Most industry stalwarts, large successful companies who’ve been around a while, have an R&D department. The department that is charged with the responsibility of creating new products. Those which bring in the revenue of tomorrow. Excluding acquisitions, the theory of the R&D department is that they come up with new techniques, ideas, innovations which are then transposed into launch-able products. But I’m starting to wonder if the R & D department is becoming an outdated industrial era enclave in times of rapid change.
The structure of the R&D department itself provides some clues as to why this might be the case.
The R&D department as we know it:
Their first job is asset utilisation
They need to monetize the existing systems, factories, production capabilities and sales channels. Their credo is about maximising what the firm already does, which makes sense. The cost of infrastructure has been a key issue in business for the past 200 years. Where the opportunity of business today is about building new infrastructure and connections.
Risk Averse
They’re filled with scientists, not hackers. The people who populate such departments (and I know because I’ve worked in no less than 5 companies who had them) are risk averse scientists. People who wouldn’t recommend anything which would create production difficulties, consumer issues, or thwart personal career growth. Again, makes sense in an industrial landscape.
Existing mindset: They are part of the pervading corporate culture of the company. The company that built the department, defines the department. And so we have the same constraints in thinking in what is arguably the most important future revenue source of a company.
Approval process: Nothing gets tested in market, until it’s been tested in the lab a zillion times, refined, repackaged by marketing and put through the entire organisational ringer. A very significant watering down process before an innovation has even touched the real world with real end users. It needs to win internally before it is even exposed to the market. The special part is usually lost by then.
Low success rate
If we even ignore the fact that most ideas and concepts don’t even get past the internal marketing funnel, those that actually do, still fail 90% of the time once they get to market. The success rate of what is generated in an internal R&D department is deplorable. Probably worse than Venture Capital.
High Cost
R&D departments, like any large company department is an expensive thing to run. It requires staffing, resourcing, and in real terms is a place where risk capital is allocated. It doesn’t have a lean startup fast entrepreneurial spirit, but a well resourced, conservative corporate ethic.
But most of all the R&D department rarely arrives with new market solutions, and more often arrives with new widgets and products to fill the NPD pipeline. This point matters a lot given that what is being disrupted in markets isn’t just end user products, but entire business systems and market methodologies.
So maybe it’s time to transition the R&D department and replace it with a venture fund. Yep, do what the VC’s are doing, even if at a micro level, but in house. Reallocate the R&D resources to outsiders, new firms, new disruptive ideas that an internal culture would struggle to develop. Invest the capital in the people and startups who are trying to kill the company who has invested in them.
In real terms it’s just another form of outsourcing. But this time they’d be outsourcing company innovation instead of manufacturing, advertising development, legal or accounting services – nothing new here. These days it’s more a question of what hasn’t been outsourced than what has. So why not the actual New Product Development process itself?
Steve this is spot on. I am not sure of how to cut through to Corporate Australia, perhaps its more visible value destruction, perhaps its waiting until the next generation leadership comes through. Sadly this is going to take time when the imperitive is to act Now!!
I think the DNA has shift towards a lean, quick implementation to innovation, startup mentality that some smaller companies have needed to learn. Rather that an incumbent team situated in a corporate political environment. You need your mind in the real ground level of innovation. How to get somewhere quickly and cheaply, with a holistic view of the selling stories, adding value, building businesses and finally building quickly a product.
In short you need you need to add value, sell and build.
I think corporates in Australia or anywhere self-sabotage R&D because there are ‘more pressing immediate concerns’ like hitting quarterly numbers.
I also think the whole ‘KPI-reward/punishment departmental-competition culture’ sets up corporate roles which end up more about protecting turf than driving innovation.
McKinsey’s just published an article called “Change Leader, Change Thyself” (a cynic might think it a PR piece for Erica Ariel Fox’s recent book, Winning from Within) which talks about how change requires one to become a better human being first – more self-aware, better at recognising strengths & weaknesses. Agree that this can help corporates to innovate, but equally it can create cyphers – ‘fake’ human beings who spout the cultural change mantra but don’t really believe in it when the crunch comes.
Being an optimist, in a self-aware startup there’s more possibility to deploy people to ‘where they can add value’ rather than to ‘what their title says they do’. The external / outsourced innovation model will work if the culture dynamics in that startup work – and if its not starved of capital of course too. Agree with Joshua that the next generation will probably be critical to this, and we need to go now !