Management of Networked R&D Processes - VTT Virtual project pages

MANAGEMENT OF NETWORKED R&D PROCESSES Tiina Apilo VTT Industrial Systems, Finland [email protected] ABSTRACT Current product development trends pose significant challenges for networked R&D management. These trends include shortening product life cycles, complicated products combining different technologies, the growing significance of electronics and software also in traditional mechanical engineering industry products, broader offerings, strong outsourcing, and global markets connected simultaneously to aims of growth and flexibility. Equally, advanced networking models have created new co-operation opportunities. This paper attempts to answer the following two questions: 1) what are the main challenges related to networked R&D operations, and 2) what kinds of management models for networked R&D are being applied? The research is based on a literature study, an action research project in the field of innovation management, and seven interviews carried out in November– December 2003 with representatives of Finnish industry in the areas of development and strategy. The results of the study depicted in the paper can be summarised as follows: First, the paper serves as a creation of preunderstanding of network theory in the context of networked R&D management. Second, the main challenges and benefits related to networked R&D are described. Third, a model of success elements of R&D networking are illustrated based on empirical data from the interviews combined with a theoretical discussion of managing R&D in networks. As an illustration, most of the interviewed companies have outsourced manufacturing operations. By contrast, only a few of the companies have systematic management models and processes for networked R&D. 1.

CHANGES IN R&D

The globalisation of markets also affects R&D. Product development units are sited near customers, different technology developments are centered in special places like Silicon Valley etc. Furthermore, combining globalisation with product life cycles shortening and even more complicated products (e.g. Prasad 1996); also traditional mechanical or customer products electronics and software have a growing significance. At the same time, companies concentrate on their core competencies and execute strong outsourcing. Thus, companies, who will gain simultaneously growth and flexibility, have understood the power of networking (eg. Veugelers 1997). Not only through outsourcing, but also through co-operation in both standard etc., work around research and product development with partners and customers. Miotti and Sachwald (2003) found that R&D partnerships are answers to the requirements of innovation-based competition and rapid technology change. They observe from a resource-based perspective, that companies seek R&D co-operation in expensive, risky and complex research projects, especially in high-tech sectors. One possibility for carrying out global innovation is to be a platform leader like Intel, Microsoft etc. A platform leader is dependent of innovation developed at other firms

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(Gawer and Cusumano 2002). Gawer and Cusumano argue that no single company can have the resources, tools and knowledge needed to innovate all possible complementary products themselves. Platform leaders and complementary innovators have to work closely to win more together than alone. Miller and Morris (1999) in their 4th generation R&D concept, indicate that R&D or no other single department has full knowledge to carry out innovation. They point out that in innovation activities the entire organisation and suppliers, customers, and other external partners as well are involved. 2. 2.1

NETWORKED R&D CHALLENGES OF NETWORKED R&D

R&D has long been seen as a core competence in many companies. Further, companies with their own in-house R&D have indicated more efficiency and have related fewer problems than external R&D (Veugelers 1997). The main challenges articulated in the extension of R&D are cost and control (eg. Veugelers 1997). Next are mentioned other challenges of innovation in network. First, the organisation should move away from a ”we know everything better” – attitude. In many companies there is a lot of work to do in organisation, if cross-functional teams are not the common way to work. First, R&D will be seen as the work of groups or teams not only the work or art of individuals (Sen and Rubinstein 1989). After that R&D extensions are possible development trends. Further, co-operation between organisations brings new aspects to new product processes as cultural differences, language, design methods and tools. Furthermore, implementing external know-how is far from simple task in many organisations (eg. Veugelers 1997). Building trust is a slow process, which happens through co-operative projects. Narula (2001) states that a new alliance is more likely to be successful if trust has been created in a previous alliance. Further, Narula continues that because of the nature of innovation, the only way to determine a research partners potential is to examine them. Trust can be accelerated with fair contracts, where results of co-operation, responsibilities and risks are evaluated. Likewise, communication and information sharing have important roles in the building of trust and network project success. Understanding cultural and organisational differences will help co-operation. Project management is time and resource consuming in networked R&D and special network management skills are needed. Also, change control/ management in a network is challenging, although it is already demanding in in-house NPD. Interface definition both in product and in process plays an important role. The interface definition has an extremely important role in orchestration of global R&D networks. Möller and Svahn (2003) describe very well that orchestrating a network is not the conducting of a symphony orchestra. It is more like putting together a jazz band. The previously mentioned platform leaders make strategic choices between in-house R&D units, outsourcing of R&D, and different co-operation forms module by module. In some cases they compete all of the mentioned forms to find faster or more innovative or some other ways better solution. Building common business practices and processes will clarify project work in a network and bring about commitment to a common target.

