Academic journal article Research-Technology Management

Erosion of R&D's Value: Value Eroders Reduce R&D's Relevance and Influence. Here's How to Fix That

Academic journal article Research-Technology Management

Erosion of R&D's Value: Value Eroders Reduce R&D's Relevance and Influence. Here's How to Fix That

Article excerpt

An R&D Value Eroder[TM] is a persistent, intractable condition that weakens internal R&D's ability to contribute to revenue growth, thereby eroding R&D's relevance to a company's growth plan and diminishing its influence in getting resources and shaping strategic decisions (1).

Consider these questions--your answers will indicate whether internal R&D's relevance and influence in your company are growing or eroding.

* Are most new products and services meeting business targets?

* Is your company's Growth Gap (2) widening or narrowing?

* Is your CEO more or less confident now, versus a few years ago, that internal R&D can deliver winning new products and services in the future?

* Are R&D budgets under more or less pressure?

* Are R&D results and investments subject to greater or less scrutiny?

* Are alternatives to internal R&D gaining or losing favor?

R&D has sometimes been protected from the close scrutiny that Manufacturing, for example, has endured, because of fuzziness about what constitutes "good R&D results" and because opaque work processes complicate measuring R&D productivity. Manufacturing has not been as fortunate, at least from the time Frederick Taylor brought transparency to its processes in the late 19th century.

The fuzziness about "return on R&D investment" is raising concerns in many industries. In many companies, inconsistent market success of R&D-driven innovations has led to a decline in management's confidence about the relevance of R&D's contributions to the company's growth agenda. Consequently, in those companies, R&D is becoming less influential in securing investment resources, resulting in diminished ability to make useful contributions.

Characterizing this as the decline in R&D's relevance and influence may seem provocative, but is justified--arresting management's perception that the value of internal R&D's contributions is eroding is proving to be a tough challenge in many companies. This should not be a surprise. After all, key factors that made R&D succeed have changed. For example:

* For many companies, the hunt for growth has become tougher and has led to greater, but often unfulfilled, demand for innovations.

* Many companies outsource aspects of new product development because they learn that "doing everything yourself' often leads to competitive disadvantage.

* A fundamental shift in how innovation occurs has rendered the once-powerful "keep your cards close to your vest" strategy an impediment to innovation. Companies must now embrace, or at least grudgingly accept, that a breakthrough requires smart collaboration and free sharing of certain kinds of information.

* Companies are changing business models more aggressively, sometimes because business model innovation is recognized as a strategic differentiator, but more frequently because there is no other choice than to respond to competitor actions. When the decision to adjust the business model is made, the range of ways to grow the new product pipeline expands dramatically. Some business models rely completely on internal R&D for new products, but others may not need R&D at all, and in those models R&D must compete much harder for a share of the resources reserved for new product generation (3).

Database of Business Models

The framework described in this paper is derived from two sources. The first is a database of hundreds of business models that includes business model archetypes (4). These archetypes are common, fundamental ways companies operate in response to the competitive environment in their category in order to win competitive advantage and generate revenue and profit growth. For example, the razor-and-blade model, a well-characterized archetype, has 23 variations in practice today. And it is from the richness of these variations that the ideal way to adapt the razor-and-blade business model to a specific product emerges. …

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