industry trends.
STEP 6 STAKEHOLDER REQUIREMENTS: A clear understanding of additional stakeholder requirements which could include regulatory, political and social factors that could positively or negatively affect the organization’s license to operate and its brand image.
STEP 7 STRATEGY SYNTHESIS: Collecting and synthesizing the disparate data and information in steps 1-6 into actionable intelligence on which to make decisions.
The STILE Points 24, 25, 26 and 27 we elaborated on the first four steps; self-assessment; competitor analysis, client feedback and technology trends. In the current STILE Point, we discuss the importance of developing a thorough knowledge of market and industry trends that could affect your current and future R&D strategy.
In our discussion of competitor analysis in STILE Point 25, the focus was on obtaining detailed actionable intelligence on our direct competitors. The focus of an industry analysis is to broaden that discussion on the industry as a whole to determine market trends that affect our decision making. Also, in this STILE Point, a broader methodology will be discussed to gather relevant industry data.
There are two types of data that can provide useful information that fills in the blanks in your competitor analysis; published data and field data, sometimes referred to as secondary and primary data. Since published or secondary data is easier to obtain, there is a tendency to rely on it heavily. Primary data is gathered from interviews with industry participants and observers. It is much more time consuming and oftentimes results in conflicting data but generates the most useful information when formulating your strategy. Once again, emphasis should be placed on obtaining this industry data continuously as part of your overall knowledge management process and updated regularly.
There are numerous sources of published data. Starting from scratch, one should determine the firms in a specific industry especially the leading players starting with the industry’s Standard Industrial classification(SIC) code, from the Census Bureau’s Standard Industrial Classification Manual. Comprehensive studies of specific industries are also available that can give a broad overview as well as good sources for additional research. They tend to be comprehensive studies conducted by economists or more focused studies by securities or consulting firms. Trade associations, trade magazines and the business press can oftentimes be a good source of information provided that they are read over long periods of time so that trends can be teased out. Finally, company documents such as annual reports, SEC form 10-Ks, proxy statements, and prospectuses should not be overlooked. Also of value are executive speeches, press releases, product literature, and patent filings.
As mentioned, generating field data or primary data is more difficult and time consuming as it involves interviewing important industry sources. Industry observers are numerous and include standard setting organizations (e.g. underwriter’s laboratory), unions, the press, local chamber of commerce, state and federal government, watchdog groups (e.g. Consumer’s Union), the financial community, regulatory agencies (more on this topic in the next STILE Point). Service organizations are also a good source of information and include trade associations, investment banks, consultants, auditors, commercial banks, and advertising agencies.
Given the broad list of potential sources of information, it is important to have a strategy. Initially, try and get an unbiased view of the industry by interested third parties; those knowledgeable about the industry but do not have a competitive or direct economic stake in it. They are also a good source of direct industry participants worth talking to. Another good starting point are individuals who have been quoted in articles and speakers at industry conventions. Oftentimes it is worth the effort to get introductions to such speakers form a referral. For more detailed information on market analysis, I recommend Porter’s excellent book, “Techniques for analyzing Industries and Competitors”
Generating an industry analysis seems like a daunting task. It requires significant resources and time and fraught with conflicting information. This is why it is important that all of the organization’s leadership be involved in generating market data. At quarterly strategic management meetings (to be discussed in a future STILE Point), time should always be set aside to discuss and update market trends with information obtained from sales and marketing, R&D, product managers and the like.
At this point you may be wondering why an R&D manager needs to focus attention on market trends. Market and technology trends (discussed in STILE Point 27) are inextricably linked. Old models relying on just technology push or market pull are becoming outdated. In developing an R&D strategy, one needs to take into account not only the effect that technology will have on the marketplace, but also the way in which market trends will affect the acceptance of technology. The two examples from the Biotechnology and Oil and Gas industries illustrate this point.
I asked a leading medical device expert, Michael Graffeo, for an overview of the biotechnology market. In the pharmaceutical industry, biotechnology drugs have revolutionized the treatment of many diseases, including cancer, cardiovascular disease, and autoimmune disease. These drugs are often delivered parentally, either through an IV or through a subcutaneous injection, to avoid degradation in the digestive tract. To help ease the burden of injection, the delivery of these drugs has evolved from a syringe filled from a vial, to a pre-filled syringe, to an auto injector, which automatically depresses the plunger to deliver the drugs.
