Academic journal article Research-Technology Management

Managing the Ties between Central R&D and Business Units: Leading Firms Enhance Communication and Coordination through Their Choice of Organizational Structure and Use of Funding, Project Screening, Technology Platforms, and Other Mechanisms

Academic journal article Research-Technology Management

Managing the Ties between Central R&D and Business Units: Leading Firms Enhance Communication and Coordination through Their Choice of Organizational Structure and Use of Funding, Project Screening, Technology Platforms, and Other Mechanisms

Article excerpt

OVERVIEW: The specific ways in which companies organize the relationship between central R&D and the business units vary considerably, this study shows. In the External Partnership Model the CRD group performs minimal in-house research. The primary CRD role is to identify many different, external technologies and coordinate the introduction of those technologies to the business units. In the Relationship Manager Model each CRD-BU interface is managed by one person who coordinates the specific B U and the various CRD functions that might interact with it. In the Individual Initiative Model firms promote individual networking to build interactions between CRD and the business units. Several variations on these models are also evident. In addition to organizational structure, firms also implement processes to supplement and enhance communication and coordination between CRD and BUs. These mechanisms include funding, project screening, technology platforms, social facilitation, and documentation.

Over the last decade, large technology-driven companies have sought to make their Central R&D divisions (CRD) more responsive to Business Units (BUs) and to contribute more directly to firm financial performance (1-4). To date, research on these changes has included examinations of how CRD funding decisions are made and the processes for selecting programs and projects. The research reported here extends beyond this to examine the structures and processes used to manage the interface between CRD and BUs. Our primary objective was to identify organizational models utilized by R&D-intensive companies (see "How the Study Was Conducted," next page).

Business Unit in this article refers generically to any product- or business-oriented group within the companies, as contrasted with the Central R&D function. Similarly, Central R&D refers to any stand-alone R&D group that reports to corporate headquarters rather than to a business unit.

Trends in the CRD-BU Relationship

First, we observed several important trends that provide the context for the organizational structures described in the next section. Most companies reorganized their CRD between 1993 and 1999; however, R&D spending as a percentage of sales for these companies did not exhibit any clear trends during this period. Thus, the reorganizations did not necessarily result in funds being taken away from R&D but rather in shifting control of the funding from CRD to BUs, even when the overall R&D budgets did not change significantly. Firms placed greater profit expectations on R&D, requiring CRD, along with BUs, to add to the bottom line and support the firm's strategic goals. As one manager put it, the goal is "to make CRD cutting-edge scientifically but also relevant to the people paying the bills."

In most cases, reorganizations increased the business-focused level of funding from between 30 and 50 percent (on the low end) up to between 70 and 80 percent (on the high end). This was done through the transfer of people from CRD to the BUs and by giving project funding authority to the BUs. This naturally led to an increased focus on product and process as opposed to functional expertise. It also led to geographically distributed resources, creating many challenges. As one interviewee explained, "five years ago we had all the scientists in one location and could readily get help from that facility for whatever project we were working on. Now those folks are spread around the company and so are not as readily available."

Business Units were not necessarily formally "required" to provide this project funding to CRD; they could outsource R&D from a different supplier. However, such outsourcing would only be allowed with the consent of corporate executive management and after negotiation with CRD. The result was that it would be politically difficult in many firms for BUs to conduct research elsewhere if CRD was capable of completing the project. …

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