Contemporary transformation of the business environment has increased the competitive pressures on Indian organisations. Since the beginning of this decade, Indian companies are increasingly facing an entirely new set of competitive threats: superior technology owned by foreign competitors, impacts of major shifts in product or process technology, changes in preferences of customer segments, etc. The ability to generate and utilise knowledge is becoming the only way to effectively manage through the emerging competitive environment. There is also a growing realisation that under the changed circumstances, technological innovation is a key to corporate survival and growth. That is, companies need to put greater emphasis on their research and development activities.
An oft-mentioned hurdle in achieving technological innovations is the typically low investment in R&D in India companies. Numerous studies (e.g., De, 1997) have noted that Indian companies are less innovative because they invest only a fraction of their sales turnover in research (indeed, in most Indian companies, the R&D departments were established, not with the intent to innovate, but to save taxes). On the other hand, innovating companies are known to have a large budget for research. For instance, ABB spends about 7% of its sales revenue for research; Intel invests 15.4% of its revenue in R&D; Hitachi's research budget is $4 billions; Motorola's R&D expenditure is $1.8 billion, or 19% of its revenue; Siemens spends 10% of its sales on research; Sony's research budget is $1.5 billions, which is 5.7% of its revenue, and so on (Shukla, 1994).
Similarly, Kodama (1992) found that in 1986, the total R&D spending of 50 top Japanese firms was greater than their capital expenditure.
It is important to appreciate, however, that the reverse is not true. That is, merely a large research budget does not guarantee innovation. An analysis of 143 companies found that there was no correlation between companies' innovativeness and their R&D expenditure in terms percentage of sales (O'Reilly, 1997). The critical issue in technological innovation, thus, is not the quantum of expenditure in research, but how the research function is managed and leveraged by the company. It appears that companies which innovate tend to manage and deploy their R&D resources more strategically and effectively than others.
Unfortunately, the literature on R&D management is somewhat scanty in this area. While there is sufficient work on specific issues such as creating a more innovative R&D culture and work environment, management of R&D laboratories, use of brainstorming or other creative techniques for generating ideas, evaluation techniques for R&D project, reward systems for R&D personnel, etc., there is very little literature on the (to quote Schoen, 1969), "total process by which companies translate a technological advance, an idea, or an invention into products, processes, or services."
This paper aims to identify some of the critical strategic and organisational prerequisites which make the R&D activities more innovation-focused. Based on the study of some of the innovative Indian and foreign companies, the paper discusses the factors integral to innovative technological research.
A Vision to Innovate
Like most other activities in an organisation, the vision of the top management plays a major role in innovation. A clear vision at the top, which envisages innovation as company's focus, provides a direction to the research and development activities, and supports innovative efforts in that direction. As Quinn (1985) noted:
"Continuous innovation occurs largely because top executives appreciate innovations and manage their company's value system and atmosphere to support it..."
After studying 84 innovations, Langrish et al (1972) concluded that support by a person in top management position is critical to the success of innovation. Moreover, inability of top management to recognise the potential of the innovation was found to be one of the major factors delaying or inhibiting the innovative process.
In fact, most innovative companies have enduring visions, which are futuristic and emphasise need to build and innovate. For instance, the vision at 3M - one of the most innovative companies in the world with more than 60,000 products in its portfolio - always emphasized new product development and diversification as an essential to corporate growth. Similarly, Sony defined its "purposes of incorporation" as the:
"establishment of an ideal factory - free, dynamic, and pleasant where technical personnel of sincere motivation can exercise their technological skills to the highest levels.... Making rapidly into commercial products the superior research results... which are worth applying to daily lives of the public."
Correspondingly, the company developed the "Sony Spirit" which was described by one of its senior executives as (Quinn, 1988):
"Most companies make profit the first priority. Sony's primary mission is to produce something new, unique, and innovative for the enhancement of people's lives."
