08brdmanagement

8/6/2019 08bRDManagement

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Product v. Process Innovation


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R&D Management (Henry C. Co) 3

The Model T

For 4 years, Ford developed, produced, andsold five different engines (2-6 cylinders) ina factory of trade craftsmen working with GPmachines.Out of this experience came a dominantdesign, the Model T.Within 15 years, 2 million engines of thissingle design were produced each year in amass-production facility. During that period,there were incremental (no fundamental)innovation in product.


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Product v. Process InnovationThe fluid-pattern stage

During the early stages of the products life cycle, thelevel of prototype innovation is high. This is becausefirms modify, change, and update the product in aneffort to establish a dominant design.

The transitional-pattern stageOnce a dominant design is established, emphasis shifts

to process innovations in order to provide the capabilityto mass-produce the product. This typically requires ashift from GP to specialized equipment. During thisperiod, the level of product innovation fallsdramatically.

The specific-pattern stageAt this stage, incremental process innovations furtherspecialize the production process to reduce cost,enhance quality, and make further improvements. Thisleaves firms with a rigid process and an aging product(highly inflexible, difficult to adapt to environmentalchanges).


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High

R a

t e o

f I n n o v

a t i o n

Time

Limit of Technology

Product Innovation

ProcessInnovation

Embryonic Growth Mature Aging

Innovation and Development


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Innovation and DevelopmentHigh

R a

t e o

f I n n o v a

t i o n

Time

imit of Technology

Product Innovation

Process Innovation

Needstimulatedregion

Output ratestimulatedregion

Technologystimulated

Coststimulated


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Windows of Opportunity


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Life Span of the ComputerFirst generations (1950s) of IBM computershad a useful market life of more than adecade.IBM 360 (mid 1960s), IBM maintained itsdominant market position until the arrival of

minicomputers. Then companies like Digital,Data General, etc., started challenging IBMfrom the low end of the business.Useful market life of computers shrank from10 years to 8 years, then only 5 years, then3, and 2.Desktop PCs and laptops: useful market lifedropped to less than a year.


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The Classic Product Cash FlowWindow of opportunity: the period in which the newproduct faces no or low competition in the market place.

The window of opportunity for market exploitation isconstantly shrinking as the competition brings new productsmore and more frequently.


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The High-Tech Product Cash Flow

Project A, which was introduced before the competitioncame up with an equivalent or better product, has beenable to generate a positive cumulative cash flow, with agood return on investment during the R&D cycle.Project B was introduced at a time when some competitionalready existed, results in a negative cumulative cash flow.


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Case StudiesThe Case of the PowerPC

Somerset, a joint venture by IBM, Apple, and Motorolain 1991 to develop the PowerPC.

Time May Have Passed the PowerPC (Business Week,4, March 1996), Ira Sager wrote:

As it is, Somerset hasnt even come close to its goal of posing a serious challenge to Intel Corp.s dominancein microprocessors Somerset fell behind schedule onmore powerful versions of the PowerPC chip Threeyears ago, they had it in their hands, says JonRubinstein, president of Firepower Systems Inc., one of the few companies outside the Somerset trio to use thePowerPC But technical difficulties, internal bickering,and management upheavals delayed successor chipsby 18 months. Says Sun CEO Scott G. McNealy: ThePowerPC is on really shaky ground.

The case of the vanishing need Stacker to double the hard disk space.


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Issues in R&D Management


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R&D

Why does a company undertake R&D?Defend, support, expand businessDrive new businessBroaden and deepen technological

capabilitiesProblems faced by R&D managers?

What, when, why, how much?


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Types of Development

Market Pull: Market needs create new productopportunities which in turn stimulate R&D todetermine if a solution is possible

Market Need p Marketing p R&Dp ProductionProblem: Find new technology to fit need!

Technology Push: New discovery triggering asequence of events

R&Dp Production p Marketing p Market NeedSome innovations may have no market potential.Problem: Find or create a market!

