Jul 30, 2010

International Product Development

As we have seen, global product development is a here to stay - whether organizations like it or not.  Managing virtual teams is not easy. The article The Practice of Global Product Development from MIT Sloan Review has interesting models and checklists for organizations considering international or global product development (GPD).

The first suggestion in the article is to deploy GPD in stages (start with process outsourcing, move to components and then to design).

The article also lays out key success factors for GPD.  I am going to rearrange and rephrase to make them a bit more succinct:
  1. Management Priority: Clearly, global R&D is a big challenge - it requires major organizational and cultural change.  None of it is possible without senior executive priority.
  2. Core Competence (Clear strategy): Clear understanding of what is core to company and what can be outsourced is also key.  I have seen many organizations that stumbled through outsourcing R&D and lost market share because of duplicate capabilities.
  3. Modularity (Process and Product): To outsource a portion of the work, it needs to be easily separable.  Modular processes and  products are clearly required for outsourcing.
  4. Infrastructure (Intellectual Property, Governance, Project Management, Data Quality, Change Management): Infrastructure is needed to manage global product development.  The organization needs to be able to control IP such that each location can work its piece and critical IP is not exposed unnecessarily.  Also, processes, tools and metrics need to be in place for virtual team management.  Finally, since GPD is a major change, change-management will be needed to make sure it succeeds.
  5. Collaborative Culture

Jul 29, 2010

Metrics: R&D Should Settle for Second Best

The article Metrics: R&D Should Settle for Second Best in CEB Views points out that it generally not worth putting in a lot of investment in developing new R&D metrics.  However, as we have seen, there is plenty of research out there that suggests what you measure will drive behavior of your R&D teams - so please keep that in mind.

The article points out that most R&D departments use very simple metrics:

These simplistic measurements might not necessarily be because simple metrics are the most effective, they might be because measuring the right thing is difficult to do.  For example, not one of the top metrics above addresses performance or maturity of R&D projects underway and how they compare with the expectations.  Even though this is hard to do, it might have a huge benefit to overall R&D management.

Overall, the four takes aways have two useful ones:
  1. Use qualitative metrics to evaluate early-stage investments: Very important  because it is hard (if not impossible) to value benefits of early-stage technologies - especially when they might impact many different product lines or would require other technologies to mature before they can be of use.
  2. Use business outcome targets to classify project types: I take this to mean that it is important to categorize the R&D pipeline and then measure them based on the category they fall into (some what related to the bullet above).
  3. Supplement business outcome metrics for accurate performance assessments: Idea being revenues/profits should not be all that drive decisions...
  4. Use metrics to motivate not intimidate: Easy to say, hard to do...

Jul 28, 2010

An Epidemic Of Failing To Manage Growth

The article An Epidemic Of Failing To Manage Growth in Forbes.com suggests that lot of the ill that befell companies like Toyota, Dell,  BP was because they grew too fast and did not manage growth because they were too profit driven.
Their chief executives appear to have unquestioningly accepted the Wall Street axiom that growth is the greatest corporate goal. Growth is always good, we hear. Bigger is always better. Companies either grow or die, and public companies must show ever increasing quarterly earnings.
The solution, according to the author is to manage risks from growth:
1. Conduct an annual growth risks audit as part of its budgeting and strategy processes. The audit's results should be disseminated to all managers, so they can be sensitive and alert to early warning signals. Leaders must constantly convey what cannot be compromised by growth.
2. Have business unit leaders create independent cross-functional teams that report directly to them and are responsible for monitoring the risks of growth and implementing risk management and mitigation plans, which should take effect when predetermined alarms are activated. These teams cannot have conflicting responsibilities and should not be responsible for producing growth. The teams must be measured and rewarded for managing the risks of growth.
3. Base a meaningful percentage of the compensation of all senior leaders and management on successfully managing the risks of growth.
I am not sure I agree.  The problem is not really growing too fast - it is that there are no processes and tools to manage the type and volume of work that needs to be performed.  In fact, growth might actually be required to survive in many industries.

For example, for an R&D driven firm, how does one "manage the risk of growth?" Does one slow down product development?  If that happens, the firm might loose competitive positioning.

Does one address smaller market niches?  This is difficult to do in a product platform driven world. Most companies have learned to target the top niche first and then use the platform to cover a broader range of lower-end markets.  Just look at most cell phone providers like HTC or computer providers like Dell.  They all come out with high-end models at high prices and then migrate the technology to lower-end models.  So, the company rarely has a choice to slow down R&D.  If that is the case, what will growth audits do?

A better solution would be to invest in risk management processes and tools that identify and address risks introduced through increasing pace of R&D.

What do you think?

Jul 27, 2010

Putting a value on training

Training is extremely critical to most R&D organizations.  Toyota, as we have seen, has made improved training a key cornerstone of their quality improvement initiatives. The article Putting a value on training McKinsey Quarterly addresses how to measure effectiveness of training programs and develop a business case for deploying them.
...typically measure training’s impact by conducting surveys of attendees or counting how many employees complete courses rather than by assessing whether those employees learned anything that improved business performance.  This approach was, perhaps, acceptable when companies had money to spare. Now, most don’t. 
However, there is a need for more formal approaches to measure return-on-investment of training programs
Yet more and more, organizations need highly capable employees—90 percent of the respondents to a recent McKinsey Quarterly survey1 said that building capabilities was a top-ten priority for their organizations. Only a quarter, though, said that their programs are effective at improving performance measurably, and only 8 percent track the programs’ return on investment. 
The article talks about a detailed training program for BGCA (Boys and Girls Clubs of America).  Suffice it to say that the training was quite extensive and expensive.
BGCA therefore built its training program around those four subjects. The program involved both intensive classroom work and a project chosen by each local team; projects ranged from implementing new HR processes to deepening the impact of after-school programs. By the end of 2009, over 650 leaders from approximately 250 local organizations had been trained.
Here is the key message plan how you will measure effectiveness before launching an expensive training program.  This was much easier for a not for profit organization such as BGCA:
Because the program was designed to improve specific organizational-performance outcomes, the process of assessing its impact was straightforward. Where the leaders of local organizations had received training, BGCA compared their pre- and post-training results. More important, it also compared the post-training results against those of a control set of organizations, which had similar characteristics (such as budget size) but whose leaders had not yet gone through the training. 
FYI - the training was a success for BGCA.  They could measure the delta between trained and untrained organizations and actually calculate a return on investment.  The fact that they matched organizations to control sets, gave them the confidence that the results were relevant.  In for-profit organizations, metrics might be different but they must be measured before and after launching training programs.  Metrics and accountability is key to success of most campaigns.

Key take away:
In every case, companies must continually review and revise the links between skills, performance, and training programs. Typically, to determine which metrics should be improved, companies assess their current performance against industry benchmarks or their own goals. Like retailers and manufacturers, most other companies know what kinds of skills are tied to different areas of performance. So a good next step is to conduct an analysis of the relevant groups of employees to identify the most important specific skills for them (as BGCA did) and which performance-enhancing skills they currently lack. To get a clear read on the impact of a program, it’s crucial to control for the influence of external factors (for instance, the opening of new retail competitors in local markets) and of extraordinary internal factors (such as a scheduled plant shutdown for preventative maintenance). It’s also crucial to make appropriate comparisons within peer groups defined by preexisting performance bands or market types. 