An interesting Indian example of an enduring vision is the vision which led to development of the first indigenously developed Indian car by Telco. In an interview given by JRD Tata in 1978 (Business India, 1993), he had said:
"We might have made a car. If Telco had been allowed to develop as it should have been, I have no doubt we'd be making a car in India."
This intent at the top provided support to many activities in Telco, which were necessary to achieve it, e.g., establishment of a full-fledged R&D department at Pune, in-house development of gear box technology, initial talks with Honda for a tie-up during mid eighties (the government did not allow it), entry into passenger car market with the launch of TataMobile in 1990, and so on. After twenty years of incremental efforts, Telco unveiled an indigenously built car - the Mint.
A top management vision which supports technological innovations, however, also presupposes presence of certain amount of technical expertise among the top executives. Frohman (1982), after studying 9 companies with varying degree on emphasis on technology development, found that in companies which placed high stress on technology development, a majority of top managers had technical education, and were comfortable and fluent with technical topics. The study concluded:
"If the top management is to invest more heavily in technology, it must place technology development in the hands of an administrator who is comfortable wielding it."
R&D - Strategy Link
The top management vision only sets the preconditions for innovations to take place. In companies, however, innovation do not just happen - they are planned and are made to happen. Making innovations happen, on the other hand, largely depends on how closely the R&D activities of the company are linked to the achievement of its vision and strategy. Twiss (1986) identified "formulation of a strategy for R&D to ensure that the work of R&D department is integrated with corporate strategy" as an important prerequisite for technological innovation.
For instance, in mid 1980s, Arvind Mills changed its product-market strategy from that of being a player in the domestic commodity textiles market to become a high-volume global denim producer. For the company to compete in the global market, it was essential to keep its costs low, while at the same time, provide high quality denim. This strategic focus could be realised only by translating it into a R&D agenda (Arvind spends 5% of its turnover in research), and led to many technological innovations in its operations technology. While the rest of the industry was using projectile looms for making heavy weight denim, Arvind modified the airjet looms to produce the same weight of fabric, but with better quality and with 50% less capital cost. Similarly, instead of using the conventional and highly capital-intensive rope-dyeing technology, it developed techniques for using Slasher technology for dyeing operations. This helped in reducing the normal four-stage process to a single-stage operation, thereby, making heavy savings on operational costs (Kelkar, 1995).
A clear link between corporate strategy and R&D is essential for defining the focus of company's research strategy. According to Kodama (1992):
"The difference between success and failure is not how much a company spends on research and development, but how it defines it."
Companies often fail to leverage their technological strengths, because of a lack of balance in their research strategy. To have a planned innovative process, the R&D activities need to strike a balance between the radical, "breakthrough" research activities - which focus on long-term results - and the incremental, developmental research efforts - which are necessary for solving immediate or short term commercial problems. In most research establishments (both private and government-owned), these two foci of R&D activities contradict, rather than complementing each other. Often they also come to represent the differing priorities of the fund-providers (corporate HQ or the government), which emphasizes the need for quick commercial results from research, and those of the research scientists, whose aspirations and temperament makes them biased towards long-term technological breakthroughs.
An integration of R&D with the corporate strategy is critical in defining this balance, so that resources can be systematically deployed across different kinds of projects. For instance, Monsanto's strategy clearly differentiates between three different class of research projects: Class I projects are those which are expected to give results within a year or two; Class II projects have time-horizon of up to five years; and, Class III projects aim at major breakthroughs, and are supposed to provide viable products in eight to ten years. Similarly, at 3M, the R&D budget is broadly divided into four kinds of projects: 10-15% of the money is spent on relatively elementary work on existing products (e.g., product improvements and extensions); another 10-15% budget goes into joint projects with manufacturing with the aim of improving/ innovating production method; about 50-60% is aimed at finding new products, both related and unrelated to 3M's existing lines of business; and, the remaining about 15% is marked for long-term projects, which will give the company a technological edge (Labick, 1989).
