global r&d – an update on the latest scenario and the challenges facing it

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A slightly revised version of a presentation made at Asia Business Forum conference on Research & Development, 22nd January 2009, Park Royal

Hotel, Singapore

Dr. Christopher BreachVice President, Wire Bond Strategic Business Unit, Oerlikon Esec Assembly Equipment Pte Ltd, 1 Science Park Road, Singapore Science Park 2, #03-10

Capricorn Building, Singapore 117528

Global R&D – An Update on the Latest Scenario and the Challenges Facing It

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Introduction – R&D Evolution R&D Organization ModelsChallenges of Starting New R&D Subsidiaries

Agenda

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The Evolution of R&D / 1

People all over the world, regardless of race or culture have the same fundamental capabilities

Many cultures and races have contributed to science over the centuries

However, not all societies actively transformed scientific knowledge into something generally useful

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Many countries that are / were 3rd world economies or are now emerging economies have made great contributions to science

Middle EastIndiaChina

Culture and environment play a great role in the development of a society

Sometimes over-structuring of a society and the imposition of rigid social hierarchies stagnates creativity

Politics and freedom of expression also play a major role

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R&D and the concept of science PhDs began in Europe / US in late 19th century, driven by industrialization

R&D was once the domain of the US, Europe and Japan and is now to be found in many countries throughout the world

One of the first research laboratories established by a commercial entity was by Philips in 1914

Concept of exploiting knowledge for developing new products emerged on a much larger scale

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J. Niosi. Fourth Generation R&D: From Linear Models to Flexible Innovation. Journal of Business Research 45 (1999) 111.

We are now in the 4th generation of R&D and these are the models that came before*

1st generation 1950’s / 1960’s, R&D department is an isolated group that develops materials, products, processes and periodically hands them to manufacturing for refinement / removal of bugs

2nd generationRecognition in 1960’s that R&D projects need to be managed

3rd generation : In the 1970s it was recognized that R&D people are smart but They’re not near the consumer involve sales/marketingThey don’t deal with suitability for mass production involve operationsThey often don’t think about finances bring in financeThey don’t know everything (even if they think they do) who else can give input?

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Chart from B. Quelin. European Management Journal 18 (2000) 476

Which naturally led to the 4th generation customer requirements orientation

Technology push is not wrong but use sparingly

Don’t develop features or things that are not needed

It’s wasteful and cost matters

R&D is a business like any other and needs to bring in profit

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AgendaIntroduction – R&D Evolution R&D Organization ModelsChallenges of Starting New R&D Subsidiaries

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R&D Organization Models

Ethnocentric Model

Geocentric Model

R&D Hub Model

Polycentric Model

Integrated Network Model

With each model there is a lesser or greater degree of localization of R&D activities

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Ethnocentric / 1

O. Gassmann, M von Zedtwitz. New concepts and trends in international R&D organization. Research Policy 29 (1999) 231.

Central R&D

Organization Structure

R&D based in home country

Central & tightly controlled R&D organization

May tend towards rigid bureaucratic structure

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Ethnocentric / 2


StrengthsHighly efficientLow R&D costs

Short cycle timesEasy protection of core technologies

WeaknessesInsensitive to local markets

Risk of missing external technologies‘Not Invented Here’ attitude

Tendency towards rigid organization

Organization Behaviour

This organization is inward looking

It may believe the home country resources outclass resources available elsewhere

The R&D culture is homogeneous

Pushes developments to the various markets

ExamplesMicrosoftVolvoToyota

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Geocentric / 1



R&D is centralized, close cooperation with overseas sites

There is no local R&D competence

Structure facilitates interaction with international manufacturing sites, sales organizations etc..

Central R&D

International Manufacturing Local Logistics

Global SourcingStrategic Alliances

Technology ParksInternational Sales Organization

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Geocentric / 2


StrengthsHighly efficient, centralized

Low R&D costsMore sensitive to local market needsEasy protection of core technologies

Cost-efficient

WeaknessesNo systematic approach to local needsLocalization performed at central R&D


Overseas sites are a source of local information and may include manufacturing operations, logistics etc..