Jul 26, 2010

Behind the scenes at Toyota's R&D center - Part II

As we discussed yesterday, Toyota is out trying to mend its broken reputation.  When the light of public scrutiny is shining on a company, it is not good to have shallow marketing campaigns...  Unfortunately, that is what Toyota did with is Star Safety System.  Some actions such as starting field quality offices may have an indeterminate impact.  

On the other hand, as part of this process, they have allowed valuable and unprecedented access to a few journalist to their R&D organization.  This access included detailed briefings about R&D organizations/processes, what might be wrong with them and what they plan to do about them (Deep-Dive: Behind the scenes at Toyota's R&D center, Part 1 — Autoblog, Deep-Dive: Behind the scenes at Toyota's R&D center, Part Two — Autoblog).  We discussed existing organization and processes yesterday.  These R&D briefings do actually have some information about concrete steps that Toyota plans to take.  Lets dig into them and see what we can learn from them:

Jul 25, 2010

Behind the scenes at Toyota's R&D center - Part I

As promised earlier in our case study on portfolio management, here are some insights into R&D management at Toyota.  As we had discussed in the past, Toyota has suffered quite a few setbacks this year and the fact that a lot these problems are because of increased complexity.  Toyota has been working hard to reverse some of the bad publicity it has received and recently invited some journalists to see what changes they are making to address the quality problems and may be drive up sales.  Autoblog was one of them and has two articles detailing their visit to Toyota (Deep-Dive: Behind the scenes at Toyota's R&D center, Part 1 — AutoblogDeep-Dive: Behind the scenes at Toyota's R&D center, Part Two — Autoblog).
In an effort to show transparency and a concerted effort to improve its quality and safety, for the first time in its history, Toyota has invited a small group of journalists and analysts into its research and safety facilities in Toyota City, Japan. As part of that select group of media, in the coming days, we'll have a chance to peek behind the curtain, look at how its products are developed and tested and talk to Toyota executives, including CEO Akio Toyoda as we try to fully understand not only how things went so horribly wrong, but how the automaker plans to get back on track.

Lets dig into the article and see if we can explore about R&D management processes at Toyota and learn something about R&D management in general.

Jul 24, 2010

Update on the Portfolio Management case study

Here is a quick update on the portfolio management case study: The actual cost of Kin failure, resulting (in my opinion) primarily from a failure to effectively manage a portfolio competing/complimentary of R&D projects to Microsoft is $700M+.  Check out posts on Portfolio Management on some processes, tools and learnings on how to avoid portfolio management errors.

Via Engadget: "Here's a tidbit in today's Microsoft quarterly earnings that we previously overlooked: a $240 million cost of revenue 'primarily... resulting from the discontinuation of the Kin phone, offset in part by decreased Xbox 360 console costs.' In other words, the company took at least a quarter billion hit due to manufacturing, distribution, and support costs of the Kin (according to Microsoft's definition of 'cost of revenue'). We don't know how much Xbox 360 offset, unfortunately, but we can add this figure to the $500 million Danger acquisition and the full marketing cost for the product (which we also don't know, but anecdotally, it was on par with other major campaigns) to reach... well, at least $800 million in regret for the folks in Redmond."

Jul 23, 2010

Practical Advice for multi-location team development

The article Practical Advice for Companies Betting on a Strategy of Globalization in Knowledge@Wharton has a  useful reminders about how to balance between local staff vs. head office staff.  As with anything, the suggestion is to start with a clear vision:
The success of any international venture also depends on the human resources policy that the company pursues. 'It took us years to create local talent,' said Alvarez-Pallete. He believes it is essential 'to decide what part of the business you are going to manage locally, and what it is that creates the most value.' 
The article recommends a balanced approach - hire local talent, but only put those people in-charge who have similar values as the head office.  The diversity they bring will enhance performance and the fact that they understand corporate culture, will make communication easier.
As a result, he leaves in charge those people who are closest to the corporate culture and goals laid out by headquarters. Falcones added that 'diversification contributes wealth in terms of human resources. It is one of the most important assets brought by globalization. It is incredible how much we can learn about good business practices when we can understand different cultures.'
Not sure how easy it is to find these people - especially if the cultures / geopolitical between head office and local office are large...

Optimizing Product Development

The paper Balancing Development Costs and Sales to Optimize the Development Time of Product Line Additions in Journal of Product Innovation Management has some very interesting data for all R&D managers.  It has attempted to quantify and test gut feel R&D portfolio managers use in deciding on how to fund development projects - the results might surprise you.
Development teams often use mental models to simplify development time decision making because a comprehensive empirical assessment of the trade-offs across the metrics of development time, development costs, proficiency in market-entry timing, and new product sales is simply not feasible. Surprisingly, these mental models have not been studied in prior research on the trade-offs among the aforementioned metrics. These mental models are important to consider, however, because they define reality, specify what team members attend to, and guide their decision making.
Clearly, problem facing portfolio mangers is rather large - to balance between schedule, costs, market timing and sales (amongst other objectives).  There are no easy approaches to do this quantitatively and managers have to depend on their intuition.  However, the paper's analysis shows that there is a significant cost to this simplification.  The analysis is based on a significant dataset (albeit one that might have some geographical / cultural bias as it is all from Netherlands).
This survey-based study uses data from 115 completed NPD projects, all product line additions from manufacturers in The Netherlands, to demonstrate that there is a cost to simplifying decision making. Making development time decisions without taking into account the contingency between development time and proficiency in market-entry timing can be misleading, and using either a sales-maximization or a cost-minimization simplified decision-making model may result in a cost penalty or a sales loss.
The results are surprising, but intuitive.  Instead of maximizing just one dimension, optimal results are obtained when a balance is achieved between several competing objectives:
The results from this study show that the development time that maximizes new product profitability is longer than the time that maximizes new product sales and is shorter than the development time that minimizes development costs.
If one is forced lean towards something, development acceleration to maximize sales with associated increased development costs is better than minimizing development costs by extending the schedule.
Furthermore, the results reveal that the cost penalty of sales maximization is smaller than the sales loss of development costs minimization. An important implication of the results is that, to determine the optimal development time, teams need to distinguish between cost and sales effects of development time reductions.
 I have a feeling that this result may have may have other underlying causes like extending development schedule to reduce costs might demoralize teams or increase defects...

Jul 22, 2010

Great data for Entrepreneurs

The article Perspective: Economic Conditions, Entrepreneurship, First-Product Development, and New Venture Success in Journal of Product Innovation Management studies 539 new ventures started between 1998 and 2001 and has the following great findings:

  1. Consistent with prior research, less than half of the 539 ventures survived more than two years. 
  2. Economic downturns lead to higher failure rates for new ventures. 
  3. New venture success is highly correlated with first-product success. 
  4. First-product success is enhanced when those products are introduced into markets with emerging market needs but with established industry standards. 
  5. First-product and venture performance are significantly higher for products based on ideas that came from the founders. 
  6. Most successful first products are based on ideas that reflect both technology development and an analysis of customer needs.
Take away for me: Starting a business is risky.  However, as long as it is based on my own ideas and I am strongly aware of / pay attention to customer needs, I should be OK!

