204-DOST-2-12-13-Lec 1-C - Evolution of R&D & Its Management - 13-11-12

THE EVOLUTION OF
INDUSTRIAL R&D AND

ITS MANAGEMENT
EVOLUTION OF R&D & INNOVATION MODELS...1
According to Rothwell (1992), there are five genera-

tions of R&D and innovation models:
 First generation: Technology push
 Second generation: Market pull
 Third generation: Coupling model
 Fourth generation: Integrated model
 Fifth generation: Systems integration and

networking
Source: D. Nobelius (2004)

SUMMARY OF EVOLUTION OF R&D MANAGEMENT
1st 2nd 3rd 4th 5th
Technology Project Enterprise Customer Knowledge
as the Asset as the Asset as the Asset as the Asset as the Asset
Core R&D in isolation Link to Business Technology/ Integration With Collaborative

Strategy Business Integration Customer R&D Innovation System
Change Unpredictable Inter-dependence Systematic R&D Accelerated Kaleidoscopic

Factors Serendipity Management Discontinuous Dynamics
Global Change
Performance R&D as Overhead Cost-sharing Balancing ‘Productivity Intellectual
Risk/Reward Paradox’ Capacity/Impact
Structure Hierarchical; Matrix Distributed ‘Multi Symbiotic

Functionally Coordination Dimensional’ Networks
Driven Communities of
Practice
People We/They Proactive Structured Focus on Values Self Managing
Competition Cooperation Collaboration and Capacity Knowledge
Workers
Process Minimal Project to Project Purposeful Feedback Loops Cross-Boundary
Communication Basis R&D/Portfolio and ‘information Learning and
persistence’ Knowledge Flow
Technology Embryonic Data-Based Information-Based IT as a Intelligent
Competitive Knowledge
Weapon Processors
Source: Nobelius (2004)

The First Generation
R&D Management
FIRST GENERATION R&D : TECHNOLOGY PUSH…1
 From 1950 to the mid-1960’s, fast economic growth allowed

for a strong “technology push” and industrial expansion in
the Western world and in Japan.
 Companies focused predominantly on scientific break-

throughs, or a “more R&D in, more new products out”
approach.
 Science and technology were seen to have the potential for

solving society’s greatest ills.
 Research & Development was considered as corporate over-

head and relegated to an ivory tower position with little or no
interaction with the rest of the company.
FIRST GENERATION R&D : TECHNOLOGY PUSH…2
 Technology push views the innovation process as

simple linear and sequential with emphasis on R&D.
 The market is seen as a receptacle of the results of

R&D activity. Or in other words, this is a supply side
approach of the innovation process.
 This 1G model, however, incorporates market informa-

tion very late in the process, so that commercial appli-
cations are often merely technical inventions and
therefore often not adopted to the market.
THE 1G MODEL OF R&D MANAGEMENT
R&D GENERATION CONTEXT PROCESS CHARACTERISTICS
1st Generation Black Hole R&D as Ivory Tower: tech-

Demand nology push-oriented, seen
(1950 - as an overhead cost,
mid 1960s) having little or no interac-
tion with the rest of the
company or overall stra-
tegy. Focus on scientific
breakthroughs
STRATEGIC R&D MANAGEMENT:
STRATEGIC R&D MANAGEMENT INVOLVES (1) THE INTEGRATION OF AN

ORGANIZATION ’ S R&D STRATEGY WITH ITS TECHNOLOGY AND
BUSINESS STRATEGIES AND (2) THE PLANNING, ORGANIZATION,
IMPLEMENTATION, AND EVALUATION OF ITS THE R&D PROJECTS.
FRAMEWORK FOR STRATEGIC R&D MANAGEMENT:
MANAGEMENT AND
STRATEGIC CONTEXT OPERATING PRINCIPLES
 Philosophy  Funding
 Organization  Resource Allocation
 Technology/R&D Strategy  Targeting
 Priority Setting
 Measuring Results
 Evaluating Progress
FIRST GENERATION R&D MANAGEMENT: THE INTUITIVE MODE...1
1. FIRST GENERATION R&D MANAGEMENT
● The intuitive, fatalistic mode
● Firm’s future technologies are decided largely by R&D

alone
● R&D has no explicit link to business strategy
● R&D is deemed an overhead cost
● Lacks strategic framework for technology management

