Jan 18, 2011

GE - Interesting perspectives on R&D strategy

The NY Times article For G.E. and Jeffrey Immelt, a Return to Basics has some interesting sound bites from the CEO Jeffery Immelt:
Strategies are useful, he says, but only if they can quickly adjust to nasty real-world surprises. “In the words of the great philosopher Mike Tyson,” Mr. Immelt says, smiling, “everybody has a plan till they get punched in the mouth.”
The focus seems to be adaptability in face of a rapidly changing environment
And what wisdom is on tap at the United States Military Academy? “Adaptability” and “resiliency” amid uncertainty, says Mr. Immelt — skills as vital to surviving in business as they are on the battlefield.
I think effective R&D planning and portfolio management is key to adaptability.  If market forces require a change in products under development, managers need to have detailed visibility into every single R&D project.  This access needs to be so comprehensive that executives can quickly perform what-if scenarios on what new products can be developed by minimal tweaking of existing projects.  More on this below.

The other GE strategic focus is Technology-differentiated Manufacturing:
He’s most animated talking about heavyweight products that take patience and piles of cash to develop, weigh tons and last for years — next-generation jet engines, power turbines, locomotives, nuclear plants, water-treatment systems, medical-imaging equipment, solar panels and windmills. Mr. Immelt notes, for example, that the cost of a good-sized solar-panel plant, about $70 million, is more than twice the total investment in Google in the six years before it went public in 2004.
The costs and complexities of such businesses, he adds, make it hard for just any company to compete. These are markets, he says, that have “big moats. They’re tough to get in.”
So, if there is significant investment (both capital and R&D) in developing these moats, then being adaptable is going to be rather difficult.  So, if the jet engine market shifts from higher efficiency / lower operating costs to higher speeds, how will GE be able to respond?  Or if the solar business sees new entrants with low cost organic cells, how will GE be able to change its $70M plant?  This will be rather difficult:
Despite the financial crisis and recession, Mr. Immelt has kept investing for the long haul. Research and development spending increased last year to $3.3 billion, and will be still higher this year. “It would have been easy to say times are tough and we’ll pull back on research spending and long-range projects, but he didn’t do any of that,” says Vijay Govindarajan, a professor at the Tuck School of Business at Dartmouth and a former consultant to G.E. “Jeff Immelt really held onto his technology-led-innovation agenda.”
 It is not just that the Mr. Immelt held onto his strategy, it is also that it is very difficult to change these strategies mid-stream.  Most differentiating technologies take years to develop and a start-stop-restart approach just will not work.  Furthermore, most R&D is still managed using gut feelings.  It is extremely difficult to adapt to new markets when one does not know what drove old decisions to start with...  We need a new paradigm to managing R&D!

Jan 16, 2011

Apple's R&D portfolio strategy - "Get Rid of the Crappy Stuff"

Some interesting R&D portfolio management advice in the Fast Company article Steve Jobs's Strategy? "Get Rid of the Crappy Stuff"
"Do you have any advice?" Parker asked Jobs.
"Well, just one thing," said Jobs. "Nike makes some of the best products in the world. Products that you lust after. Absolutely beautiful, stunning products. But you also make a lot of crap. Just get rid of the crappy stuff and focus on the good stuff."
There are two fundamental problems in executing this advice:
  1. How do you decide what is crap? Sales to date, forecasts, executive opinion?
  2. Why did the crap get into the portfolio to start with?  Should it not have been eliminated before development was concluded?
Clearly an executive like Steve Jobs can answer these questions.  As the article points out:
It takes courage to reduce the number of products a company offers from 350 to 10, as Jobs did in 1998. It takes courage to remove a keyboard from the face of a smartphone and replace those buttons with a giant screen, as Jobs did with the iPhone. It takes courage to eliminate code from an operating system to make it more stable and reliable, as Apple did with Snow Leopard.
In most companies, answers to two questions are much more difficult.  There are pet projects for executives that can not be touched.  A R&D portfolio manager I know went through an elaborate exercise to evaluate the portfolio and find duds.  He found many projects that had gone on for years and were no closer to delivering results.  He brought the list up to the senior executive's attention.  The answer from the CEO was immediate and clear - you can not touch these.  No explanation was given nor any improvements suggested to the portfolio management process to ensure it did not bring up the same projects again.

Another problem is interdependencies between different projects in the R&D portfolio.  Killing one project means others get impacted.  Companies need to really invest in maturing and enhancing their portfolio balancing processes.

Jan 5, 2011

A Bright Future Requires Bright Ideas from R&D

Another survey of executives and another validation that innovation (or any current hot buzz word) is key. This time from Corporate Executive Board in A Bright Future Requires Bright Ideas from R&D.  We now have a significant increase in number of executives wanting innovation...

From CEB: Number of executives wanting innovation drive growth
Really?  Is innovation driven growth better than any other growth? Here is the key message
The best way for R&D to help their companies is to focus on the beginning of the innovation process – the ‘front end’. This is the part of the process where concepts for new products and services are sourced or created. RTEC researchers found that firms that were best at sourcing big new commercially viable ideas were good at two things: Securing organizational buy-in for funding big growth bets. Ensuring that growth ideas are differentiated and connected to pressing market needs.
 I guess those are good qualities to have.  As we have discussed before, the key problem with open innovation is  inability to overcome foreign body rejection tendencies of R&D organizations...