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 previous STILE Points, we discussed the key elements of a market and product strategy. In this STILE Point, we will discuss the development of a resource strategy.
The three critical resources needed to execute your overall strategy are key technical staff, capital, and scientific facilities and equipment. A shortfall in any of these three resources will jeopardize your ability to successfully execute your strategy despite the elegance of your strategic plan.
A staffing strategy that insures sufficient depth of talented and motivated staff
I know I’m stating the obvious when I say that the most important resource and critical success factor in any R&D organization is the breadth and depth of its technical staff. However, I have too often seen this critical resource either taken for granted or ignored when a strategic agenda is developed. Some of the key questions that need to be answered are:
Does the organization have the key technical staff to execute the research portfolio developed in the product strategy?
Are the key staff totally aligned with the research agenda being proposed and committed to its execution?
Have the key staff been trained in the organization’s execution processes?
Is there sufficient depth to cover for any attrition of key staff?
If the answer to any of these questions is no or maybe, this is a red flag and warrants a strategic thrust in the resource strategy. For example, if the execution of a key project/program depends on a new technical hire, the recruiting of this hire must be a strategic thrust and a top priority by senior management and human resources. If all of the key technical positions have been filled, do the staff fully understand how their work supports the organization’s strategy and creates value? More importantly, do they agree with the priorities in the R&D strategy? All too often, there is not full alignment of priorities among key technical staff. As part of the planning process it is very important to flesh out these disagreements and gain commitment to the R&D strategy. One of the most important criteria to the final selection of project and program leaders is their commitment to the success of the projects they are leading.
Another area that requires a strategic review is in training and development. Too often, this is given lip service in the performance management process. When key staff feel that the organization is interested in their personal development, growth and professional advancement, they are much more likely to give 110% effort. Commitment is a two-way street. An important strategic thrust in every organization should be a formal succession plan. Each key technical and R&D management position should be identified and backup plans developed with the goal of having at least one ready-now candidate and one candidate developed in the next one to two years. A formal succession plan helps management with the development plans of current staff (i.e. to prepare them to fill future vacancies) as well as recruiting needs to fill in gaps. All too often, ambitious R&D plans get delayed or eliminated and precious funds wasted due to a single point of failure – attrition of a key technical staff member and no adequate replacement.
Finally, sufficient attention needs to be paid to the quality of the organizations execution processes (client relationship management, proposal writing, project management, report writing, intellectual property protection and disseminating and publishing research results). Codifying these processes and providing continuous training to key technical staff will not only improve the quality and efficiency of products and services, but also improve the moral of staff and build a culture of excellence.
A financial strategy that maximizes the use of available funds
All organizations are forced to work with limited funding. As I have stated in previous STILE points, the reason for developing a strategy in the first place is to determine where to focus limited financial resources. If an organization had unlimited resources, there would not be a need for strategy as it could cover the universe of options presented to it.
The organization’s financial strategy for R&D spending is most often driven by external forces. For mature technology organizations, a certain percentage of its revenues is allocated to R&D. Depending on the nature of R&D, these percentages can range from 1%-10% of revenues. For start-up organizations, particularly in the Bio-pharmaceutical industry, the financial strategy is tied to the amount of funds needed to meet product development milestones determined by regulatory agencies such as the FDA.
Given a finite financial budget from which to work with, R&D managers must develop a strategy and allocate their funds among a portfolio of programs and projects that balance both short term (exploitation) and long term (exploration) needs. On the one hand, it will always be important to invest R&D dollars to extend the life of income generating products by making them better, faster and cheaper. However, if short term investment is overemphasized, the future will be jeopardized and there will come a point where there are no new products to replace those at the end of their life cycle.
Even worse still is taking a defensive and myopic view, continuing to invest in improving your product when faced with new technology that renders it obsolete. This is often referred to as the success trap; being so enamored with current products, companies are unwilling to change even when faced with obsolescence. Bill Gates has been quoted as saying the “success is a lousy teacher”. Companies become less innovative as they become more competent.
On the other hand, the future of any technology organization will ultimately depend on new product development which can sometimes take many years to develop. In the case of Biotech products, 10 to15-year development cycles are not unusual. So a certain percentage of an organization’s R&D budget must necessarily be spent on exploration- which requires funding projects with long time horizons. Innovation is risky and often undisciplined. Many a good idea has been abandoned before their development was truly tested. This is often referred to as the perpetual search trap.
Balancing exploitation with exploration is an art. An R&D portfolio must achieve this balance based on the current state of maturity of an organizations’ products, competitive pressures from competing products, and technological trends that threaten obsolescence. For further insights into the subject, I recommend reading Christianson’s The Innovator’s Dilemma and listening to Knut Haanaes’ March 31,2016 Ted Talk on Two reasons companies fail and how to avoid them.
A strategy to acquire expensive facilities and equipment
Another unique aspect of R&D driven businesses is the need for highly expensive facilities and equipment. High annual capital budgets are a way of life for most mature R&D organizations and they often amortize capital equipment over fairly short periods of time, 3 to 5 years. Smaller companies and start-ups have a more difficult time and often underestimate these annual costs when presenting their financial plans to funding sources.
In my experience, most capital equipment in R&D organizations is vastly underutilized. This is especially true for highly specialized equipment. Utilization rates of 20-30% are not uncommon. While highly inefficient, these utilization rates are justified by researchers (and tolerated by research directors) by insisting that the equipment be available to them when needed at a moment’s notice. There is also a culture whereby researchers insist on “owning” their own equipment as part of their department’s resources. While this can be tolerated in larger organizations, it can be fatal for smaller organizations and start-ups with limited resources.
Two methods can be used to mitigate these costs. First, the annual cost of expensive equipment can be estimated and billed to research projects to recover those costs on an hourly or daily “use rate”. In this way the cost of the equipment can be recovered by appropriately allocating to those projects that use the equipment. By charging the cost of equipment as well as labor, the true cost of those projects can be determined. Using such a system can double and even triple the utilization rate requiring less capital purchases and saving valuable financial resources. One word of caution however. Such an allocation scheme must be managed well so that equipment is available to scientists when needed and the costs are transparent. Otherwise, this can be a demotivating to researchers. Having used such a system, once it is installed and operating efficiently, it becomes a normal part of laboratory operations.
Another common capital equipment concern is the purchase and infrequent use of highly sophisticated equipment (e.g. electron microscopes, high resolution mass spectrometers, and the like). A good approach is to approach colleagues at nearby universities and other R&D companies and work out a cost sharing arrangement for the use of such equipment.
It pays to allocate an administrative staff member to manage the logistics of the use rate and cost sharing systems to make it as transparent as possible to the research staff. This will go a long way to overcoming resistance to the lack of ownership and control.
In our next STILE Point we will turn to developing a regulatory strategy.