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2.2

BENEFITS OF NETWORKED R&D

Complementary resources access works as an aid to increasing complexity and multidisciplinarity of research, and on the other hand, similar resource as cost and risk reducing through economics of scale and rationalised innovation process are reasons for R&D networking according to Miotti and Sachwald (2003). As Narula (2001) stated the extension of new technologies needs smaller capital and the risks are substantially reduced through non-internal activities. Further, in case of failure, damage will be limited. Hagedoorn (2002) summarises strategy and cost-economising from studies of motivation to R&D partnerships. Purportedly, (resource) flexibility is one main reason for global operating companies to extend from in-house R&D to utilise the possibilities which networking offers. The big multinational-companies choose location and organisation forms case by case. They use almost all networking models from alliances to the utilisation of design services and from research coalitions to joint ventures. Through networks they acquire flexibility to react quickly to market and technology changes. Through local R&D units around the world, both own and networked, companies put to use to local market knowledge. R&D networking offers, especially to SMEs, a change to global growth, which would be otherwise impossible or remarkably difficult. There are several ways to grow through R&D networking. In one case, companies – SMEs - with their own products can operate in global markets focusing on their core business and co-operating with module design partners. The second case is where SMEs grow with big partners from local markets to global markets. For instance, EMSs (Electronic Manufacturing Servises) have spread out with their OEMs (Original Electronic Manufacturer) from Europe to Asia etc., and now these EMSs have widened their offerings in R&D from manufacturability planning to product design. Through networks companies can broaden their offering from separate products to systems etc. As one technology manager interviewed said pertinently,”… they cannot afford anymore not to be utilising technologies which know-how they do not have themselves.” An extension to new technologies or markets is one significant reason for R&D networking. Eventuality innovations and a broad view to development trends of a whole branch are also motivations to R&D networking, research project consortiums and coalitions. There are contradictory studies, cost, time and quality impacts of supplier participation on NPD (New Product Development) according to the summation of Primo and Amundson (2002). From the action research point of view from both co-operative and in-house NPD cases, there are challenges and benefits in the cross-functional NPD process in both cases (Apilo, 2003). The main question is not which is better but which way has the bigger potential to be cost effective and faster, if it is learned and used “right”. OEM’s previously mentioned action research project states that they use partners, EMSs, because they will not always try new technologies first and because EMSs offers flexible capacity with manufacturability know-how. 2.3

MODELS OF NETWORKED R&D

Hagedoorn (2002) explores 40 years of data on R&D partnership trends and patterns. He finds that joint ventures are one of the older modes, but they have decreased in popularity due to the organisational costs in combination with their high failure rate.

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Hagedoorn makes evident that non-equity, contractual forms of R&D partnership as joint R&D pacts and joint agreements have become important as inter-firm collaboration modes. These modes cover technology and R&D sharing between companies (two or more) in combination with joint research and joint development projects. From the resource-based perspective companies seek either similar resources for cost and risk reduction or complementary resources to combine their own R&D resources (eg. Miotti and Sachwald 2003). Miotti and Sachwald indicate in their French empirical study, that high-profile innovators engage the most in R&D co-operation, including with rivals or international partners. Although, they have identified that co-operation with rivals was rare. In Table 1 are listed modes of R&D networking with commonly used terms. For example Miotti and Sachwald listed partnership and co-operation in R&D between high-tech start-ups and larger incumbents, between suppliers and clients, with competitors, with universities and public institutes, including as part of large research consortia. Chiesa (2000) has, in his taxonomy, divided corporate research unit structures into two main categories: specialisations-based and integration-based. Specialisation is manifested in a centre of excellence or centre of supported specialisation. Chiesa recommends that R&D be organised in one centre of excellence, in cases where markets are homogeneous around the world, like in the chemical industry, and the location is leading in technology or the markets point of view. Moreover, R&D resources are capable to being in the same location. Market area customation could be used in local supportive R&D units like in Toschiba. Chiesa divides integration-based structures into networks and special contributors. Networked R&D fits in cases like Ericsson and ABB, where knowledge is spread out and markets are very diversified. In the specialised category contributors’ separate research centres area concentrated in specific technologies or components. Narula (2001) divides non-internal R&D activities into two categories: external (licensing, R&D contracts, outsourcing, customer-supplier relationship) and quasiexternal (strategic alliances). Narula developed a static framework to evaluate the choice between these R&D activities and dynamic ones to demonstrate how static frameworks differ depending on which paradigmatic sectors it is engaged with. In the static model Narula divides competencies of companies into distinctive, niche, marginal and background competences. The distinctive competences are the core of the firm, and are classified to belong to in-house R&D. In outsourcing are left background competences. Further, marginal and niche competences form alliance potential. Narula’s dynamic framework two-by-two table has the axis uncertainty from low to high and the axis technical change from slow to rapid. Explanations are as follows: quadrant A and B (high uncertainty) “new” technologies – new technological paradigm: neither first the innovator can be predicted nor objective, property rights unclear, e.g, quadrant C (rapid technical change, low uncertainty) the outcome is known, but not who will be the first to innovate – within the same technological paradigm, technology knowledge-intensive; quadrant D (slow technical change, low uncertainty) mature section, where the outcome of innovation is known, and technology is codifiable, property rights are well defined. According to these frameworks Narula has formulated decision trees for the selection of the R&D mode.