MANAGEMENT AND • No long-term strategic framework

STRATEGIC CONTEXT • R&D is an overhead cost
• R&D decides future technologies

PHILOSOPHY
• Business decides current technology objectives
• Emphasis on cost centers and disciplines

ORGANIZATION
• Avoid the matrix
TECHNOLOGY / • No explicit link to business strategy

R&D STRATEGY • Technology first, business implications later
• Lacking combined business / R&D insight

OPERATING PRINCIPLES • Fatalistic
• Line item in annual budget

FUNDING
• Fund what you can afford
RESOURCE • At the discretion of R&D

ALLOCATION • No upward visibility
• Is anathema for fundamental and radical R&D

TARGETING
• Business and technological objectives sequential
PRIORITY • No strategic priorities

SETTING • Priorities vary with operational circumstances
MEASURING • Expected results not defined precisely

RESULTS • Measurements often misleading
EVALUATING • Ritualistic and perfunctory

PROGRESS • Periodic
The Second Generation
R&D Management
SECOND GENERATION R&D: MARKET PULL…1
 The mid 1960’s to early 1970 were characterized by a

“market shares battle” with increased competition that
induced companies to shift their development focus to
a “need pull”.
 During this period of intensifying competition, invest-

ment emphasis began to switch from new product and
related expansionary technological change towards
rationalization technological change.
 The central focus became responding to the market’s

needs.
 Cost-benefit analyses were made for individual re-

search projects including systematic allocation and
management of resources.
 Stronger connections were initiated between R&D and

operating units by including product engineers in
scientist run research teams in order to decrease time
to market.
 Market pull views innovation, again, as simple, linear

and sequential, but now with emphasis on the market.
 The market is the source of ideas to direct R&D which

plays a reactive role.
 Demand side factors replace the supply side approach

of the 1G model.
 A major disadvantage of the 2G models is that there is

too much emphasis on market-driven improvements of
existing products (optimization), resulting in a large
variety of short-term projects.
2nd Generation Market R&D as Business: market-

Shares pull oriented, and strategy-
Battle driven from the business
(mid 60s side, all under the umbrella
-early of project management and
1970s) the internal customer
concept.
SECOND GENERATION R&D MGMT: THE SYSTEMATIC MODE...1
 Provides the beginnings of a strategic framework at the

project level and seeks to enhance the communication
between business and R&D management by making
business or the corporation as the ‘external customer’
for R&D practitioners alongside the ‘internal customer’
for R&D management.
 In other words, a strategic framework has been built to

manage R&D projects and at the project levels there are
combined business/R&D insights
 This view has forced companies to put R&D under

control of business units rather than the corporate unit.
The imperative was to establish mechanisms ensuring
that R&D and marketing communicate and strongly
links between business strategy and R&D projects.
SECOND GENERATION R&D MGMT: THE SYSTEMATIC MODE...2
1. SECOND GENERATION R&D MANAGEMENT
● Systematic, project-based mode
● R&D activities considered on a project-by-project

basis
● Lacks business-wide or corporate-wide integration

of technology/R&D strategy and firm strategy
● Matrix management of R&D projects

SECOND GENERATION R&D MANAGEMENT: THE SYSTEMATIC MODE...2
MANAGEMENT AND • Transition state

STRATEGIC CONTEXT • Partial strategic framework
• Judge-advocate management / R&D relationship

PHILOSOPHY
• Customer-supplier business / R&D relationship
• Centralized and decentralized

ORGANIZATION
• Matrix management of projects
TECHNOLOGY / • Strategic framework by project

R&D STRATEGY • No integration business- or corporate-wide
SECOND GENERATION R&D MANAGEMENT: THE SYSTEMATIC MODE...3
• Distinguish between types of R&D