Platform productsBuild new products around same technologicalexpertise

Process intensiveProduct that is highly constrained by process

CustomizedFamily of products


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Organizations

Functional organizationsCentered around functions (plastics,chemistry, material science,manufacturing)

Can be a barrier to innovationProject organizations

Organized around a projectMay not have deep specializations

Matrix organizationsHybrid of previous twoRequires many managers


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Locating R&D ActivitiesCorporate level

Time horizons are long,Learning feedback loops slow,Internal linkages (with production and marketing)weak,Linkages to external knowledge sources strong,andProjects relatively cheap

Business-unit levelTime horizons are short,

Learning feedback loops fast,Internal linkages (with production and marketing)strong,Projects relatively expensive


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Locating R&D Activities A Rule of Thumb

R&D supporting existing business (products,processes, divisions) should be located inestablished divisions;R&D supporting new business (i.e.,products, processes, divisions) shouldinitially be located in central laboratories,then transferred to divisions (established ornewly created) for exploitation;R&D supporting foreign production should belocated close to that foreign production, andconcerned mainly with adapting productsand processes to local conditions.


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Two Dimensions in Locating R&D Activities

Physical location, determined mainlyby the importance of the mainorganizational interface: the corporatelaboratory towards the general

development of fundamental fields of science and technology, and thedivisional laboratories towardspresent-day businesses.

Its funding, determined by where thepotential benefits will be captures: bythe established divisions or by thecorporate as a whole.


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Location and Funding of R&DCorporate-levelperformance:

Where important interfacesare with general advances ingeneric science andtechnologies

Divisional-levelperformance:

Where important interfacesare with production,customers, and suppliers

Quadrant 1 Quadrant 2Scanning, external

research threats andopportunities

Commercializing radical

new technologies

Corporate-level

funding: Whenpotential benefitsare corporate-

wide Assimilating andassessing radical new technologies

Exploiting interdivisional synergies(e.g., production andmaterials technologies)

Quadrant 3 Quadrant 4Exploratory development of radicalnew technologies

Mainstream productand processdevelopment

Divisional-levelfunding: Whenpotential benefitsare division-specific

Contract research forspecific problem-solving for established divisions

Incrementalimprovements.


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Location and Funding of R&DFour categories of R&D activities

Quadrants 1 and 4 activities funded and performed bycorporate-level laboratories, and those funded andperformed by division-level laboratories.Activities in Quadrant 3 reflect the attempt to ensurestronger linkages between the central and divisionallaboratories by strengthening the financial contributionof the divisions to the corporate laboratory, therebyencouraging the interest of the former in the later, andthe sensitivity of the later to the former.

Activities in Quadrant 2 recognize that the full-scalecommercial exploitation of radically new technologiesdo not always fit tidily within established divisionalstructures, so that central funding and initiative maybe necessary.


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Factors Influencing R&D Location

The firms major technologicaltrajectory.The degree of maturity of thetechnology

Corporate strategic style


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Locating R&D Global versus LocalThe geographic location oaf large firms innovativeactivities leading to patenting in the U.S.A., 1985-90.

F irmNationality

% ShareHome

from: Aboard U.S.

AbroadEurope

of which: Japan Other

Japan (143) 98.9 1.1 0.8 0.3 0.0U.S. (249) 92.2 7.8 6.0 0.5 1.3

Canada (17) 66.8 33.2 25.2 7.3 0.3 0.5Italy (7) 88.1 11.9 5.4 6.2 0.0 0.3F rance (26) 86.6 13.4 5.1 7.5 0.3 0.5Germany (43) 84.7 15.3 10.3 3.8 0.4 0.7F inland (7) 81.7 18.3 1.9 11.4 0.0 4.9Norway (3) 68.1 31.9 12.6 19.3 0.0 0.0Sweden (13) 60.7 39.3 12.5 25.8 0.2 0.8U.K. (56) 54.9 45.1 35.4 6.7 0.2 2.7Switzerland (10) 53.0 47.0 19.7 26.1 0.6 0.5Netherlands (9) 42.1 57.9 26.2 30.5 0.5 0.6Belgium (4) 36.4 63.6 23.8 39.3 0.0 0.6

All firms (587) 89.0 11.0 4.1 5.6 0.3 0.9


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The worlds large firms performed about 11% of theirinnovative activities outside their home country. Theequivalent share in production was about 25%.Firms based in the leading R&D spending countries(U.S.A., Japan, Germany) perform more than 80% of their innovative activities at home.