As the biotech industry continues to develop novel therapies to treat more and more patients, the patient experience is becoming an area of increased focus. In researching the patient experience, a number of challenges in the existing environment have been identified. For instance, a great many patients are classified as “needle-phobic”, and will not accept a therapy requiring them to inject themselves. Others will rely on their doctors’ offices to administer the injection, taking up valuable resources from the healthcare system.
Additionally, as biotech discovery and development becomes more sophisticated, new therapeutic targets are being identified that require much larger doses of drugs. In order to deliver much larger doses, a higher volume of the drug must be delivered, or the drug must be highly concentrated, greatly increasing the viscosity. Both of these options create a much more difficult injection, increasing the duration and the force required. Existing injection systems will be inadequate for these “next-generation” biotech drugs.
As a result of these dynamics, the pharmaceutical industry is investigating the market for novel delivery technologies, including implantables and wearables. Making an injection easier is expected to significantly improve the patient experience. In the long run, these improvements may allow for some drugs which currently require an IV to be delivered by an injection by a patient at home, reducing hospitalization durations. In addition, a great deal of research is being focused on oral biologics, which will allow for the delivery of these complex molecules by a pill.
I also asked my colleague, Richard Chidester for some feedback on the recent IHS CERAWEEK conference (Cambridge Energy Research Associates) in Houston on Energy Transition: Strategies for a New World. He was not surprised to find that peak oil was not on the agenda at the conference. Front and center in the agenda, as you might suspect, was discussion on when will oil prices recover and what can be done to expedite the recovery. The mood was dour and for most there was resignation to a lower longer outlook. In recent weeks the price of oil has recovered slightly and that combined with the IEA proclaiming that oil prices appear to have bottomed out, has at least pacified those who feared $10-barrel oil.
Indeed, while the recent rise in price is good news for many quarters, it would be a serious mistake to believe that we have survived another cycle and that we are on an inevitable climb to $100-barrel oil. As with the other cycles this one has unique aspects that will impact energy planning for the future. Just as $25-barrel oil was undervalued so too was $100-barrel oil unsustainable. Oil will not be replaced by renewables in the foreseeable future but a more balanced energy portfolio comprised of solar, wind, nuclear, oil (conventional and nonconventional) will compete against each other for market share.
What are the factors that will support a price closer to $50-75-barrel oil? One factor that should not be expected to act is OPEC. OPEC and the Saudi Oil Minister have made it clear that they will not propose a cut in production, rather they may ask for a freeze of production at January levels. It was never realistic to think that OPEC would propose a production cut primarily because it is doubtful that the member states would go along or honor an agreement to cut prices. OPEC doesn’t have the the influence it once had in the pre-shale world. Production is dropping in the US and it is estimated that another 600k barrels a day will go offline this year. Many in OPEC never wanted sustained prices above $100 a barrel because they feared exactly what has happened. The cost of production has dropped because of innovation. The industry is restructuring and will hesitate to begin drilling again until they see some stability in price and at least $50-barrel oil. It is interesting to note that the low price of oil may see the majors acquiring a greater presence in shale production as they purchase overextended independents.
Many suspect that the recent price rise is due to expectations of a political agreement being pursued by Russia and KSA but no real recovery will occur until demand eats away at the oversupply. A recovery of the China economy would go a long way to accelerate the demand but the more serious prognosticators do not expect a sustained price recovery for another 6-18 months. Even then the dynamics of the market have changed most notably again in the shale production. While shale production is expected to drop again this year it can be turned back on relatively quickly which would temper any sustained resurgence. The increased competition also will temper demand and more volatility in the market may become the norm. It was a simpler time when the peak oil advocates thought they had it all figured out.
There are many more examples shown below that we don’t have time to explore in this STILE Point. For example,
In the health industry – Disease prevention through a healthy lifestyle; nutrition and genomics; disease cures through stem cells; personalized medicine
In the energy industry – General acceptance by governments and industry on global warming; increase in petroleum reserves due to fracking; viability of renewable energy sources such as wind and solar
In the transportation industry – Automobiles transitioning from fast horse and buggies to mobile computers; robotics changing the face of deliveries
In the food industry – The whole food movement; GMO’s beauty or beast; the role of pesticides in global food productivity
In the manufacturing industry – Robotics and 3D printing
In the construction and building industry – Smart buildings; advanced materials
In the water and wastewater industry – Desalinization; wastewater reuse
The two important takeaway lessons when developing a strategy is that you must first look at both the micro level through competitor analysis and the macro level through market and industry analysis. And second, you must factor in the interdependence between technology trends and market trends.
In our next STILE Point, we will review the final data gathering step, stakeholder requirements before putting the overall strategy syntheses together.