OPERATING PRINCIPLES • Combined business / R&D insights at project level
• Funds based on needs and risk sharing

FUNDING
• Different parameters by R&D type
RESOURCE • To fundamental R&D by central R&D management

ALLOCATION • To other R&D jointly by customers and suppliers
• Consistent business and R&D objectives by

TARGETING
project for incremental and radical R&D
PRIORITY • For fundamental R&D by central R&D management

SETTING • For other R&D jointly by customers and suppliers
MEASURING • Quantitative for incremental R&D

RESULTS • “Market intelligence gap” for radical R&D
EVALUATING • Formalized peer reviews

PROGRESS • Good communications with businesses for
incremental and radical R&D projects
First and second generation models
First generation (50’s-60’s): Technology push “Linear model”
DESIGN & MANU-

R&D MARKETING SALES
ENGINEERING FACTURING
Second generation (mid 60’s-70’s): Demand pull
MARKET MARKETING MANU-

R&D SALES
NEEDS DEPT. FACTURING
The Third Generation
R&D Management
THIRD GENERATION R&D: COUPLING MODEL...1
 From the mid 1970’s to the mid-1980’s, rationalization

became necessary under the pressure of inflation and
stagflation.
 The strategic focus was on corporate consolidation

and resulted in product portfolios. Companies moved
away from individual R&D projects.
 Marketing and R&D became more tightly coupled

through structured innovation processes. Operational
cost reduction was a central driver behind this
“coupling model”.
 Technological innovation now came from the coupling

of market needs and technological opportunities.
 It was understood that innovation was rarely the result

of pure technology push or market pull forces, but
rather the result of the matching and combination of
the two.
 The process was still sequential but with feedback

loops. R&D and marketing play a balanced role with
emphasis given to the interface between the two.
 According to Berkhout (2006), third-generation models

can be seen as “open R&D models”, emphasising
product and process innovation (technical), and
neglecting organizational and market innovations
(non-technical).
 This means that 3G R&D and innovation models tend

to focus on the company’s new technological capa-
bilities rather than including solutions for institutional
barriers and societal needs.
Third Generation R&D Management as a Coupling Model…1
Third Generation R&D Management as a Coupling Model…2
3rd Generation Ration- R&D as Portfolio: moving

alization away from individual pro-
Efforts jects view, and with link-
(mid 70s- ages to both business and
mid 80s) corporate strategies. Risk-
reward and similar me-
thods guide the overall
investments.
THIRD GENERATION R&D MGMT: PORTFOLIO-ORIENTED...1
 This model furthers strategic dimension of R&D

management i.e. by enhancing the interrelation-
ship among projects within a business, across
business, and for the corporation as a whole. It
introduced the portfolio concept.
 This results in a strategically balanced portfolio of

R&D projects that are formulated jointly by
general managers and R&D managers.
 “R&D seeks to respond to the needs of existing

business and to the additional needs of the
corporation while at the same time driving
existing and new businesses”.
 There is a holistic strategic framework, and R&D

and business strategies are integrated corpora-
tion-wide.
 R&D and strategy formulation is given attention

by top management at both the business and
corporate level in order to achieve a balanced
portfolio of R&D projects in terms of risks and
temporal horizon of investment.
 This style of R&D management attempts to

support a balanced combination of technology
push and market pull views.
3. THIRD GENERATION R&D MANAGEMENT:
● Purposeful, portfolio-oriented mode
● Technology/R&D strategy and business strategies

integrated corporate-wide
● Resources allocated based on balancing of priorities

and risk/reward
● Strategically balanced portfolio of R&D projects

formulated jointly by business and technology
managers
THIRD GENERATION R&D MGMT: STRATEGIC & PURPOSEFUL...1
MANAGEMENT AND
• Holistic strategic framework
STRATEGIC CONTEXT
PHILOSOPHY • Partnership
ORGANIZATION • Breaks the isolation of R&D
TECHNOLOGY / • Technology / R&D and business strategies