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Between other functions

Main partners Manufacturing, marketing,

Terms Cross-functional teams

Between R&D units

Research labs and units

In supply chain

Main supplier, system supplier, subcontractor,

Research cooperation

Support/adaptive units, development labs, research labs, technology scanning units Simultaneous Engineering/ Concurrent Engineering, module outsourcing Technology programs, testing services, technology development Lead user, user research

Universities, research institutes Customers, consumers Design and Outsourcing of design planning bureaus work, orchestration Competitors Technology development, standards, international technology programs, exchange basis Governments, Legislation, directives, EU, societies standards Companies, Technology designer, development, standards strategic alliance Companies, Technology designer, development, standards, consortia Companies, User group of software designer etc. Members Communities of practice, knowledge exchange

With customer R&D partners With competitors

With community Between companies in same branch Between technology utiliser Between system user Between member of community

References e.g Wheelwright and Clark 1992, McGrath 1996, Ulrich and Eppinger 2000 Chiesa 2000

Prasad 1996

von Hippel 1988 Narula 2001, Möller and Svahn 2003 von Hippel 1987, Narula 2001

Tidd 1995

Wenger and Snyder 2000

Table 1. Modes of R&D Networking. Möller and Svahn (2003) in the ValueNet project have classified networks through three value systems with needed capabilities: demand-supply nets, business renewal nets and emerging business nets. In the first stable value system are well-defined actors, technologies, business process etc. In the second established value system changes go ahead through local and incremental modifications. In the third emerging value system radical changes in old value activities and the creation of new value activities are fulfilled with uncertainty in both actors and activities. In Table 2 these value systems are illustrated - example nets and needed capabilities.

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Value systems Demand-supply nets

Characteristics Stable, welldefined

Example nets Nokia Mobile Phone’s supply system, Dell, WalMart, Benetton, Ikea

Business renewal nets

Established, incremental improvement

Emerging business nets

Emerging, radical changes

Nokia’s R&D net, Lead supplier & Pilot customer related development nets Nokia orchestrating E/M-services, internet portals, “Elisa-Future home” –concept, Metso Future Care

Needed capability Production, delivery, process improvement, cross-firm management, info systems, demand forecasting and influencing Incremental innovation, deep partnering, net mobilisation, net management Radical innovation, mastering customers business, network visioning, network orchestration

Table 2. Value Systems of Nets (adapted from Möller and Svahn (2003) - example nets adapted from Möller and ValueNet-group (2003)). 2.4 THE MODEL OF SUCCESS FACTORS IN NETWORKED R&D

According to practical development work and literature the following model is formulated to answer when networked R&D is successful or at least has great success potential (Figure 1).

WILL -concrete need/ imperative to networking -need to be best -understanding of core businness -avowal of partners skills

CAPABILITY -network management -communication -contracts -development together -defined process

PARTNERS -the best -right size to need -expansionist

Figure 1. Needed Elements in Networked R&D Success. 3.

RESEARCH AND METHODOLOGY

This paper attempts to answer the following research questions: 1) what are the main challenges related to networked R&D operations, and 2) what kinds of management models for networked R&D are being applied? Part of this research is based on interviews. The semi-structured interviews were carried out in November–December 2003 with seven Finnish industrial companies among the

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20 best known development-oriented firms in the country with their own brand, products and manufacturing. The companies’ main characteristics are listed in Table 3. Both customer products and BtoB product businesses were covered. The size of the interviewed organisations varied from medium to large. Most of the interviewees were vice-presidents of technology at the concern or organisation level in cases where the company head office was abroad. The challenges and motives of networked R&D were also concerned with Voitto (Time-to-profit) project-partners, five companies were represented, in a one-day workshop - Networked R&D and workshop preliminary questionnaire. Company

A B C D E F G

Industry branch

Electrotechnical Metal Cranes Metal Electrotechnical Vehicle Machine

Markets (mainly)

B to B Consumer, B to B B to B Consumer, B to B B to B B to B B to B

Size

Large Medium Medium Medium Medium Medium Medium

Dispersion Dispersion of of operations NPD Global Multi-national Multi-national Multi-national Global Multi-national Global

Global Mainly national National National Global Mainly national Multi-national

Interview concern Action in Finland Action in Finland Corporation Corporation Corporation Action in Finland Corporation

Table 3. Main Characteristics of Interviewed Companies. 4.

