Bottom Line: A study describes how companies can adopt a flexible innovation strategy that is responsive to changes in rapidly shifting markets.
What is the best way for companies to manage R&D projects that are suddenly affected by unforeseen circumstances? Traditionally, companies sort different types of projects into so-called strategic buckets. Doing so helps them compartmentalize R&D ventures according to their scope and the employee incentives, leadership style, and level of managerial autonomy thought to be required.
But this approach underestimates the complexities that increasingly confront cutting-edge businesses, according to a new study. Specifically, conventional wisdom ignores how R&D departments handle the tension that inevitably arises between projects as they evolve and demand different resources and managerial approaches.
When the firms that were studied failed to account for the importance of project shifts — for instance, abrupt changes in a firm’s strategic outlook or the unexpected external events that can suddenly transform a local project into a wide-ranging initiative, or vice versa — they experienced delayed or diluted project launches that ultimately damaged their bottom line, the authors found. On the other hand, companies that intentionally built flexibility into their R&D structures found themselves poised to turn surprises to their benefit. Because they were willing and able to incorporate new information on the fly, they delivered better products or services.
To explore the impact of sudden project shifts in an empirical setting, the authors conducted extensive fieldwork, tracking the progress of 12 R&D projects at leading high-tech firms with annual sales ranging from almost US$1 billion to more than $40 billion. They conducted numerous structured and semi-structured interviews with CEOs, chief technology officers, vice presidents, and business unit managers directly responsible for steering the R&D initiatives, as well as with project leaders and team members on the front lines.
The authors also observed the R&D process in action, sat in on project meetings, and analyzed the firms’ annual reports, IP documentation, board communications, financial returns, and media and industry publications. All of the businesses examined in the study operated in the high-tech realm and therefore required fast, efficient turnarounds on new projects, which typically had budgets in the $24 million to $28 million range.
The various R&D initiatives were originally focused on either the search for new technologies (external) or the refinement of existing practices (internal). But all experienced significant project shifts that played a part in determining their success or failure.
For example, one automotive firm’s attempt to modify designs for an existing suspension drive assembly was temporarily disrupted by the emergence of a new construction material on the market. But managers adjusted quickly. By allocating the newly appropriate resources and encouraging more experimentation, they made a product that changed the way “suspension assemblies were designed and manufactured,” according to one industry article.
In contrast, a project that originated as a minor improvement on a laptop design became bogged down in a tangle of new technologies that emerged from the supplier sector. The design team reacted far too sluggishly to broader market trends and never diverted the R&D effort from its initial focus. Because senior management frowned upon the costs associated with trial and error, the team lacked the resources needed to expand its scope. After a delay in the product launch caused by efforts to implement last-minute changes, the laptop was labeled a dud by the media and was quickly discontinued.
Because senior management frowned upon the costs associated with trial and error, the team lacked the resources needed to expand its scope.
Although both initiatives started out as attempts to build on a firm’s current capabilities, they soon encountered external changes that could fundamentally alter their reach and objective. The difference was that one firm was prepared to roll with the changes and use them to the product’s advantage, and one refused to be swayed from its initial course.
Successful projects tended to be led by senior project leaders who made decisions about projects often, typically about once a month, and who used similar processes to monitor all their R&D projects — without confining them to a particular type or bucket. The authors call this the “responsive” search method, and it allows managers and team members to alter a project on the fly.
The good news: It is possible to build this flexibility into systems. To implement a responsive strategy, the authors advise firms to (1) develop a risk-evaluation system that continuously tracks all strategically vital R&D projects; (2) establish a weekly communication plan that enables employees at all levels to exchange information; and (3) use a continuous planning procedure that doesn’t stop when the project starts, but instead gathers monthly updates on external technological and economic changes.
Of course, doing these things might not be cheap. There are training costs to consider, and extra employees will be required to monitor changes in product, process, and supply chain technologies. Managers, too, will need to devote more time to tracking R&D efforts, and might need training or support systems of their own to refine their traditional views on project supervision. But the study suggests that these extra costs eventually pay off, and that the administrative burden will lessen as these processes become more intertwined and ingrained in a company.
“The biggest challenge is laying the foundation for all these processes,” the president of one firm told the authors. “Once established, it was like clockwork, and everybody in the organization knew what to look out for.”
Source: “Managing R&D Project Shifts in High-Tech Organizations: A Multi-Method Study,” by Aravind Chandrasekaran (Ohio State University), Kevin Linderman (University of Minnesota), Fabian J. Sting (Erasmus University), and Mary J. Benner (University of Minnesota), Production and Operations Management, forthcoming