R&D STRATEGY integrated corporate-wide
THIRD GENERATION R&D MGMT: STRATEGIC & PURPOSEFUL...2
• Combined R&D / business insights across the

OPERATING PRINCIPLES spectrum
FUNDING • Varies with technology maturity and competitive

impact
RESOURCE
ALLOCATION • Based on balancing of priorities and risk / reward
• All R&D has defined, consistent business and

TARGETING
technological objectives
PRIORITY • According to costs / benefits and contribution to

SETTING strategic objectives
MEASURING • Against business objectives and technological

RESULTS expectations
EVALUATING • Regularly and when external events and internal

PROGRESS developments warrant
FROM 3G TO LATER GENERATIONS OF R&D MANAGEMENT
 The third generation model is a coupling model that

contains feedback loops but it is essentially a sequen-
tial model with limited functional integration.
 The later models emphasize the role of feedbacks and

the non-sequential, messy character of the process.
 Innovation is also by definition, cross functional, and

R&D is just one of the functions involved in the innova-
tion process. This has a big impact on the style of R&D
management.
The Fourth Generation
R&D Management
FOURTH GENERATION R&D MANAGEMENT
4. FOURTH GENERATION R&D MANAGEMENT
 R&D is carried out jointly with customers, vendors,

and other stakeholders in a process of “mutually
dependent learning”
 R&D is the synthesis of new market knowledge with

new technological knowledge
 Entails shift from business structure focused on R&D

and technology development to business process
focused on innovation
THE 4G MODEL OF R&D MANAGEMENT…1
4th Generation Time- R&D as Integrative Activity:

Based learning from and with
Struggles customers, moving away
(Early 80s from a product focus to
- mid 90s) a total concept focus,
where activities are con-
ducted in parallel by cross-
functional teams.
 The fourth generation R&D model, the interactive ap-

proach, was developed to address the lack of func-
tional integration in the linear models.
 This approach views the innovation process as parallel

activities across organizational functions (as shown in
a later diagram)
 The fourth generation integrated model emphasizes the

concurrent learning with customers.
Source: Niek du Preez et al. (2008)

 The pressure to yield more effective and efficient pro-

duct development processes has led to an increase in:
● horizontal strategic alliances and collaborative R&D consortia;
● strategic vertical relationships, especially at the supplier

interface;
● innovative SMEs forging external relationships with both large

and small firms;
● greater emphasis in the development of cross-functional and

parallel integration within firms to gain greater potential from
higher real-time information processing.

Fourth Generation Interactive Model

The Fifth Generation
R&D Management
 The fifth generation or network models originated in the

1990’s and attempt to explain the the influence of exter-
nal environment and the effective communication with
external environment.
 Innovation happens within a network of internal and

external stakeholders. So it is important to establish
links between all the role-players.
 An example of such a model is given by Trott in the next

slide.

FIFTH GENERATION R&D MANAGEMENT
5. FIFTH GENERATION R&D MANAGEMENT:
■ Knowledge-centered
■ Collaboration-oriented
■ Cross-boundary learning and knowledge

flow
5th Generation Systems R&D as Network: focusing

Integration on collaboration within a
(mid-90s wider system ― involving
onwards) competitors, suppliers,
distributors, etc. The ability
to control product develop-
ment speed is imperative,
separating R from D.
Network Model of R&D

 These fifth generation models are mainly closed net-

works of innovation.
 Traditionally, new business development processes

and the marketing of new products took place within
the firm boundaries (as depicted in the next slide).
 In closed innovation systems, employees within the

organization develop the ideas internally and in
secrecy.

Closed Innovation Model

The Sixth Generation
R&D Management
 The new sixth generation models of innovation can be

called open innovation models.
 These are also network models of the innovation pro-

cess, but instead of being only focused on internal idea
generation and development, internal and external ideas
as well as internal and external paths to market can be
combined to advance the development of new techno-
logies (as depicted in the diagram).
 The concept of open innovation was first termed by

Chesbrough. One of the most obvious benefits of open
innovation is the much larger base of ideas and techno-
logies from which to draw to drive internal growth.
 But beyond that, leading companies also recognize

open innovation as a strategic tool to explore new
growth opportunities at a lower risk.
 The innovation environment has changed through net-

working and collaboration.
 Open innovations call for a new logic, which put open-

ness and collaboration at its center.
 Networked or web communities are the open and agile

tools to put into practice the open innovation concept.