On the other hand, in the absence of a clear research strategy, often the short-term concerns of the research fund-providers start determining the R&D agenda through lop-sided resource allocation. As Twiss (1986) explained:
"Because in most laboratories many projects continue through several budget periods, a high proportion of funds available in the current year have been earmarked for on-going projects. Thus the amount remaining for new projects, which can change the balance of portfolio, is likely to be limited. This restricted freedom to maneuver means that it is not possible to respond speedily to changes which have been identified as desirable without causing severe dislocation to the existing programmes."
Market-Driven Research Agenda
An obvious implication of integration of R&D and corporate strategy is that the former's activities and focus should be determined by the market and user requirements. There is enough evidence which suggests that among the innovative companies, "the market drives the R&D agenda not the other way round (Kodama, 1992)." In a study of innovation, Freeman et al (1972) examined twenty nine pairs of industrial research projects. In each pair one project was successful, while the other had failed or was less successful. They found that consistently the successful innovators had a better understanding of the user needs, were better at marketing, and were more open to ideas from outside the company.
There are many way in which the R&D activities can be made market-driven and focused on users needs. Mainly this requires creating better linkages between the R&D department and the customers. At Pune-based Praj Industries (the largest supplier of technology to distillers and breweries in India), for instance, the R&D works in close collaboration with the Business Development group (marketing) and with customers (Karnani, 1993; Majumdar, 1995). The business development managers at Praj scan and identify potential customer needs, and also shortlist the latest available technologies. These are then passed on to the research centre. Following this lead, the researchers visit prospective client sites to find out the applicability of the technologies, clients' exact needs, adaptations which would be required to meet these needs, and so on. Thus, customization of technology to customer's needs starts even before the selling process had started.
Such interface between research and customer helps Praj not only in swiftly responding to clients' needs, but also in innovating new technologies to meet customer requirements. For instance, it innovated technologies for using materials other than sugar molasses (e.g., tapioca, potato, corn, etc.) for producing alcohol. Similarly, understanding clients' need to control pollution, it developed a machine called Spranhillator, which not only completely incinerated the spentwash, but was also energy-efficient since it did not need additional heat input.
A customer-orientation for research may not be limited to only the external customers. More innovative research departments also treat the line functions (e.g., production, marketing, etc.) as their customers. In fact, some of the innovative companies (e.g., General Electric) even go the extent of creating systems, whereby the research projects are funded by the user divisions (O'Reilly, 1997). At Mukund Iron & Steel, the annual research plan is drawn up on the basis of discussions with the plant executives about the problems they are facing, feedback from the marketing department about customer complaints and rejection rates, the market development plan, etc. Interestingly, the R&D department does not have a regular metallurgical lab, since the company treats the shopfloor as the lab. This focus on the needs of internal and external customers enabled Mukund to produce many innovations, e.g., design casting for its Russian customers which can withstand repeated impact at sub-zero temperature, 21% lighter castings for Indian Railways with the same load-bearing capacity, technology to reduce the normal annealing cycle (prolonged heat treatment) required for alloy steel from 32 to 22 hours, indigenous technology for producing colored stainless steel, and so on (Kanavi, 1994).
Obviously, putting researchers face-to-face with the customers does not automatically make R&D activities more innovative. The customer requirements need to be restated in terms of focused research agenda. R&D departments can do this only if they have well developed systems and skills for translating often vague customer demands in terms of specific research projects. According to Kodama (1992):
"Converting demand from a vague set of wants into well-defined products requires a sophisticated translation skill - demand articulation. Articulating demand is a two-step process: first, translate market data into a product concept; and second, decompose the concept into a set of developmental projects."
One way of facilitating this "demand articulation" process is by co-opting the customer into the innovation process. According to John Sealy Brown (1991), the head of Xerox's Palo Alto Research Centre (PARC): "The research department's ultimate innovation partner is the customer." Microsoft Product Support Services, for instance, provides a telephone number - "206-936-WISH" - on which the customers can offer their ideas about new features and applications, which they would like to have on Microsoft products (Bogan and English, 1994).