Most of the foreign innovative activities reflect theirown and their home countrys strengths in specifictechnologies, and not host countrys strengths.Increases in large firms foreign innovative activitiesin the late 1980s came mostly from the acquisition of foreign firms especially, U.S. IT and biotechnologyfirms by large European and Japanese firms.


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With the exceptions of pharmaceuticals andchemicals, industrial sectors with relativelyhigh degrees of internationalization of theirfirms R&D activities, were on average intraditional sectors, whereas those in aircraft,motor vehicles, computer, and electricalproducts have a relatively low degree of internationalization of their R&D activities.Within each industrial sector, business firms

innovation intensity was negativelycorrelated with the share that was located ina foreign country.


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Shortening the R&D Cycle


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Length of R&D Cycle

Size of innovative leap desired.Experience and talent available.Risk & Uncertainty


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Risk & Uncertainty

1. Technological Uncertainty & Innovation Risk2. Supply of Critical Materials & Parts3. Bottlenecks in the R&D Organization


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1. Technological Uncertainty& Innovation Risk


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Early identification of risk areas.Reducing risk by measuring andmonitoring.Parallel development.Simulation and rapid prototyping.


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Identification of Risk AreasAt the end of the concept definition phase, thefollowing are roughly known:

Product architecture,Its work structure,List of components and materials,Processes, and technologies

1. At this time, managers should establish a formal listof uncertainties and risk that have a strong impacton the products performance, compared to that of the competition.

2. Make a critical examination of the resulting list of uncertainties. Identify alternatives for each item onthe list.

3. Quantify risk areas by subjective probabilities.


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Measuring and MonitoringFormal tracking and monitoring of risk until it isdecreased to zero.The total project success probability is the jointprobability of being able to resolve the problems inall risk areas.


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A formal risk-management procedure allow thecompany to cut investment in projects that remainrisky too long.A Non-successful risk reduction:


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Parallel DevelopmentSony reportedly launched 10 differentoptions in developing the VTR program.


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The Mitsubishi ESR Mitsubishi tried a number of parallel approaches inits work to develop an environmentally clean car.

An improved vertical vortex engine.An innovative electronic control engine withmodulated displacement.An efficient electric power engine.

When we set out to create an extremely low-emission, energy efficient car to meet 21stcentury standards, we knew there were manyobstacles ahead. So we tried many approaches.What we found, after years of researching andtesting various technologies, was that not one of them worked. All of them worked. Together. Theresult is a high performance, spacious car that ispractically as clean as an all-electric vehicle. Aninfinitely more practical.


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Simulation and Rapid PrototypingCAD (Computer-Aided Design)Computer modeling and simulation

Usually done by one group of people under theclose supervision of the chief designer.During the simulation process, if some parameters

need to be relaxed to optimize others and achieveoptimum product performance, the decision canbe made on the spot.

Computer modeling and simulationgenerates, as by-products, all the toolsnecessary for the manufacturing and testingof the elements designed.


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Semiconductor R&DThousands of miniaturized components(complex ICs, mass memories, andmicroprocessors) packed into a minusculesurface.Computer simulation take into account ahuge amount of information about the

Electrical performance of differentcomponents,

Possible couplings and resulting interferencebetween a number of elements on a givensubstrate, andOther effects.


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2. Supply of Critical Materials& Parts


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Basic Difference Between R&D andMass ProductionIn R&D, many steps are being performedfor the first time. Nothing is stable, andchanges and variations are not onlypermitted but necessary.In R&D, the product consists of a fewprototypes and a considerable amount of information and documentation. Laborcost is much higher.Personnel working in R&D are highlyqualified and hold academic degrees.


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Points to consider when establishingan inventory policy for R&D:1. Low % cost of components and

materials: 15% in R&D versus 85-95% intypical manufacturing environment.