Unrestricted information flow, no internal conflict because only one R&D site

ExamplesNissanATRMTU

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Polycentric / 1



R&D is centralized

Overseas sites are autonomous and localization of central developments or completely local R&D permitted

Little or no co-ordination between R&D units, poor information flow

This structure is common after M&A

Central R&D

R&D Centre 1 R&D Centre 2

R&D Centre 4R&D Centre 5


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Polycentric / 2


StrengthsStrongly sensitive to local markets

Focus on product developmentHigh usage of local resources

WeaknessesAllows duplication of effortsCostly in time/effort/budget


Local customization rather than standardization

Local efficiency before global efficiency

Unwillingness to share

Duplication / internal competition

ExamplesNestlé’s old R&D modelPhilips old R&D model

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R&D Hub / 1



Decentralized R&D tightly controlled by Central R&D

Central R&D leads technology strategy and coordinates all R&D

Collaboration between R&D centres tightly controlled by Central R&D

Central R&D control and allocation of budget

Central R&D


R&D Centre 4R&D Centre 5


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R&D Hub / 2


StrengthsHighly efficient, centralized

Low R&D costsHigh synergy between sites

Sensitive to local market needsAvoids duplication of effort

WeaknessesHigh coordination costs

Central control may stifle local creativity


Attitude of Central R&D may almost be ethnocentric or at best geocentric

Central R&D may feel and /or act as superior in knowledge and capability over subsidiary R&D centres

ExamplesBASFBoschDaimlerFujitsu

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Integrated Network / 1



Each R&D Centre has a core competence that is not duplicated at other sites

Any R&D Centre can be the leader of an R&D project that requires each site to develop a specific item

R&D Centre 1


R&D Centre 3

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Integrated Network / 2


StrengthsHighly efficient

Global before local efficiencyHigh synergy between sites

Free information flow

WeaknessesHigh coordination costs

Complex decision making processes and procedures


Each site is in effect geocentric

Information flows freely between sites

Each site views the others as partners and resources for inclusion in projects

ExamplesNestléPhilipsABBCanon

Sophisticated global IT infrastructure needed to share information

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Trends


The choice of model depends on the company product and market

The integrated R&D network model is often seen as the preferred way to structure international R&D

It caters to localization , technology integration & sharing of information (in theory)

But it’s more complex to manage

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Localization and Integration

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AgendaIntroduction – R&D Organization ModelsR&D Organization ModelsChallenges of Setting Up Global R&D

Location

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Site – Where to Locate is a Basic Decision

Assume a decision has already been made to support R&D abroad

What attracts companies to establish R&D in a certain location?

Information & Communications Technology

Transportation & Accommodation

Local supply chain

People

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There are other factors that affect location

What kind of products are being researched and developed?

Localized versions of centrally developed products that are fundamentally the same everywhere?

e.g. cars, televisions?

Are they products for the specific region only?food related products often require localized R&D

Is there an R&D advantage in a particular location?high level expertise available at local universities?

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These are the most often cited advantages

Market Competitiveness

Supply Conditions

Scientific Institutions

Government Support

M. von Zedtwitz, O. Gassmann, R. Boutellier. Organizing global R&D: challenges and dilemmas. Journal of International Management 10 (2004) 21.

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These are believed to be the most important

Market Competitiveness

Supply Conditions

Scientific Institutions

Government Support

M. von Zedtwitz, O. Gassmann, R. Boutellier. Organizing global R&D: challenges and dilemmas. Journal of International Management 10 (2004) 21.

Universities

Research Institutes

Human Resources

The development of outstanding universities and institutes may often be due to strong government support e.g. Singapore

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Communication Barriers

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R&D Organizations with the exception of ethnocentric model depend strongly on communication between sites

A common language is needed, regardless

Access to skilled staff with the necessary language skills is essential

Cultural sensitivity is essential but often ignored

Interpersonal skills

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The fundamental challenges

Language

Distance

Communication style of parent company

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Language skills may affect management style of the parent company towards subsidiaries and the choice of R&D organization

The greater the common language skills the easier it is to communicate and understand product requirements

The greater the common language skills the greater the freedom of expression and accuracy of descriptions

R&D subsidiaries in regions with poorer language skills may be managed in more authoritarian way

Those more fluent may find greater autonomy

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Language skills can also lead to greater recognition within an organization

For example, technical paper presentations reflect better on a company and the presenter when the presenter is fluent in the language and clearly understood

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Cultural Differences

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Cultural differences are critical

Culture of the Home Base

Company culture and the R&D Organization Model

Culture of the country where the subsidiary is located

Differences between home base and local culture - misunderstanding

People are basically the same everywhere in capability but

Cultural values and standards affect the way we behave in private and public and some cultures have a strict social hierarchy

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People Culture: US / Europe

All educational levels – questioning and challenging encouraged

‘Experts’ admit not to know everything but bring creative thought and experience to tackle a new problem

People often have strong opinions and will assume they are right, but open to see other viewpoints

Workplace – individual opinions expected , some confrontation

Mistakes – learning experience

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People Culture : Asia (SE and North East)