R&D Collaborations and Product Innovation

The paper R&D Collaborations and Product Innovation in Journal of Product Innovation Management confirms some of the findings we discussed earlier in the week: It is good to collaborate with suppliers and not so good to develop products with customers. Specifically, this particular paper is based on R&D collaborations undertaken by a sample of 781 manufacturing firms during 1998–2002.  The paper finds that:
  1. Collaborations with suppliers have the highest positive impact on product innovation, followed by collaborations with universities. 
  2. R&D collaborations with customers do not appear to affect product innovation
  3. Collaborations with competitors appear to harm
  4. Positive influence of R&D collaborations with universities and suppliers is sustained over the long-term
  5. Negative influence of R&D collaborations with competitors is, fortunately, short-lived. 
Also, some specifics about quality of collaboration: 
Their findings indicate that ease of knowledge access, rather than breadth of knowledge, appears to drive the success of R&D collaborations for product innovation. R&D collaborations with suppliers or universities, which are characterized by relatively easy knowledge access, have a positive influence on product innovation, whereas R&D collaborations with customers or competitors, which are characterized by reduced ease in knowledge access, are not related or are even negatively related to product innovation.
More importantly, partners with a narrow knowledge-base (at least the part that is shared) is better for collaboration than otherwise.  This is similar to what we discussed in the paper on cross-function collaborations.
Moreover, to achieve product innovation with the help of R&D collaborations, it appears that the collaboration must first have mechanisms in place to facilitate the transfer of knowledge; once these are in place, it is better if the partner has a relatively narrow knowledge base. Thus, while R&D collaborations with both suppliers and universities are positively related to product innovation, the narrow knowledge base provided by collaborations with suppliers appears to have a larger positive impact on product innovation than the wider knowledge base provided by collaborations with universities

Jul 21, 2010

Performance measurement in R&D

Here is quick reference from the Journal R&D Management: Performance measurement in R&D: exploring the interplay between measurement objectives, dimensions of performance and contextual factors.  The overall learning is that industry and size and a big influencer on what metrics firms use.  Furthermore, overall goal for performance management also guides what metrics are used.
The results indicate that firms measure R&D performance with different purposes, i.e. motivate researchers and engineers, monitor the progress of activities, evaluate the profitability of R&D projects, favour coordination and communication and stimulate organisational learning. These objectives are pursued in clusters, and the importance firms attach to each cluster is influenced by the context (type of R&D, industry belonging, size) in which measurement takes place. Furthermore, a firm's choice to measure R&D performance along a particular perspective (i.e. financial, customer, business processes or innovation and learning) is influenced by the classes of objectives (diagnostic, motivational or interactive) that are given higher priority.

High-Performance Product Management

The article High-Performance Product Management: The Impact of Structure, Process, Competencies, and Role Definition in the Journal of Product Innovation Management is interesting for many reasons.  The least of them is because it provides a very good history of research in product management.  More importantly, it combines qualitative interviews with factor analysis and maximum likelihood estimation to develop and test a model for improving performance in product management.
The paper identifies several key factors that potentially impact product management performance. A set of qualitative interviews is conducted to develop hypotheses related to constructs that may drive product management performance. These hypotheses are used to develop a causal model for product management performance that includes constructs related to roles and responsibilities, organization structure, and marketing processes related to product management. An empirical survey of 198 product managers from a variety of industries is conducted to test the causal model. The results of the causal model suggest that performance of a product management organization is driven by structural barriers in the organization, the quality of marketing processes, roles and responsibilities, and knowledge and competencies. The findings suggest that structural boundaries and interfaces are the biggest impediment to effective product management, followed by clarity of roles and responsibilities. The research highlights the importance of organization structure and effective human resource practices in improving product management performance.
Below is what I learned from it:

Jul 20, 2010

How to get employee engagement in R&D strategy

Time and again, I have found that most employees do not understand or even know about the company strategy.  Corporate Executve Board has some good data in Get Your Frontline Onboard: Communicate, Clarify and Cascade CEB Views - Finance and Strategy:
A surprising number of employees don’t know what their company’s strategy is. A study by the International Association of Business Communicators found that only one in three companies say their employees understand and live the strategy. Robert Kaplan and David Norton, the founders of the Balanced Scorecard, found the situation to be worse. They found only 5% of employees understand company strategy. Without understanding, execution is impossible. Therefore, communication is critical, not only to promote understanding but to help employees appreciate how the strategy relates to what they do.
Of the three Cs, communicate and clarify have been discussed pretty thoroughly.  I want to reemphasize Cascade.  That is the crucial, and pretty much the most difficult portion of getting employee engagement.  Most front-line employees do not or can not figure out what they can do to help with company strategy.  Management needs to make the effort to actually help employees understand what behavior is expected of them.  Sending employees the strategy and asking them to follow it is not it.

A funny anecdote: The presidents of a company actually tried to enforce strategy buy-in.  The strategy was very generic (Reduce Costs and Increase Revenues).  At first, they communicated and celebrated the strategy and assumed everyone would follow it.  That did not happen.  Then the president set up mandatory meetings between mid-level managers and senior executives to get buy-in.  That did not work either because the mid-level managers did not know what they were supposed to do (nor did the senior executives).  These mandatory meetings became question answer sessions that generated no results.  The president than decreed that the mandatory meetings will only be about how mid-level managers would implement the strategy.  No questions will be answered.  That failed as well.  The strategy and the entire effort was then dropped.

I will leave you with the recommendations on CEB on cascade:
To help employees take ownership over their role in the execution, communications about strategy should always be accompanied by goals and metrics. These should be goals and objectives that employees can relate to and can be integrated with their daily tasks. Also, be sure to give them visibility into the goals that everyone up the line is trying to achieve as well so they understand how what they are doing contributes to the larger objectives. Ultimately, front line employees need to know:
What I need to do – goals and tasks
Why I need to do this – the value it provides the customer, the employee, the department and the organization
Don’t create too many goals. Prioritize to make it more manageable. If employees are overwhelmed by the scope of the strategy, or the number of goals they need to achieve, they are less like to perform well.

Social Networking Helps R&D Collaboration?

The article Frontiers of Collaboration: The Evolution of Social Networking in Knowledge@Wharton discusses how social networking (Wiki, Blogs, tweets, etc.) is replacing Knowledge Management and improving communication at the same time
Weinberger began the session by asking panelists what made the introduction of social networking tools different from previous technological endeavors to improve communication and collaboration. One significant issue discussed was how social networking compared with knowledge management (KM). KM systems first appeared on the scene about 20 years ago and once represented the frontier, embodying companies' most innovative ideas for integrating internal access to disparate information in order to improve communication, collaboration and business processes.
before social networking tools enabled quick and casual communication, many bloggers in corporate organizations had "some KM tool where you captured the knowledge in the tool's silo and assigned all sorts of tags, folders and so on to it. You would then pass the blog to your manager for him or her to [learn from] what you were writing.
Social networking is easing some of the frustration users in many organizations have encountered with traditional KM systems. Through use of Twitter and other tools, more of the intellectual capital that KM systems once guarded is flowing freely, in real time, inside and outside organizations. If an employee needs to find expertise or share information, he or she doesn't have to work within the rigid confines of a KM system, or even the confines of his or her organization. Instead, the employee can use social media to collaborate with others and to find answers more quickly and put relevant advice into practice.
Clearly, social networking can add value to R&D community.  However, I am not sure if I would agree with this as whole heartedly as the authors / speakers about replacing KM.