2. Lead time of nonstandard components islong and uncertain.

3. The R&D cycle is not finished until thelast product component is assembled andsuccessfully tested.

4. Cost of waiting for the last componentcan easily exceed the component cost bya factor of 100, 1000, or more!


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R&D Inventory Policy1. Maintain in stock all inexpensive, frequently

used standard components. An R&D projectshould never have to wait for suchcomponents.

2. Keep a reasonable, minimum amount of

more expensive, but moving, non-obsolescent components in stock. Adjustthe quantity to keep the holding cost low,but monitor the stock to ensure that noshortage of such components occurs.

3. Order as soon as practicable all state-of-the-art components and any othercomponent with uncertain delivery time.

4. Periodically dispose of all stock that is notmoving or is dead.


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3. Bottlenecks in the R&DOrganization


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Output of any organization is no greaterthan the throughput of its most stringentbottleneck.In R&D, often the critical bottleneck is not amachine or a process, but the know-howand the particular experience of specificindividuals.Methods to open know-how bottlenecks

1. Add people with similar knowledge and skills.2. Relieve the bottleneck specialists from routine

tasks that can be performed by others.


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From R&D to Production


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Classical Transition ProblemsA product goes through 5 stages:1. Concept definition of a product is accomplished by

close collaboration between marketing and R&D.2. Production development : R&D, in close cooperation

with the reliability and quality department, isresponsible for producing working prototypes & documentation;

3. Manufacturing is responsible for mass-producing theproduct, overseen by the reliability and qualitydepartment.

4. Marketing is responsible for distribution and sales ,and

5. After-sales service and support .Organizational walls of responsibilities existbetween R&D and manufacturing:

Frequently causing delays in the introduction of a newproduct to the market.


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Quarrels and DisputesOften, R&D lose interest in a product once the

prototype successfully demonstrate the principle of operation and reached the desired level of performance.

They see the subjects of cost of fabrication, the use of readily available parts and materials, etc. as of secondary importance.They see work related to problem-free manufacturingas trivial, that all tasks related to manufacturing arenone of their business.

Manufacturing expects to receive a fully developedand de-bugged product from R&D, with all necessaryerror-free documentation and drawings

Any mistake in the documentation or inconsistencies inthe drawings provided by R&D can be a major cause ininterrupting the manufacturing process.


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Case: Intel, the Pentium flawDriven by the desire to meet apromised delivery date to a customeror by the need to make best use of the window of market opportunity,

many high-technology companieslaunch their new product prematurely.Often as a result, a large number of engineering changes are necessarybefore the manufactured productreaches the degree of performanceand reliability required.


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Smoothing the TransferOrganizational methods.CAD and manufacturing methods.Adapting OPT and JIT methods to hightechnology.Concurrent engineering.Kaizen.TQM.


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R&D OrganizationsClassical 1. Specialization/division of labor

2. Specialists coordinated by a weakleader

3. Specialists have individual bosses & loyalty

Toyota 1. Teams with all relevant expertise under

a shusa (Big Boss)2. Rewards team players rather than

geniuses in single area of product orprocess

Honda 1. Tateomi Miyoshi = large project leader

(LPL) -- not to coordinate, but tomanage2. Matrix approach, each project member

on loan from functional department forlife of project, under direct control of

Tateomi


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ShusaLeadership -- shusa = big boss/ project named after

shusaTeamwork -- member assigned to project for its life(continuity)/ retain ties with functional area butunder control of shusa. How they performed will beevaluated by shusa, & will determine their nextassignment.Communication -- team members signed pledges todo exactly what everyone has agreed upon as agroup/ resolve critical design trade-off early.Organization -- number of team members are highestat outset of project. As development proceeds,

number dwindles as specialties (e.g., marketassessment) are no longer needed.Concurrent engineering (CE)

Concurrent Engineering at Hon a


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R&D Management (Henry C Co) 50

Concurrent Engineering at Hon a,Marysville

Honda at Marysville, Ohio designs & cutsdies of stamping steel sheets into car bodiesDie production begins at same time as bodyproductionDie designers & body designers in direct,

face-to-face contact/ most likely haveworked together in previous product-development teams.Die designers know approximate size of newcar, number of panels (thus can begin tomake rough cuts)/ they understand bodydesign process & can anticipate final design(sometimes incorrectly).

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