Involving the customer directly in the R&D innovation process is necessary for two reasons. Firstly, the formal market research data, which is the main source of new research ideas in most market-focused companies, deals only with existing products. Moreover, it assumes that customers know their needs, and can articulate them clearly. Direct Involvement of the customers in the innovation process helps in overcoming these limitations of the formal market feedback. It enables the research efforts to focus on products and services that do not yet exist and on needs that are not yet clearly defined. By helping the customers to become aware of their latent needs, it becomes easier to customize offerings to meet them (Brown, 1991).
For instance, when Citibank started investing in Automatic Teller Machines (ATM) in 1971 - six years before it deployed them on a large scale - it set up "the lab" in the basement of a New York office building, and co-opted customers to understand how they would respond to, and expect from, a non-human teller. These experiments with customers, helped Citibank to make the ATMs more user-friendly, and to attract the less gadget-prone customers (Shukla, 1997).
The second reason for involving the customer in the innovation process is that often, to meet their own specific needs, customers innovate their own improvisations in the offering. One study, for instance, found that 67% of the new process machines used by the semiconductor industry, and 80% of the new instruments manufactured by the scientific instrument companies were developed by the users/ customers (von Hippel, 1982). Similarly, Utterback (1974) in his study of 157 successful innovations in US firms, found that 98 of these were based on ideas picked up from outside the company. Since most such innovations are made to serve a local need of the customer, they often also contain the seeds of a larger breakthrough, which can effect the product portfolio of the organisation. By involving the customers/ users in the innovation process, the R&D department can supplement their improvisations by greater developmental efforts, so as to cater to the needs of the larger customer base.
"Coproducing" Research
The history of technological innovations during the last few decades shows two very distinct patterns. Firstly, recent innovations have come not from radical breakthroughs, but from a number of small, incremental improvements on an existing idea or technology, each building on the others. Secondly, these innovations are based on integrating the advances in different technological or scientific fields. A good example of such innovations is the videotape recorder: It was built on advances disciplines as diverse as magnetic theory, electronics, magnetic recording, frequency modulation, control theory, chemistry, and material sciences. One can see similar trend in the innovation of the first commercially viable LCD for pocket calculators by Sharp in early 1980s by blending the electronic, crystal, and optic technologies. Or in incremental innovations which changed the vacuum tube radios to transistor radios to stereo pocket radios to compact discs to optical discs with computer memories, and so on.
The implications of this trend for research management are multifold. Foremost, it implies that companies aiming at innovation through research, must shift their R&D strategy. The conventional focus of R&D has been on replacing old generation of technology or products with new one. It is a linear, step by step strategy of substituting the existing product or technology. This approach, however, focuses R&D too narrowly, ignoring the possibilities of new combinations.
Instead, companies need to adopt a "technology fusion" approach (Kodama, 1992) - which focuses on combining existing technologies and functional expertise into hybrid research outcomes - in formulating their research strategy. This means the company must redefine research as a complementary and cooperative (and not a specialised individual or functional) activity, which aims at blending incremental technical improvements from several previously separate fields of technology to create new products and technologies.
To derive innovative outcomes from the technology fusion approach, it would also be necessary to have a relook at the composition of the research project team. Underlying this approach is also the assumption that innovations come not just from the efforts of R&D, but from a teamwork between research and other functions. Nonaka (1997), for instance, found that many of the Japanese major product innovations (e.g., Canon's mini copier, Honda's City, NEC's PC8000, Matsushita's automatic home bakery, etc.) were made by project teams which were cross-functional, consisting of people from disciplines as diverse as research, production, purchase, service, marketing, etc. He also found that core members of these teams had followed a career path, which exposed them to three to four different functional areas. Such collaboration between the research scientists and the functional executives (who normally treat each other with contempt) is possible only when it is supported by new mindsets. As Brown (1991) observed:
"Research must "coproduce" new technologies and work practices by developing with partners throughout the organisation, a shared understanding why these innovations are important..."