One problem with social networking is the volume of information that can become available and time/effort needed to find the right information.  Consider if all employees in a 10,000 person R&D house started tweeting what they were doing - the signal to noise ratio would be terrible.  Add to this personal tweets and the entire system would become unmanageable.  Furthermore, how does one control the flow of information and ensure that proprietary information is not accidentally leaked?  The panelist thought that all that the risks outweigh benefits -  I am not sure I agree:
Fitton, whose consulting firm focuses on helping companies to use micro-blogging in a business environment, suggested that companies may find the "messy and random serendipity" of Twitter and other social networks to be more efficient than lumbering KM systems and processes. "It brings an infusion of humanity to business,"
There might be value to social networking in building R&D communities and helping virtual teams collaborate effectively, but the idea that real R&D knowledge can be shared effectively through micro-blogging sounds a bit simplistic.  R&D teams do not just need access to knowledge, they need access to the right type of knowledge at the right time.  If one is designing a new cell phone and has a question about what impact human body will have on reception, it does not help to go search through blogs, nor does one have time to do mass mailing / tweets to request help, weed out the responses and find the right person.

Underlying assumption for social networking in R&D world is that someone has the right information available at their finger-tips and are willing and able to stop what they are doing to provide that information back.  How likely is that going to be?  Not to mention the constraints that social networking tools like tweeter add to communication... Unlike the speaker, I am not sure that constraint is actually valuable:
But does the 140-character limit for posts to Twitter enable engagement, or is it "a sign of triviality?" asked Weinberger. "Constraints breed invention," replied Shellen. Douglas added that communities using Twitter, Google Wave and other tools are creating their own etiquette. Panelists agreed that both the creation of etiquette for particular conversations and the sheer ability to engage in several discussions at once would be difficult using blogs and older forms of web content sharing programs.
There are more problems with sharing:
Lippe noted that, in the legal field, "there's already a structure of knowledge, and most knowledge repositories and structures of the collaborative web have existed for multiple generations. So, the question is, how do you tap into them?" One core structure is attorney-client privilege, which Lippe said "has long preceded the information confidentiality and security regime that we all have now. It creates the structure of what you can and cannot share." In the legal universe, he added, the messy serendipity of "horizontal" social networking cannot solve the hardest problems.
Just to be clear, I do not think that social networking does not have value.  If used properly, it can help companies build focused virtual R&D communities across geographical and cultural boundaries.  However, R&D managers will need to do a lot of work structuring and managing the flow of information so it be value-added.  Furthermore, objectives of social networking should be crafted very carefully and monitored consistently to ensure that it is indeed delivering results.

Jul 19, 2010

Three Lessons for Sustainable Scenario Planning

I have always been a fan of scenario planning.  It really does provide great insights into R&D strategy and allows organization to develop robust R&D plans.  The article Six Lessons for Sustainable Scenario Planning talks about how interest in scenario planning is increasing because of the turbulent economy:
One business discipline that generated a huge amount of interest during the recession was scenario planning. We wrote about it for Bloomberg Businessweek and advised many companies on it. The Corporate Strategy Board (CSB) ran a series of meetings around the globe on scenario planning where clients exchanged ideas and talked about how to implement the most successful practices we saw in our client networks. These discussions led to the six lessons below.
I will make it a bit simpler than the six lessons in the article - three points to keep in mind while setting up or maintaining a scenario-based planning process.  I had trouble with Scenario Planning at one of the organizations.  These three are my lessons learned from the experience.:

  1. Formalize Scenario Planning: Have clear ownership / accountability for scenario planning. Ensure that the responsibility / authority are clearly defined and delineated from other ongoing efforts.  Finally, define and expect clear deliverables and results from the scenario planning exercise.
  2. Develop and use Actionable and Plausible Scenarios: It is not easy to devise scenarios that engender useful discussion and lead to robust plans.  On the other hand, one of the biggest benefits of scenario planning is the discussion around assumptions of different scenarios.  All scenarios are based on assumptions.  Organizations should make these assumptions known (explicitly) and allow some discussion on them.  However, the assumptions discussion should be managed effectively and stopped at some stage - otherwise the scenario-based planning discussion never actually happens.  The CIA actually publishes very good global geopolitical scenarios that can be used as a foundation.  However, scenarios that you would have to use will depend on the level at which you are doing strategic planning...
  3. Integrate Scenarios into overall planning and risk management: Once results of scenario analysis are know, use them to drive strategic planning and integrate them into risk management process.  Nothing drives implementation as much as results...

Managing Project Execution Risks (wonkish)

The Project Management journal has an article called Managing risk symptom: A method to identify major risks of serious problem projects in SI environment using cyclic causal model.  The article lays out an interesting framework for managing project execution risks in large system integration (SI) environment.  Some of the concepts are work remembering.
Serious problem projects (SPPs) often occur, particularly in a system integration environment, and it is difficult to prevent them, since the relationships among phenomena that occur throughout the project life cycle are extremely complicated. Our goal is to make it easier to identify major risks by distinguishing phenomena that are sources of future SPPs from phenomena observed in actual field projects. By choosing several events whose causal relation is known to be cyclic, we constructed a causal model and clarified that it can contribute to the easier recognition of SPPs empirically, by analyzing actual SPP cases.
The overall message is to anticipate major problem spirals by the analyzing events, understanding if the problems are root cause of a death spiral or a derivative of the death spiral and then taking effective action not only to mitigate the problem (event) but also the underlying death spiral.

The paper is a bit difficult to read - probably because I am not familiar with Japanese project management terminology and because of Japanese English....  However here are the major take aways:

Jul 18, 2010

Confirmation bias in R&D management

Here is a bit of a philosophical problem that I have been thinking about for quite some time.  In the scientific world, there are all kinds of checks on proposals/decisions/results before they are accepted.  In fact, skepticism is actually somewhat welcomed. Why are R&D management decisions not subject to similar level of scrutiny?  Time and again I have found that decisions of senior R&D executives are not challenged and debated.  If innovation can only happen when when there is questioning of status quo in R&D, why not the same for R&D management innovation?

The article Confirmation bias in science: how to avoid it summarizes the problem pretty effectively (albeit in the context of scientific research):
One of the most common arguments against a scientific finding is confirmation bias: the scientist or scientists only look for data that confirms a desired conclusion. Confirmation bias is remarkably common—it is used by psychics, mediums, mentalists, and homeopaths, just to name a few.
The article had three interesting examples of confirmation bias. The one that is most applicable to R&D management and organizational pride comes from 18th century France - where the need to maintain national pride and a belief that all is well led to an amazing acceptance of bad research / decision:
... Prosper-René Blondlot announced the discovery of N-rays. He was immediately famous in France, and very shortly afterwards, researchers from around the world confirmed that they too had seen N-rays. N-rays were an ephemeral thing: observed only as a corona around an electric discharge from certain crystals. They were only observed by the human eye, making them difficult to quantify.
But not everyone was convinced. Many researchers outside of France were suspicious of the number of claims coming from French labs for the properties of N-rays. In the end, an American scientist Robert Wood visited the lab of Blondlot to see it for himself. During one of the experiments he surreptitiously removed the crystal that supposedly generated the N-rays, after which Blondlot failed to notice the absence of N-rays. The N-rays failed to vanish when their source was removed.
From an observation of many firms from my management consulting days, I find that confirmation bias is even stronger in R&D management.  In fact, many senior managers seem to surround themselves with people who actually do nothing but confirm their decisions.  Below are what I think are root causes that encourage confirmation bias in R&D management and some thoughts on what could be done about them.  I welcome any comments and criticism.

