Making R&D Pay

Getting more commercial payback from R&D is high on the agenda of top executives in many industries. One major company in Australia has been experimenting with a new approach to managing research. Though it is still too early to declare final victory, there are clear signs that the changes are paying off. The secret has been converting research from a "functional cost center" to a "professional client service" mentality. This has involved shifting management of R&D away from a "research push" to a "market pull" approach. Achieving this change meant the research organization had to build new skills in client service and development, as well as in commercially-oriented project management. This article describes both the reasons for the change and a number of the specific actions that led to a radically new way of running research. Why Change? Several years ago, the central reseach facility of one of Australia's largest companies was a classic laboratory in the woods. Located on the outskirts of Melbourne on a grassy, tree-lined site, the lab was a great distance -- physically and spiritually -- from the six operating divisions that were meant to share its resources. Inside the foyer were large posters describing a discovery that had occurred 30 years earlier. For 15 years, the R&D function had been run by a scientist who had excellent connections to the academic community but few relationships with business managers within the company. As is common in many research groups, the laboratory's prevailing culture was defensive, bureaucratic, and hierarchical. Lengthy documents written about the "achievements" of research blamed operating divisions for failing to capitalize on the discoveries. Researchers who worked there had a shop floor mentality --timesheets were strictly maintained, the cafeteria opened for only 45 minutes during the day, and heating was cut off at 4.30 p.m. Late nights spent poring over experiments were not only a myth, but a physical impossibility. Costs were tightly controlled and requisitions from the store were parsimoniously doled out. With 200 researchers, this lab was one of the largest commercial research facilities in Australia -- but its relevance was increasingly questioned by the business managers. Back in head office, the operating divisions were strikingly uninvolved with R&D -- even in projects that were ostensibly done on their behalf. Managers complained that the researchers' role was "to invent things" and that their hit rate was far too low. Projects were poorly defined, the relevance of their objectives unclear. Open cynicism flourished about research's ability to deliver. Budgets for R&D were based on history: division managers allocated money as though research was a charity rather than a vital part of their business. Half of the central research facility's budget was funded corporately, and corporate center accountants arbitrarily allocated those charges back to the divisions based on sales rather than usage, further adding to the barely hidden hostility. At the same time, operating divisions were becoming more aware of the importance of new products. Lower tariff barriers and more imports were threatening profits. The new mission statement for the company emphasized its dependence on science and technology to gain competitive advantage. Operating divisions blamed their "arm's-length" relationship with the research function for the new product development vacuum. Many believed that the only way to get results was to split up the central research group and take control of their "own" researchers. To resolve the debate, the company formed a team with McKinsey to answer several questions: should the lab be split up and absorbed by the operating divisions or kept as a central facility? If kept whole, what changes should be implemented to improve return on the research dollar? Getting the Facts The challenge for the team was to get beyond received opinion by developing a fact-based understanding of the issues. …