Less confrontational criticism, calm discussion

Persons recognized as experts tend to feel they must know everything in their field

A tendency to focus on the positive aspects of the work of others rather than the negative

Strong opinions or disagreement may not be expressed in a larger group, preference for 1 to 1 discussion

Often difficult to disagree with someone perceived as a ‘senior’ person or the boss

R&D Characteristics – Culture Free

R&D is creative and innovative and requires creative individuals at all levels

Individual talent is extremely important

Synergy is only achieved from teamwork

Teams need to engage in creative and open discussion and sharing

Social culture and R&D culture may need to be quite different

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Staff Training & Development

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Standardization of Processes

Standard practices in R&D must be adopted company wideEveryone needs to do certain things the same way

Standard product development procedures (PDP)

R&D quality

Hands – on face to face training is required for all processes

‘Read it by yourself’ attitude is not acceptable

Before anything else company wide practices need to be established and followed

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Staff Training

Codified Knowledge TransferEasily transferred over long distances with minimum cost

Tacit Knowledge TransferKnowledge that is acquired through experienceTransfer requires the learner to undergo the experiences of the person transferring knowledgeTakes timeRequires face to face training

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Tacit Knowledge Transfer

R&D HQIdentify suitable local staffInitial training at company R&D HQ

Expatriate StaffStation at subsidiaryFixed period of timeRole is to transfer knowledge to local R&DCan be expensive

Staff Training

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Tacit Knowledge Transfer - Challenges

Expatriate StaffWhat motivates the expatriate expert to transfer knowledge?

Will all the knowledge be transferred?

Or will something be held back?

The challenge is to ensure that the knowledge transfer is complete

Staff Training

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Staff Development

Postgraduate degree sponsorshipMasters / PhDAreas of direct mid –long term interest to the companyGeneration of useful data

Source of potential R&D Staff2-3 years period allows company to evaluate ‘fit’ of postgraduate students with company culturei.e. really get to know them well

Fund PhD study of existing staffStrong motivatorEnables staff retention

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Staff Development

Encourage public displays of technical competence

Technical Conference Papers

Journal Articles

Biweekly internal Friday afternoon presentations

Annual Awards by R&D CentreIndividualGroup

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Management of University & Industrial Alliances

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University & Industrial Alliances

Industrial R&D – short to mid term, clear objectivesHigh time pressureStructured

Academic R&D - mid to long term, broader objectivesLow time pressureMore fluid boundaries of investigation

Research InstitutesOften industry orientedStaffing may be very academic

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Management of Projects Dispersed between R&D Centres

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Management of Dispersed Projects

Geocentric R&D Hub Integrated Network

Three models take advantage of competence & skills at other sites

The R&D Hub and Integrated Network models have the most to contribute because they have local R&D competence

Diagrams from O. Gassmann, M von Zedtwitz. New concepts and trends in international R&D organization. Research Policy 29 (1999) 231.

R&D – 2Component A

R&D – 1Component B

R&D – 3Component C

R&D – 4Leader, Integrator

Dispersed R&D centres contributeContribute products / knowledge for local markets that is shared with other R&D centres

Develop products / knowledge that integrates into a larger cross – R&D project run by another R&D centre

Contributions of Dispersed R&D Groups

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Challenges of Dispersed Projects

There may be internal competition to be the centre of excellence for a particular market that may be viable in more than one location

Information is not wholly shared - fear that what others know can be taken and used to give another site an advantage

In cross – site projects, not all information may be shared

Understanding of requirements is more critical in cross – site projects, small misunderstandings can be costly during integration

These types of behaviour cause many companies to be biased towards central control, regardless of the R&D organization model

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Challenges in Global R&D Teams

Gaining mutual respect across borders

Achieving a common understanding of the project goals

Sharing completely all information relating to the project development

Interdependence of projects results – clear understanding of how each R&D centre’s work integrates

Distance – it is difficult to explain many things but easy to show in person

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Overcoming Challenges in Global R&D Teams

Project Start – face to face meetings facilitates easier explanation / demonstration of what is needed

Project execution – more remote interaction

Project end / close out – face to face meetings

Summary

The capability of people to perform R&D is the same everywhere

The company setting up overseas R&D will often face an issue of ‘letting go’, of having confidence in the local R&D centre to perform. This may arise from cultural misconceptions and cultural understanding is vital to the success of a global R&D centre

Overcoming cultural differences and misperceptions may therefore be one of the most important activities in successful globalization of R&D

global r&d – an update on the latest scenario and the challenges facing it

Technology

evolution of rd

rd culture

rd people

international rd organization

global rd

rd department

generation rd

industrialization rd