Jul 17, 2010

How to keep your top talent

Here is what the pointy haired boss suggests:
Here are three ways to keep the top talentfrom the corporate executive board:

  1. Get to know the top talent
  2. Don't mistake current level of performance with future potential
  3. Differentially reward top talent

Here is a bonus also from CEB - things to keep in mind for motivating your teams:
His core aim is to clearly communicate a consistent vision and then drive accountability for executing it. He’s done this by avoiding five dysfunctions on his staff that aligns well with Lencioni’s work. Lencioni’s five dysfunctions are: 1. Absence of trust 2. Fear of conflict 3. Lack of commitment 4. Avoidance of accountability 5. Inattention to results

Jul 16, 2010

Strategic considerations for teaming, alliances and collaborations

Management Science has a cool (at least I think so) paper on Cross-Function and Same-Function Alliances: How Does Alliance Structure Affect the Behavior of Partnering Firms:
Firms collaborate to develop and deliver new products. These collaborations vary in terms of the similarity of the competencies that partnering firms bring to the alliance. In same-function alliances, partnering firms have similar competencies, whereas in cross-function alliances, partners have very different competencies.
This is very important in co-development.  If a company in consumer electronics is co-designing a new device with a PCB manufacturer, the alliance is likely to be same-functional. Good news is that alliance between firms with similar competencies seem to work well (with caveats - see below).
On examining managers' view of these alliances, we find that, on average, same-function alliances are expected to perform better than cross-function alliances, holding fixed the level of inputs. 
However, if the same consumer electronics firm wanted to work with a new company on wireless power, a brand new technology, the alliance might be cross-functional.  Many R&D managers are apprehensive of collaboration with dissimilar firms.  The paper uses game theory to come up with a very interesting finding that cross-functional collaboration leads to increased investments:
partners in cross-function alliances may invest more in their alliances than those in same-function alliances.
And that multiple partners are not a problem in cross-functional collaboration, but they are if the firms collaborating have similar competencies.  This is very important in Aerospace & Defense world as many government contracts do indeed have several same-functional parters:
It is also often believed that increasing the number of partnering firms is not conducive for collaborative effort. Our analysis shows that this belief is correct for same-function alliances, but not for cross-function alliances. 
Finally, a somewhat straight forward learning - once the firms have learned from each other and become more similar in competency, they do stop investing the way they used to in the cross-functional stage:
We extend our model to consider alliances where firms have an opportunity to learn from their partners and later leverage this knowledge outside the scope of their alliance. Though such learning increases the resources committed by alliance partners in the learning phase, it decreases investment in the subsequent competition and also dampens the overall investment across the two stages. 

Jul 15, 2010

Too many metrics?

The article The Only KPIs Your Firm Will Ever Need in AccountingWEB.com discusses why too many metrics are not value adding:
Measurement for measurement sake's is senseless, as quality pioneer Philip Crosby understood when he uttered, 'Building a better scale doesn't change your weight.'
They seem to contrast it from the McKinsey maxim:
"What you can measure you can manage."
 The example they have is of Continental turn around, where Mr. Bethune focused on just three high-level metrics:
  1. On-time arrival
  2. Lost luggage
  3. Customer complaints
Clearly, these are important for an airline.  However they are not the only metrics that need to be monitored in an operating airline.  The article makes sense and it is important for Managers to have dashboards that have unique metrics - Key Predictive Indicators.  However, in most cases, KPI need to be broken down into constituents that can be controlled to improve efficiencies.  So it is not that KPI replace detailed metrics - they provide a way to consolidate many metrics into meaningful indicators and help managers easily detect and eliminate problems.

R&D Portfolio Management case study - Microsoft Kin

It is not very  often do we get a look inside R&D management processes and tools at giants like Microsoft and Toyota. So, it is good to learn as much as we can when information becomes available.  I am studying new public disclosures on Toyota's R&D process and will post about it soon.  The topic of interest today is Microsoft and its killing of Kin product line with only 10k units sold.  This was a big failure - the acquisition of Danger alone is reported to have been around $500M, which does not include the cost of developing the product line and associated software. Lets start off with a quick background from a great article in Ars Technica:

Microsoft's ambitions with the KIN were sound. As much as the iPhone and, lately, Android handsets garner all the press attention, smartphones represent only a minority of phone sales—a growing minority, but a minority all the same. There are many, many people who don't have a smartphone, and don't even particularly want one, and they easily outnumber smartphone users.
Redmond wanted to be a part of this broader market. The company was already a big player in the smartphone market with Windows Mobile; the KIN was a product of its ambitions beyond that space. So rather than starting from scratch, in 2008 Microsoft bought Danger, the company behind the T-Mobile Sidekick line.

To a certain extent Microsoft succeeded in this new device.  Clearly they had great start from Danger and their cloud computing platform.  The idea of social networking focused phone for tweens was also great.  As the AnandTech article points out the phone did have some very good features:
KIN included a notable number of features Microsoft and its Danger team executed better than anyone else in the smartphone market today.
Amongst the notable features are innovative form factor, good usability, great battery life and aforementioned social media integration and very innovative packaging.  So why did Kin fail?  I guess the problems are related to a broad failure of R&D management processes:

  1. Portfolio Management: Executive sponsorship critical to R&D project funding
  2. Acquisition Integration: Not invented here
  3. Product Management: Positioning product as alternate to smart phones but the same cost
  4. Project Management: Significant development delays
  5. Overall R&D management: Unclear strategy, ambiguous goals 

Lets look at each one of these factors in detail:

Jul 14, 2010

Hybrid Entrepreneurship

Management Science has an interesting paper on Hybrid Entrepreneurship with empirical data that a large fraction of entrepreneurs start off in a hybrid mode - keep the day job will working on a new venture:
In contrast to previous efforts to model an individual's movement from wage work into entrepreneurship, we consider that individuals might transition incrementally by retaining their wage job while entering into self-employment. We show that these hybrid entrepreneurs represent a significant share of all entrepreneurial activity.

What drives satisfaction in virtual teams?

As you have probably noticed, management of virtual teams and co-development across multiple organizations is a favorite topic of mine.  Here is a very interesting paper from the Journal R&D Management: An analysis of predictors of team satisfaction in product development teams with differing levels of virtualness:
The purpose of this study is to empirically examine and assess the moderating effects of extent of virtualness on a variety of well-established predictors of new product development team satisfaction. We focus our study on 178 different new product development teams from a variety of industries and use extent of virtualness as a structural characteristic of the teams, measuring it on a continuum. 
The paper had three findings that I find are very important to any R&D manager (as the virtual teams pointed out, most teams become some what virtual even when the members are on different floors).
(1) relationship conflict has a more deleterious effect on team member satisfaction as teams become more virtual, mainly because it is very difficult for team members of virtual teams to resolve their interpersonal disputes; 
So, the article empirically establishes an increased need for active conflict management and effort to keep the team loose.
(2) the relationship between preference for group work and team satisfaction is moderated by extent of virtualness, such that preference for group work increases team satisfaction more as virtualness increases; 
I am not sure if I understand this.  Please help if you do.  From what I read, the people who love to work in groups are more satisfied with work in virtual teams.  Does that mean that R&D managers staffing virtual teams have to either not select or provide extra help to people who tend not to like work in groups?
(3) goal clarity and familiarity are not moderated by extent of virtualness, but have a significant direct effect on team satisfaction.
Pretty straight forward - for virtual teams to succeed, goals need to be extremely well communicated.  They also need to be effectively communicated across discipline, organizational and cultural boundaries.  This to me is the biggest challenge to codesign.  I am not sure if I have found effective tools and processes to address this challenge...