RESULTS

Utilisation of networked R&D has been classified according to interviews (companies A-G) into three main categories. 1. Mastering own R&D. a) There is no need for networked R&D or no capability share R&D with other partners. With own R&D they will minimise risks and utilise learning themselves. b) Products are difficult to modulate. 2. Using partners in technology development like universities and research institutes, and buying electronic and software design as a resource augmentation. 3. Networked R&D. Systematic utilisation of network co-operative projects with network suppliers, competitors and customers. The networks do process development work together. The network engages in a new product process and definition of module interfaces. One company fell into category one, two others have some characteristics of it. Four companies fell into category two. In the networked R&D category there are two companies, but only one of them also carries out network development aspects. The other company mainly has outsourced module development. The interviewee from the company in category one said that they can no longer constrain using technologies because they do not have the needed technology competence themselves. The company in category three has systematically developed it’s networking strategies and practices. They have half of their R&D resources in-house and the other half in a network. They have also identified their core competences and have modulated their products. With the main module developer they actively co-operate in process development and their module suppliers participate in NPD gate reviews. They act as an active partner in national joint research and technology programs. Further, they have

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technology development co-operation with universities and research institutions. They are also customer oriented – they try to understand the processes of customers (in future) and those needs which customers cannot codify. The reasons not to carry out more R&D in a network among interviewees have been mentioned in addition to the risk of avoiding and learning is the fear of knowledge dissolution and difficulties of data management. The Voitto (Time-to-profit) project partners listed as the main challenges of networked R&D the following: - building trust between partners and taking of long view to co-operation - finding and evaluating right competences/ partners - communication and openness - co-operation between people from different cultural/ organisational backgrounds - sharing responsibilities – contract agreement - quality assurance - efficiency of control - evaluating and measuring co-operation results - information and quality of information - project practices, management and commitment - tools - competition (fear of running of own core competence) The Voitto (Time-to-profit) project partners listed the main needs for networked R&D as the following: - resource flexibility - global markets, needs of local market experiences - extension of knowledge - growth - need of agility The Voitto project-partners identified partners receptive to networking as follows: the partner should be reactive, in mostly cases medium sized. In strategic technology development partners should be big enough. They will also outsource design tasks etc. to small firms. 5.

CONCLUSION AND DISCUSSION

Companies which will not carry out networked R&D will carry out R&D themselves and control everything. In contrast, companies utilising the resources and capabilities of networks have realised that their aims of growth or extension are not possible without networks. They understand that networked R&D is more complicated and challenging than traditional in-house R&D. As both Miotti and Sachwald (2001) and Eisenhardt and Schoonhoven (1996) noted, companies with high volume and resource R&D are the most active R&D partners. Having their own strong in-house R&D makes them attractive partners and enables them to benefit the most from co-operation (also Veugelers 1997). Likewise, in-house R&D, which does not see R&D co-operation as a threat, will not have insuperable barriers to R&D extension and the “not invented here” syndrome. The company, which has classified in Networked R&D, meets the claims of the model illustrated in Figure 1. It has concreted the need to network (size, growth and market area aims) and has many of the needed capabilities and it has also applicable and

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expansive partners. However, the model of needed elements in successful R&D networking is rare and needs to be further developed. Many R&D networking models are identified, all of them have challenges and benefits. The general challenges identified are trust, communication, project practices, interface definition and contracting. Companies should identify their networking needs and formulate a networking strategy. They can adapt Narula’s framework to identify their networking needs and possibilities. The success of networking R&D demands that inhouse NPD processes, organisation and methods are well defined. Further, project management and communication practices will not be changed easier into R&D networks, on the contrary, their get a new network dimension. All in all, from a literature point of view, networked business operations are usually discussed in a rather narrow context of supply chain management or strategic alliances etc. From a practical point of view, networking in R&D is often understood as outsourcing R&D. For this reason, in this paper the discussion has been broadened to include the development of new models and theories to cover broader networked R&D operations to include there intra-organisational R&D nets, different kinds of cooperation between R&D staff, departments, organisations and communities.

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