OPEN INNOVATION MODEL

 To summarize, the innovation environment has

changed through networking and collaboration from
simple linear models to the more complex integrated
network models.
 Open innovations call for a new logic, prescribing

openness and collaboration at its center and using net-
worked or webbed communities.
 In the new networked paradigm it is possible to exploit

the linear and coupling processes in combination
depending on the requirements.
 But this will require new ways of collaboration between

enterprises whilst also competing concurrently.
Case Study of the
Bluetooth Development
CASE STUDY OF BLUETOOTH DEVELOPMENT...1
To introduce the most recent R&D management practices,

we now discuss the successful and rapid development of
the revolutionary Bluetooth technology.
 To promote the new Bluetooth technology, several of the

leading firms in the computer, network, and communications
industries formed the core of a special interest group – the
Bluetooth SIG – with Ericsson as the initial catalyst and
3Com, Agere, IBM, Intel, Microsoft, Motorola, Nokia, and
Toshiba as the other core members.
 As of 2003, over 1600 companies had freely joined Blue-

tooth SIG, making it one of the fastest growing trade asso-
ciations ever to promote a new technology.
 The developed Bluetooth specification has been ac-

cepted as the (de facto) standard for wireless personal
area networks. This specification is being developed,
published and promoted by the Bluetooth SIG, which is
driving the technology’s development and actively
bringing it to the market.
 The Bluetooth SIG is a volunteer organization run by

employees from member companies who work in
several aqreas, e.g., engineering, qualification and
marketing.

 Any company may join the Bluetooth SIG by signing

an agreement which involves, among others, freeing
the company’s own potential patents that may hinder
the development of the Bluetooth technology.
 The benefits of the Bluetooth SIG then includes a

royalty- free license to build products based on the
same technology as well as access to the Bluetooth
specification. Further, joining the Bluetooth SIG
provides members with the ability to influence the
development of the specification and offers them with
co-development opportunities.

 The creation of the Bluetooth SIG also enabled some

inter-industry transfer of good practices, increasing
speed of the process from research to market.
 The decision to open up the Bluetooth intellectual

property (IP) was made early by Ericsson and Intel
Corporation in order to attain global presence quickly.
 As Simon Ellis at the strategic marketing department

at Intel Corporation stated ‘‘. . .open IP is a way of
reducing the politics from the collaboration equation’’.

 The open IP and the dispersed network idea caused a

big debate internally at Ericsson, with some saying
that Ericsson was giving up the control and giving
away important patents
 The others, who eventually prevailed, argued for

opening up the IP in the SIG network because of
potential benefits such as an increase in the value of
other related patents, increased value of the mobile
phones, increased value of the Bluetooth network to
come, and also, a speedy and powerful joint effort in
bringing the de facto standard in place.

 The future growth of the Bluetooth technology is

foreseen to be driven mainly by developers who will
find an ever-growing number of applications for Blue-
tooth beyond mobile phones and PCs, with automotive
and industrial applications as the most obvious areas.
 For the companies involved in developing standards

and applications for the technology, success will mean
finding the right market segments and business
strategies to appeal to the broadest number of users
and hardware makers seeking to add the technology to
devices.

TOWARDS SIXTH GENERATION R&D MANAGEMENT...1
In the face of this rising R&D complexity, R&D manage-

ment is expected to take on a new set of working methods
resulting in a new, sixth generation with the following
features:
 it is likely that there will be a continuous expansion of

the complexity of R&D driving an increased number of
aspects to integrate and actors to involve.
 a more radical shift is predicted to return to the roots,

i.e. back to the purpose of the first generations corpo-
rate research labs, one pursuing more radical innova-
tions with a refocus towards the research part of R&D.