Jul 13, 2010

Executive focus on Innovation

Corporate Executive Board has some interesting data on how the percentage of executives citing innovation-led growth has risen sharply in the past year in I Think Therefore I Can:
There take home message is to make sure innovative teams are cross-functional, they are staffed with "starters" not "enhancers," and that the processes support innovation...

Cost overruns and schedule delays of large-scale U.S. federal defense and intelligence acquisition programs

Project Management Journal in the paper Causal inferences on the cost overruns and schedule delays of large-scale U.S. federal defense and intelligence acquisition programs provides some interesting data on cost and schedule overruns in USG programs:
For example, statistical data from a recent Government Accountability Office (GAO) report (2008a) on 95 weapons systems found that the total cost growth on these programs was $295 billion, and the average schedule delay was 21 months. These large numbers represent a growing trend in cost overruns and schedule delays since the GAO began tracking these metrics in 2000. For comparison, the estimated total cost growth in the year 2000 of 75 DOD programs was $42 billion, normalized to fiscal-year 2008 dollars.
 The author indicates three reasons for the overruns ineffective human resources policies and practices, consolidation of the aerospace industry, and too many stakeholders:
A study was undertaken to understand why cost overruns and schedule delays have occurred and continue to occur on large-scale U.S. Department of Defense and intelligence community programs. Analysis of data from this study infers the causes of cost overruns and schedule slips on large-scale U.S. federal defense and intelligence acquisition programs to ineffective human resources policies and practices, consolidation of the aerospace industry, and too many stakeholders. 
Specifically, he posits that ineffective human resource policies lead to inexperienced personnel both in contractors and customers, people rotate through jobs too frequently, and there are too many contractors involved.  I can imagine that most of these are realities of the current economic and cultural environment.  Just as Toyota found out, these come from inability for R&D management tools and processes to deal with that environment and increasing complexity.

The author also posits that too many stakeholders lead to frequent changes in requirements.  I am not sure if the environment that leads to requirement changes is going to change any time soon.  I guess that means that the R&D managers need to come up with processes to deal with requirements changing effectively - without adding cost overruns and schedule slips...

The block diagrams that the author came up with look interesting.  However, I am not sure if I am able to agree with them fully.  It appears that he had his conclusions made first and then fit the analysis to support them...

Overall, a great article - well worth reading.

Jul 12, 2010

Get Immediate Value from Your New Hire

HBR has some excellent advice on Get Immediate Value from Your New Hire:
  1. Start Early:  Start as early as possible in the process to expose your new hire to the organization's or unit's culture and to explain how work gets done. 
  2. Get Them The Right Network: The first thing a manager can do is ensure that the new hire understands how important the informal or 'shadow' organization is in getting things done
  3. Get Them Working: Giving them real work immerses them in the way things function at the organization. This doesn't mean you should let them "sink or swim"; definitely provide the support they need. 
This are useful reminders for both manager hiring new team members and team members getting involved in new organizations.  My success in several organizations has been hampered by lack of understanding of informal / shadow networks.  One interesting observation: Supervisors in companies with strong shadow organizations were much more reluctant to explain them!  And some principles to Remember:
Do: Hire for cultural fit as much as for capabilities and skill; Introduce your new hire to 'culture carriers' and 'nodes'; Explain how work actually gets done at your organization 
Don't: Let a new hire stay in 'learning' mode for too long; Assume your new hire can't be productive from the start; Rely on the org chart to help explain lines of communication

Does innovation improve with external collaboration?

The article Effects of Supplier and Customer Integration on Product Innovation and Performance in the Journal of Product Innovation Management has some empirical evidence on impact of co-design and information sharing with suppliers and customers:
After surveying 251 manufacturers in Hong Kong, this study tested the relationships among information sharing, product codevelopment, product innovativeness, and performance with three control variables (i.e., company size, type of industry, and market certainty). 

The findings seem to indicate a direct, positive relationship between supplier and customer integration and product performance. However, there are a couple of key learnings: For brand new product families (that have not yet percolated through the supply-chain), it is much more important to partner with the emerging customer to learn and perfect the product.  On the other hand, for improving existing product lines, it pays to work with suppliers.  Information sharing with existing customers is not that important, but customer intimacy is:
The empirical findings show that product codevelopment with suppliers improves performance, mediated by innovation. However, the sampled firms cannot improve their product innovation by sharing information with their current customers and suppliers as well as codeveloping new products with the customers. If the adoption of supplier and customer integration is not cost free, the findings of this study may suggest firms work on particular supplier and customer integration processes (i.e., product codevelopment with suppliers) to improve their product innovation. The study also suggests that companies codevelop new products only with new customers and lead users instead of current ones for product innovation.

Jul 11, 2010

How To Be An Innovative Leader

Forbes.com had an article with three pointer towards how to drive innovation (How To Be An Innovative, Not Just Business, Leader):
  1. Reframe the challenge. 
  2. Focus on the customer experience.
  3. Practice rapid prototyping. 
Of the three, I find the first one of most interest.  We often forget to ask about the challenge itself and that in itself limits the possible solutions we come up with:
Innovative thinking can be used to redefine, or reframe, a problem. This is not a cosmetic or semantic change; it is a process of reexamining the situation. ... By reframing problems, you uncover new places to innovate, or new angles to take. To reframe your challenge, ask powerful questions, challenge assumptions and bring in multiple perspectives. ... He reframed the challenge away from fixing a past problem and toward differentiating the product and the company for the future. That was a vision that could focus and motivate the whole team. 
Here are a few more tips from another article in Forbes - Innovator's Nirvana:
--Get strength at the top. "You can change business models," said Miller, "but changing culture requires leadership."
--Watch timing. The change may be great, but are all the support systems there? Remember what you innovate has to exist in an ecosystem to thrive.
--Communicate discovery for open innovation. The discoveries of Alcatel-Lucent's scientists frequently end up in products far from their respective specialties.
--When ideas just keep failing despite tweaks to the prototype, have the guts to admit you were wrong. Just because it's different, that doesn't mean it was right. That judgment is more important. Plus admitting that and going on to try other new things can actually make you braver

Jul 10, 2010

Innovation's Dirty Little Secret

The Businessweek Article Innovation's Dirty Little Secret talks about how many organizations pay lip-service to Innovation:
Recently I spoke with a group of executives from a $3 billion division of a large industrial company. They were faced with a mandate from the chief executive to expand the firm's service revenue from 20 percent to 33 percent. That's almost $400 million in new revenue, yet when I asked how many people were on the team, the leader replied meekly: "Two."
Some organizations like IBM clearly seem to invest a lot in Innovation and have found ways to make it successful (I am not sure what is innovation in a transformation from product to service business...)
Rosabeth Moss Kanter's October 2009 Harvard Business School case study, 'IBM in the 21st Century: The Coming of the Globally Integrated Enterprise,' details many acts carried out by the leadership team during the company's fabled transformation from a product to a service company. Executives were prepared to put big money where their mouths were when it came to supporting service-based ideas, such as 'Innovation Jam,' or such businesses as 'On-Demand' software, and strong messages about the importance of services were sent.
One last interesting learning from Kaiser - it is a great approach to make sure high risk high reward projects actually get implemented:

when a promising innovation project is about 50 percent complete, she brings together representatives from information technology, patient services, and facilities management to assess how to scale it across the company's vast system. By evaluating the "O-Gap"—that is, the space between pilot and operations—this group takes into consideration everything from process realignment to environmental modifications, as well as the training requirements needed to foster wide adoption of the change. 

