In developing a strategic agenda, the main focus will be on five strategies: a market strategy, regulatory strategy and stakeholder strategy (outside-in approach); and a product strategy and a resource strategy (inside-out approach). For each of these strategies, specific strategic thrusts need to be identified that if successfully executed, will lead to achieving your vision and mission. In the previous STILE Point, we discussed the key elements of a market strategy. In this STILE Point, we will discuss the development of a product strategy.
As an R&D director or manager, your primary responsibility will be to make strategic decisions that create value from the science that you manage. This is particularly difficult in R&D driven organizations. The business results of your decisions oftentimes are years into the future and loaded with technical and market uncertainty. In today’s R&D ecosystem, in addition to your in-house R&D, decisions need to be made on partnerships, alliances or acquisitions to achieve product objectives. Innovation becomes a business process as well as a research process.
The first step in this process is to develop an overarching technology strategy. This is a vital component of technology based businesses and requires the translation of the organization’s business strategy to determine the precise role that R&D will play in its success. How will you create new value from R&D through the development and renewal of technical products and services? What emphasis will you place on new products? Can you develop a technology platform that contains intellectual property and know how that will allow multiple product development streams? Will you develop new technologies in-house or obtain them from outside your organization? What are the competencies that are critical among your technical staff and do you have sufficient breadth and depth? What alliances should you be pursuing? Significant time should be spent by your R&D leadership team in answering these questions before proceeding to step 2.
Once an overall technology strategy has been developed that supports the organization’s business strategy, step two will be to develop a portfolio strategy that creates products and services that support the organization’s market strategy and resource strategy (to be discussed in the next STILE Point). Executing such a strategy and delivering products and services to clients is the essence of the business and must be based on providing sound value to clients. There are only two truly foolproof product strategies: either produce a desirable product/service that no one else has or produce a competitive product at the lowest price. While highly desirable, both of these strategies are hard to achieve. Novel products are quickly reverse engineered and copied by aggressive competitors. Lean manufacturing processes are desirable but high quality research products and services are rarely delivered at a low lost. Competing on price is a last resort for R&D organizations and often leads to panic investments in new products and services to recapture profits.
The aim of most R&D strategies is to produce the highest value for customers. This is a combination of product features, benefits, costs and service to meet client needs better than your competitors. Developing such a strategy involves the generation of intelligence from the data collected during client feedback, competitive intelligence and technology trends. Given the shortened lifecycles of most products and services these days (usually 12 -18 months), an R&D strategy usually involves the development of a product portfolio consisting of several technical development projects. These projects run the gamut from low risk short term projects to extend the lifecycle of current products and services to more complex higher risk, longer term projects to develop newer, more competitive products of higher value to clients, particularly key clients identified in your target market sector.
A well designed portfolio strategy incorporates the technology goals of the organization and manages resources (technical staff, capital and expensive technical equipment) as efficiently as possible. Portfolio decisions are made based on what produces the most value to the organization and resources are parsed accordingly.
Given the uncertain nature of R&D, developing and managing an R&D portfolio is critical to the success of your organizations’ overall strategy. It is important therefore to develop decision criteria for the selection of the technical projects to include in your R&D portfolio that supports your organization’s financial strategy (see future STILE Point on Resource Strategy).
The third step in developing an R&D strategy is to select the most promising projects in your portfolio that meet both the short and long term needs of the organization. The selection process involves an initial screening of competing R&D concepts from both internal and external sources. This is a universal process whether you are a client evaluating a concept from a contract R&D organization, a venture capitalist evaluating an R&D business concept, or an R&D manager evaluating your staff’s concepts. While each organization will have different research agendas and financial resources, the following are questions that can be used to initially screen concepts for further evaluation.
1. Does the concept have strategic value?
- Will the research proposed make a substantial contribution to the organization’s product strategy?
- Is the proposed research a response to a key client request? If so:
- How committed is the client to solving this problem/pursuing this opportunity?
- What are the benefits of the concept to the client?
- Is the client an advocate of the concept/technical approach?
- Is the client willing to fund a well written proposal?
- Do the ideas presented in the concept have the potential for intellectual property development and patent protection with commercialization potential?
- Is the concept innovative enough to lead to product leadership in the marketplace?
2. Does the concept have technical merit?
- Is the problem or opportunity well defined?
- Do the objectives of the proposed project solve the stated problem or create the proposed opportunity?
- Does the technical approach and experimental design support the objectives?
- Is the research methodology based on sound science building on existing research knowledge or emerging technology?
- Does the research staff/consultants have the appropriate technical expertise and experience?
3. Can the concept be properly executed?
- Does the proposed project leader have the management experience and track record to lead the project?
- Is the work plan well defined and sufficiently detailed to ensure appropriate monitoring of the work flow and deliverables?
- Is the project schedule realistic?
- Is the proposed level of effort of key staff sufficient to accomplish the stated tasks?
- Is the proposed budget sufficient to accomplish the work?
- Are the proposed key staff available for the level of effort proposed?
- Will the needed facilities and equipment be available at the designated start of the project?
4. What are the potential risks?
- What are the potential major risks (political, technical, environmental, safety, and health) that could affect the organization’s reputation and/or liability?
- What are the management actions and preventative measures planned to mitigate the risks?
The screening process can be used to quickly reduce the concepts to a manageable number from which to request more detailed proposals. A more rigorous technical, management and financial review can then be conducted to select the projects to be included in the R&D portfolio.
It is important at this stage to carefully review the self-assessment conducted during the strategy review process. It is easy to become enamored with an exciting concept and fail to sufficiently question the organization’s capacity to execute such a project. Can the organization really commit to the identified resources? Are there single points of failure such as a key principle investigator with no qualified backup? Is the project team on the same page? Are there sufficient, well defined milestones listed to evaluate the project’s progress? These concerns will become more important when discussing performance management in future STILE Points.
A good analogy to developing an R&D portfolio is the concept of a balanced financial portfolio. A balanced R&D portfolio is one that best manages risk. For short term low risk, projects are chosen that extend the existing product lifespan through increased quality and speed, and/or decreased cost. For long term higher risk, projects are chosen that develop new products or new markets for modified existing products. The degree of overall risk and portfolio of projects will depend on your current self-assessment, financial strategy (to be discussed in a future STILE Point) and the ability to achieve your mission and vision.
For an excellent overview of R&D strategy, I recommend The Smart Organization, Creating Value through Strategic R&D by David and Jim Matheson
In our next STILE Point, we will discuss the elements of a resource strategy.