 The Bluetooth scenario is an example of the new

approach which is based on a broader multi-tech-
nology base for high-tech products and a more
distributed technology-sourcing structure.
 There will be a palette of technology-sourcing

strategies available, e.g. corporate research labs,
internal corporate venturing, technology company
acquisitions, intellectual property acquisitions,
corporate venture capital, joint ventures, indepen-
dent research groups or networks, etc.

 Much of the breakthrough research will not be a

result of one company’s lab efforts but will be
based on joint efforts from loosely tied networks of
smaller players driven more of pure interest than
profits.
 This shift towards the sixth generation of R&D is

conducted with the aim of increasing the likelihood
of recognizing, joining, and developing break-
throughs affecting whole industry segments.

 In sum, the sixth generation of R&D manage-

ment is expected to re-focus the research part,
and to enlarge and enhance the capabilities by
connecting to loosely tied multi-technology
research networks.
 The pursuit of breakthroughs will take on other

organizational approaches and open up for
new players in the arena. In short, ‘‘chance
favors only the prepared mind’’.

End of Presentation

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THE EVOLUTION OF

INDUSTRIAL R&D AND

According to Rothwell (1992), there are five genera-

 First generation: Technology push

 Second generation: Market pull

 Third generation: Coupling model

 Fourth generation: Integrated model

 Fifth generation: Systems integration and

Source: D. Nobelius (2004)

Core R&D in isolation Link to Business Technology/ Integration With Collaborative

Change Unpredictable Inter-dependence Systematic R&D Accelerated Kaleidoscopic

Structure Hierarchical; Matrix Distributed ‘Multi Symbiotic

Source: Nobelius (2004)

 From 1950 to the mid-1960’s, fast economic growth allowed

 Companies focused predominantly on scientific break-

 Science and technology were seen to have the potential for

 Research & Development was considered as corporate over-

 Technology push views the innovation process as

 The market is seen as a receptacle of the results of

 This 1G model, however, incorporates market informa-

R&D GENERATION CONTEXT PROCESS CHARACTERISTICS

1st Generation Black Hole R&D as Ivory Tower: tech-

STRATEGIC R&D MANAGEMENT INVOLVES (1) THE INTEGRATION OF AN

1. FIRST GENERATION R&D MANAGEMENT

● The intuitive, fatalistic mode

● Firm’s future technologies are decided largely by R&D

● R&D has no explicit link to business strategy

● R&D is deemed an overhead cost

● Lacks strategic framework for technology management

MANAGEMENT AND • No long-term strategic framework

• R&D decides future technologies

• Emphasis on cost centers and disciplines

TECHNOLOGY / • No explicit link to business strategy

• Lacking combined business / R&D insight

• Line item in annual budget

RESOURCE • At the discretion of R&D

• Is anathema for fundamental and radical R&D

PRIORITY • No strategic priorities

MEASURING • Expected results not defined precisely

EVALUATING • Ritualistic and perfunctory

 The mid 1960’s to early 1970 were characterized by a

 During this period of intensifying competition, invest-

 The central focus became responding to the market’s

 Cost-benefit analyses were made for individual re-

 Stronger connections were initiated between R&D and

 Market pull views innovation, again, as simple, linear

 The market is the source of ideas to direct R&D which

 Demand side factors replace the supply side approach

 A major disadvantage of the 2G models is that there is

R&D GENERATION CONTEXT PROCESS CHARACTERISTICS

2nd Generation Market R&D as Business: market-

 Provides the beginnings of a strategic framework at the

 In other words, a strategic framework has been built to

 This view has forced companies to put R&D under

1. SECOND GENERATION R&D MANAGEMENT

● Systematic, project-based mode

● R&D activities considered on a project-by-project

● Lacks business-wide or corporate-wide integration

● Matrix management of R&D projects

MANAGEMENT AND • Transition state

• Judge-advocate management / R&D relationship

• Centralized and decentralized

TECHNOLOGY / • Strategic framework by project