Jul 9, 2010

Strategy for maintaining proprietary information in R&D outsourcing

R&D management journal has laid out an interesting strategy for managing Information leakage in innovation outsourcing:
This paper studies an R&D outsourcing contract between a firm and a contractor, considering the possibility that in the interim stage, the contractor might sell the innovation to a rival firm. Our result points out that due to the competition in the interim stage, the reward needed to prevent leakage will be pushed up to the extent that a profitable leakage-free contract does not exist. This result will also apply to cases considering revenue-sharing schemes and a disclosure punishment for commercial theft. 
Take away in this case is that the before the R&D matures and revenue sharing begins, the contractor has an incentive to maximize revenues by "leaking" the information.  Rewards and or punishment for leaks need to be higher during the R&D phase and can be moderated at manufacturing stage.
Then, we demonstrate that in a competitive mechanism where the R&D firm hires two contractors together with a relative performance scheme, the disclosure punishment might help and there exists a perfect Bayesian Nash equilibrium where the probability of information leakage is lower and the equilibrium reward is also cheaper than hiring one contractor.
This is very interesting.  If we have two contractors than probability of leakage is lower! Sounds counter intuitive on the surface, but clearly there is some logic to it - if rivalry can work in internal R&D teams, it could help with external collaborators as well.  May be R&D managers can consider Coloplast's approach?

Jul 7, 2010

You're Getting a Bonus! So Why Aren't You Motivated?

An interesting article from HBR You're Getting a Bonus! So Why Aren't You Motivated? lays out  two factors that reduce effectiveness of bonuses as a motivator in R&D teams.  R&D managers must keep both in mind while determining the best way to motivate teams into improving performance - especially when teams are virtual.
1.The connection between values and behavior. Typically, bonuses are tied to financial achievement —they're paid out when a certain benchmark is hit such as yearly company revenue, earnings per share, or department revenue targets. But the connection between the outcomes you truly value and the behaviors you want to see from employees can be far from obvious.

This is very true in large R&D organizations.  I have worked with many companies were even large bonuses did not encourage right behavior because there was no direct link between individual performance and bonuses.  Several companies attempted to address this using a flow down of corporate performance requirements into individual goals.  However, this is extremely difficult to do - how does one link a success of a research project that may enable a new subsystem which in turn might have an impact on several future products to bonuses?  Even when the bonuses were tied to behaviors, the second problem prevented good outcome: 
2.The connection between a worker and his/her direct supervisor. Plenty of research has shown that the most important influencer of workers' performance, for better or worse, is the dynamic between them and their bosses. For example, research into workplace deviance by Lance Ferris of Singapore Management University shows a higher level of outright deviance among employees who feel they've been treated rudely or unfairly by their immediate supervisors. By the same token, there is nothing more motivating than recognition that comes directly from the higher-up who knows your work best: your manager. At that close range, a reward is a relationship-builder. Administered more remotely, as bonuses are, it's only a transaction.
I would add to this factor:  In several companies, the bonuses were decided at the division level and the supervisors were just handed a "decision" to communicate.  This made it quite difficult for the supervisor to even explain rewards, much less guide behavior!  May be it is time to consider other approaches to motivate teams?

Spurring Cross-Functional Integration

Journal of Product Innovation Management has an interesting article on Spurring Cross-Functional Integration for Higher New Product Performance: A Group Effectiveness Perspective.  The article recognizes, that cross functional integration is crucial, but difficult to do:
Firms are increasingly assembling cross-functional new product development (NPD) teams for this purpose. However, integration of team members' divergent orientations and expertise is notoriously difficult to achieve. Individuals from distinct functions such as design, marketing, manufacturing, and research and development (R&D) are often assigned to NPD teams but have contrasting backgrounds, priorities, and thought worlds. If not well managed, this diversity can yield unproductive conflict and chaos rather than successful new products.
The paper lays of the result of a formal study based on group theory that scientifically validates that cross-functional integration does have a positive effect on R&D effectiveness:
The model developed from this theory was then tested by conducting a survey of dual informants in 206 NPD teams in an array of U.S. high-technology companies. In answer to the first research question, the findings show that cross-functional integration indeed contributes to new product performance as long conjectured. This finding is important in that it highlights that bringing together the skills, efforts, and knowledge of differing functions in an NPD team has a clear and coveted payoff: high-performing new products. 
The study finds that two types of factors impact cross-functional integration:
Specifically, social cohesion and superordinate identity as internal team factors and market-oriented reward system, planning process formalization, and managerial encouragement to take risks as external team factors foster integration.
Authors recommend that BOTH factors need to be addressed effectively to integrate teams:
These findings underscore that spurring integration requires addressing the conditions inside as well as outside NPD teams. These specialized work groups operate as organizations within organizations; recognition of this in situ arrangement is the first step toward better managing and ensuring rewards from team integration.
Clearly, internal factors are much more difficult to address in diverse teams that are dispersed across multiple locations.  In fact, it is very difficult to get virtual teams to believe that they are a single organization.  That is where R&D managers can help!

Jul 6, 2010

How To Keep Your Team Loose

As we have seen in several recent posts, R&D managers have to be increasingly effective about managing  complexity, especially when the teams are scattered across geographies and organizations (e.g. co-design).  Managers have to make sure that these virtual teams remain effective and focused. HBR has some hints on How To Keep Your Team Loose and performing:
Instill camaraderie. Optimal team performance depends on people pulling together for one another. Camaraderie-building can happen naturally between teammates, but managers can encourage it by creating groups or units of people whose talents complement each other. Injecting some humor into the mix through jokes and gentle teasing can speed the meshing of individuals. Camaraderie builds when people can laugh with each other, not always at each other. (That is, you can tease, but make certain you are available to be teased yourself.) 
Get personal. Know your people and their capabilities. The secret to maintaining a loose atmosphere is belief in individuals' and the team's ability to perform. Trust that people know their stuff and will execute. Being light and loose with underperformers is not advised. You need to get people in gear before you can ease up with levity. 
Coach 'em up. The art of management is putting the right people in the right places so they can succeed. Toward that end, good managers spend their time coaching their people for performance. If a manager has established good rapport with individuals through his light-hearted demeanor, he has a better ability to connect and get them to listen. (Note: too much joking will undercut a manager's ability to be perceived as serious.)
 A good reminder to any R&D managers trying to engender innovation...