An interesting example of such a collaborative approach is the introduction of calcium-enriched Citrus Hill orange Juice by Procter & Gamble (Labick, 1989). The idea for the product came from the researchers in the Health Care division of P&G, who while developing drugs for bone disease, found that calcium deficiencies was on increase among American adults. This was an opportunity for product improvement for the P&G's Food and Beverages division. But the problem was how to add calcium to orange juice and still retain a palatable taste. They could find solution from the researchers at the Laundry & Detergent division, who had long developed a technique for suspending calcium particles in liquid soap products.
Such collaborative efforts, however, are possible only if the top management treats innovation and research as an organisational activity, and not just something limited to R&D. As was discussed earlier, the top management vision is an essential precondition for innovation. It becomes more so, when the company adopts a technology fusion approach. In fact, technology fusion is not just a research strategy; it encompasses the very basis of how the company is managed. As Reich (1987) noted:
"Competitive advantage today comes from continuous, incremental innovation and refinement of a variety of ideas that spread throughout the organisation. The entrepreneurial organisation is both experience-based and decentralised, so that every advance builds on previous advance, and everyone in the company has the opportunity and capacity to participate..."
This organisation-wide coverage of the research function can be seen in the functioning of some of the highly innovative corporate research centres, such as Xerox's PARC or Sony Corporate Research group. Sony Corporate Research, for instance, is an umbrella organisation, which coordinates the efforts of 23 business groups and hundreds of project teams. Every year it organizes a 3-day annual exposition - open only to employees - in which Sony's engineers and scientists display their latest inventions. Since most stalls are manned by the inventors themselves, this event helps in cross-pollination of ideas among various business groups, while at the same time in eliminating redundant research projects. The Research Group also ensures that the exposition is also visited by the top level manager, so that the innovators can find a sponsor who is willing to invest in the development of their projects (Schlender, 1992).
The scope of collaborative research, however, is not limited to the boundaries of the organisation. Smart companies are open to picking up ideas from outside - or even sponsoring or outsourcing research to outside agencies. For instance, in late 70s when Monsanto decided to shift from bulk commodity chemical business to the sunrise field of biotechnology, it did not start investing in in-house research in the new field. Instead, it invested heavily into start up ventures such as Genetech, and planted seed money for research in biotechnology in universities and institutions (Labick, 1989). Similarly, AT&T Bell laboratories supported 120 fiber-optics researches at General Physics Institute in Moscow, and in 1992, H-P sponsored Russia-wide competition on theories of computer recognition of speech and printed characters (Business Week, 1992).
Such a strategy (which permits a variety of tie-ups, such as licensing agreements, joint ventures, research consortia, etc.) is particularly useful for innovations in fields which are still untested, or which may jeopardize the ongoing research projects Olson, 1990). For instance, for pharmaceutical companies, e.g., Merck and J&J, it makes sense to have arrangements with many young biotech companies to do R&D and produce bio-tech drugs, because bio-technology is completely different than their staple business, which is making chemical compound-based drugs (Tully, 1993). Moreover, young firms with an entrepreneurial culture are often more adept at managing higher risks than the established companies.
Conclusions
As the competition grows more knowledge-based, it is becoming imperative for Indian companies to effectively develop and deploy their knowledge-generating assets. In the changed scenario, many companies are experiencing the need to become technologically innovative - and therefore, are realizing the need to provide a more central strategic role to their R&D function. Unfortunately, in spite of this realisation, few companies are able to strategise their research activities. One of the reasons is that often the research strategy is still defined in classical academic terms, which aimed at finding radical solutions to replace the existing products or technology. The image of the lone innovator, working against the constraints built by the establishment, still dominates the mindset.
If the intention is to integrate research with the mainstream business activities, it is necessary to reinterpret the role of R&D within the company. Building linkages between R&D and the organisation's vision, strategies, customers, and other stakeholders is a critical precondition for redefining this new role. Only then, it would be possible to use research as a source of innovative business ideas, instead of a mere - if at all - troubleshooting agency. To be innovative, the role of R&D cannot remain limited to merely building prototypes of new products or technology; it must, to quote Brown (1991), "prototype new mental models of the organisation and its business."
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