208KM Tutorial 5
Question 1
Show why R&D management is dependent on industrial context.
Answer:
This question explores the extent to which students understand the importance of industrial
context. R&D operations in the industrial chemical industry will be completely different from
those in the food industry. For example, R&D managers in industrial chemicals companies may
not have to deal with brand managers, whereas in the food industry brand managers will be
very influential. Similarly, consumer research scientists will have a significant influence on
decision making in consumer markets but not in industrial markets.
Question 2
Discuss the range of operational R&D activities.
Answer:
Figure 8.1 illustrates the R&D operations commonly found in almost every major research and
development department. They may have different labels, but within Siemens, Nokia, BMW and
Shell such operations are well documented. In smaller organisations the activities are less
diverse and may include only a few of these operations. This section explains what activities
one would expect to find within each type of R&D operation. To help put these activities in
context, Figure 9.5 shows how they relate to the product life-cycle framework. They are:
Basic Research
Applied Research
Product Development
Technical Service
Question 3
What was the traditional view of R&D?
Answer:
After the Second World War, research and development played an important role in providing
firms with competitive advantage. Technical developments in industries such as chemicals,
electronics, automotive and pharmaceuticals led to the development of many new products,
which produced rapid growth. For a while it seemed that technology was capable of almost
anything. The traditional view of R&D has therefore been overcoming genuine technological
problems, which subsequently leads to business opportunities and a competitive advantage
over one’s competitors.
Question 4
Not all firms invest in R&D. What should be the level of expenditure on R&D for a
firm?
Answer:
One of the most useful guides is to look at industry average expenditure. This will provide a guide
to what a firm in a particular industry probably spends.
Unlike many other business activities, successful R&D cannot be managed on an annual
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budgetary basis. It requires a longer-term approach enabling knowledge to be acquired and
built up over time. This often leads to tensions with other functions that are planning projects
and activities. It is unusual for unlimited funds to be available, and hence business functions
usually compete with other departments for funds. A great deal depends on the culture of the
organisation and the industry within which it is operating (see Chapters 3 and 6). Pilkington, for
example, spends proportionally large sums on R&D – many say too much – especially when
one considers its more recent performance (Financial Times, 1998). Other companies spend
very little on R&D but huge amounts on sales and marketing. This is the case for the financial
services industry. So, one of the most difficult decisions facing senior management is how much
to spend on R&D. Many companies now report R&D expenditure in their annual reports. It is
now relatively easy to establish, for example, that Rubbermaid spent 14 per cent of sales on
R&D in 1994; however, exactly how the company arrived at this figure is less clear.
Question 5
What are the main strategic activities of R&D?
Answer:
The management of research and development needs to be fully integrated with the strategic
management process of the business. This will enhance and support the products that
marketing and sales offer and provide the company with a technical body of knowledge that can
be used for future development. Too many businesses fail to integrate the management of
research and technology fully into the overall business strategy process (Adler et al. (1992)). A
report by the European Industrial Management Association (EIRMA, 1985) recognises R&D as
having three distinct areas, each requiring investment: R&D for existing businesses, R&D for
new businesses and R&D for exploratory research (see Figure 8.4). These three strategic areas
can be broken down into operational activities:
defend, support and expand existing businesses;
drive new businesses; and
broaden and deepen technological capability.
Question 6
Discuss some of the strategic pressures on R&D.
Answer:
In virtually all R&D functions there is a trade-off between concentrating resources in the pursuit
of a strategic knowledge competence and spreading resources over a wider area to allow for
the building of a more general knowledge base. Figure 8.5 shows the demands on technical
resources. The growth of scientific and technological areas of interest to the firm pressurises
research management to fund a wider number of areas, represented by the upward curve. The
need for strategic positioning forces the decision to focus resources and build strategic
knowledge competencies, represented by the downward curve.
Question 7
What is meant by technology leverage?
Answer:
While it is tempting to say that technology influences the competitive performance of all
businesses, in reality some businesses are more heavily influenced than others. In many
mature and established industries, the cost of raw materials is much more of an influence on
the competitive performance of the business than are technology developments. For example,
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the price paid for commodities like coffee, cocoa and sugar can dramatically influence profits in
many food industries. Even if the business was to substantially increase the level of R&D
investment, its competitive position would still be determined by raw material prices.
Several attempts have been made by industry to quantify this factor when considering the level
of R&D investment required. Scholefield (1993) developed a model using the concept of
technology leverage. This is the extent of influence that a business’s technology and technology
base have on its competitive position. In general, technology leverage will be low when the
influence of raw material and distribution costs and economic growth is high. High-volume, bulk
commodity products would fall within this scenario.
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