Customer Driven R&D

It is interesting how R&D managers have to navigate the complex world of management advice - I guess thats what makes it interesting. The article Avoid The Commoditization Trap from Forbes recommends customer driven R&D:
To do that, gather together the best minds in your business, including representatives of all the company's critical functions, and ask them the following question: 'Knowing what we all know, if you were our customers, how would you go about deciding whether to purchase our products or services?' Your cross-functional and top-performing team should then make a list of all of the questions that arise about the problems to be solved for your customers and the questions those customers should be asking a potential solution provider. If those questions are positioned correctly, you'll be able to expand your customers' awareness of how you can address their needs, increase your credibility and ultimately set yourself further apart from your competition.
This is actually the opposite of the University of Illinois study recommending focus on technology instead of customers to drive innovation.  However both view points have value at probably different times in the R&D life-cycle.  In fact, managers need to balance investment between both approaches.

Clearly Intel believes in this approach - they have hired their on social scientists to design new computing solutions that could use their chips! The article has one good suggestion about deciding on customer impact that is quite useful in a B2B situation:
First, fully examine the impact your solution can have on a customer's situation and how it can benefit them long-term. The only true measure of value is how your solution changes your customer's net profit. Instruct your team in how to clearly and effectively relay such information, helping customers see your value from their own point of view--not in terms of industry averages, past experiences with other customers or generalizations, but in ways that will make them want to defend the validity of your solution to their own colleagues. That's when you'll know you've succeeded.
 Off to the races...

Jul 5, 2010

Improving quality of R&D portfolio management decisions

Yesterday, we discussed the need for an effective checklist in portfolio management and R&D decision making.  An article from Business Week Business Investment: Too Little, Too Late? describes what the checklist should cover:
  1. Surfacing biases in the decision process—Reveal and remove emotional and political factors that have impact on decisions.
  2. Systematically cataloging assumptions—Consistently capture presumptions that underlie decisions.
  3. Scoping options into investments—Assess the future potential moves or investments opened by near term decisions.
  4. Calculating Opportunity Cost of Decisions—Consider the value of the next best alternative forgone as the result of making a decision.
These four considerations are difficult to implement in an absolute sense.  For example, it is hardly ever possible to compute the opportunity cost of R&D project decisions - especially the early stage opportunities.  However, that does not mean that the managers should not consider opportunity costs.  A checklist is an effective solution here because it avoids the effort of actual computation while removing biases across managers that pure judgement calls might introduce.  This is especially true if one makes the choices in the checklist more objective: Instead of just asking portfolio reviewers to put in a score of 1 to 5, provide a brief description for each score.  We could always use the alternate discussion approach if there are significant differences across portfolio reviewers.

Please post a comment or email if you would like to see some examples...

Jul 4, 2010

Get Your Team to Stop Fighting and Start Working

Here is a quick little best practice reminder from HBR for the weekend: Get Your Team to Stop Fighting and Start WorkingSkepticism and questioning are part of the R&D environment.  However, they could lead to conflict - especially in virtual teams.  Managers would do well to follow this advice from HBR:
Intervene early. When two or more team members are engaged in a conflict, the sooner you step in the better. Once the dispute starts, emotions can run high, making it harder to diffuse the situation. Letting conflicts fester can result in hurt feelings and lasting resentment. Boyatzis points out that a simple disagreement can turn into a serious conflict in milliseconds, so it's critical for team managers to be aware of the team dynamics and sense when a disagreement is percolating.

Jul 3, 2010

R&D portfolio management best practices

Another article with some best practices for the weekend - this time from the Corporate Executive Board on R&D project portfolio management -Pick a Winner and Make it Pay.  As the pressure on improving R&D efficiency increases, one approach organizations seem to be following is increased portfolio reviews.

However, reviews do not automatically improve portfolio quality.  One of the key reasons for that is that projects need to be measured on equal terms across product lines, technologies, maturity, and divisions.  This is hard to do, but essential:
We saw the best portfolio managers focus on two capabilities in particular: 1. Ensuring project valuation and selection criteria are consistent across the enterprise. 2. Identifying and managing risk from the portfolio level down, rather than from the project level up. 
The other problem in reviews is lack of uniform categorization scheme (along three axes - product lines, technologies and maturities).  I have found that many large organizations have multiple parallel (often redundant) R&D projects.  Since the projects are not categorized in a consistent manner, it becomes extremely difficult for R&D managers to make effective decisions.
There are two practices that clients find particularly helpful in making the shift from a ‘project-up’ view to a ‘portfolio-down’ one. The first, that we came across in our current research, is from Deutsche Telekom and helps with the perennial problem of categorizing projects into the ‘kill’ or the ‘fund’ category. The firm’s T-Labs R&D group divides its portfolio into agreed zones to increase clarity of project scope and stimulate productive discussions on border line projects.
A systematic categorization allows organizations to aggregate data across projects and make strategic decisions at the portfolio level. Even when data is available, the portfolio decisions still need significant management intuition.  A problem tends to be that this intuition is not uniform across managers and it is often difficult to quantify it.  The article suggests voting as an approach:
The second is a client favorite from Ecolab , a cleaning services firm. Its R&D group developed a portfolio prioritization process that engages business leaders in the creation of high-growth R&D portfolios. Using an objective voting mechanism, senior managers rank proposed projects based on their potential ability to address the organization’s strategic objectives.
 I believe a more useful approach could be scoring based on a uniform / simple checklist.  A score for each project can calculated from the list.  In addition to quantifying manager intuition, these checklists allow organizations to learn from success / failure of funded projects.

I have a few examples that I could share.  Please send me an email.

Jul 2, 2010

Playing Well With Others

MIT Sloan Management Review had an interesting article Playing Well With Others about communication between R&D and marketing:
The Situation: Different priorities and ways of thinking often create gaps in understanding between marketing and research-and-development staff.
The Problem: Such gaps often mean that one side dominates the development of new products, giving short shrift to the other. When marketing dominates, R&D can be under too much pressure to hit on breakthrough ideas. When R&D dominates, new products can lack marketable strengths.
Effective communication is very important in R&D environment.  In fact, some amount of questioning and skepticism is absolutely essential to scientific / engineering progress and to innovation. However, when two different departments like marketing and R&D are involved, effective communication becomes more difficult and essential.  The article suggests:
The Solution: Companies should help both sides learn to appreciate each other’s strengths, and encourage them to work closely together at the earliest stages of product development.
I believe that R&D managers need to put in place a communication bridge that transcends jargons (both engineering and marketing) to allow a free flow of communication.  The bridge could be individual dependent (like in FreeScale) or in terms of an effective process and tool-set that allows everyone to focus on what is of common interest (product specs and customer requirements) while bypassing what is not (details of engineering implementation or product surveys).  The article points out the same:

  1. Make sure everybody recognizes the value that each department brings to the process—and how one side complements the other.
  2. If one department or the other is dominating a company’s process for developing new products, bring the two more into balance.
  3. Have the two sides speak a common language.
  4. Get out of your silos—up to a point.
  5. Focus on the consumer.

Jul 1, 2010

Data on contribution of "Innovation"

The article Strategic Decision Making and the CFO has some interesting data about contribution of innovation to the bottom line.
As chart 1 shows, this provocation (which isn’t our word by the way – see below) is important. The data comes from the well-known book “Blue Ocean Strategy” and shows that new ideas only account for 14% of new business launches but deliver 61% of the profits.

Chart 1: Revenues and profits from innovative versus incremental new business launches
Definition of what is innovation will change the results significantly The results would be easily explained if one defines innovation as new product line introductions (as opposed to incremental releases to an existing product line).  A relevant question to ask is how much of the R&D investment is spent on what is defined as innovation...