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Adopted from Chapter five of R&D Strategy and Organization by V. Chiesa Shahin Haghi Hamed Sarvahed SMOT Fall 2011

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Table of contents The structure of R&D Units The balance between centralization and decentralization of R&D Activities The separation between R & D 2

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Table of contents The structure of R&D Units The balance between centralization and decentralization of R&D Activities The separation between R & D 3

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The Structure of R&D units the organizational structure here described concerns the individual R&D unit the organizational structures described represent the pure versions 4

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The Structure of R&D units (continued) input-oriented organization: by scientific discipline or technical area; by activity; output-oriented organization: by product line; by project; matrix organization: Weak; Strong; Mixed; 5

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Input-oriented organization 6

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Organization by Scientific Discipline/Technical Area 7 R&D Director ChemistryMicrobiologyBiology Research Development Chemotherapy Oncology PharmacologyMedicine Programming & Control

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Centro Ricerche Fiat 8 External orientation Units Input orientation Units H

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Organization by Type of Activity 9 R&D Director Basic Research Applied Research Development Design & Engineering Prototyping & Testing

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Montell 10 R&D Basic Research Product Development Pilot Plants Management Catalysts Development Technical Services Integration H

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Advantages favors the autonomy of the scientists and researchers; provides the ground for an increasing specialization of competencies; well suites cases in which innovation is the result of the R&D activity in one discipline; facilitates the introduction of new people in the structure, as anyone easily recognizes the piece of organization with his specific knowledge and easily feels comfortable with the structure; favors communication and interaction with colleagues sharing the same technical competence. is adapt to the acquisition of new knowledge in a specialist field as this brings to add a leg in the R&D organization; makes easier the career development of R&D specialists; helps achieve economies of scale as the R&D activity is organized in each discipline at best. 11

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Disadvantages Focus on technical disciplines may detract the attention from the real aim of technical projects, i.e. the innovation; This structure separating the various disciplines generates obvious obstacles to the mixing and blending of different specialist knowledge; it is rather difficult to create a sense of urgency and time pressure, which are proper of innovation project; it does not help the coordination usually required in innovation project; it is rather rigid and not flexible. 12

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Output-oriented organization 13

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Organization by Product Line 14 R&D Manager Product 1Product 2Product 3 R&D Services

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Alcatel Transmission System 15 Product Strategy and Development Network View Product Management ADMs, PDH Digital XC Network Management Video/Audio Product Development Network Elements Network Management Network Integration H

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Advantages strong orientation to the generation of innovations as people are organized on the basis of the structure of the customer base the firm wants to satisfy; strong customer focus; strong integration with the other business activities as the orientation is common; strong managerial and organizational flexibility in the management of the new product development process; easy coordination; attention to time and costs of innovation. 16

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Disadvantages there is a certain duplication of resources; Resources feel to be related to a specific product line and it may be difficult to move resources from a line to another; moreover, business managers can raise obstacles to the movement of people; the updating by researchers and scientists can be very limited; the autonomy of R&D people is low, as there is a strong business orientation. 17

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Organization by Project 18 R&D Director Project 1Project 2Project 3 Exploration of new technologies

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Organization by Project (continued) Technical people are not organized in a stable form by any permanent criteria. When not assigned to any project, people spend time to update their competence and are free to canny on personal innovative ideas. This organization attempts to avoid the strong separation between divisions that may be generated by the organization by product line, and, in particular, attempts to increase the resource flexibility. 19

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Trade-offs between Input - and Output - Orientation Rate of change Diversification Newness of a technology Interdependence between units Scale economies 20

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Matrix organization 21

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Matrix Organization two of the above dimensions are combined, usually a dimension is by project. Often, the project-based view is combined with another criteria, either input (discipline, activity) or output (product line) oriented. The typical matrix structure is scientific disciplines- projects. 22

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23 Matrix Organization (continued)

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24 Marelli H

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Matrix Organization (continued) Matrix organization can assume different forms according to the role assigned to and played by the project/program manager: weak; strong; Mixed; The stronger power of project managers, the greater impact on the organization due to the introduction of the horizontal dimension by project. 25

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Weak project management structure the management of resources (quality, quantity, time) are fixed by line managers. The project manager has no responsibilities over project results. The project manager s role is to facilitate relationships among functions, to maintain the project file, keep record of the project progress and provide project report to line managers and R&D managers. This organization is effective when the project work is easily divided into functional steps which weakly interact. This organization aims to achieve strong resource efficiency. 26

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Strong project management structure the project manager is assigned the hierarchical power over resources. Usually the project manager is established before the project start and often before the decision whether to launch or not the project is taken. Units are seen as reservoir of resources and have to look after their qualitative and quantitative profile and its evolution over time. This organization is adopted when the project to be managed is strategic for the firm. A major disadvantage is that this structure is often resources assigned to the project are not used at their maximum capacity during the whole project. project managers are usually chosen among people well acknowledged within the organization and with strong charisma. 27

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Mixed structure the project manager has to negotiate with the line managers to a larger extent than in the strong structure. The project manager has to negotiate resource assignment with him at each stage of the project; the degree of authority of a project manager may change during the project itself. In other words, different forms of relationships can be established between line and project managers at different stages of the project; the authority of the project managers varies from project to project. 28

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R&D Project Managers (responsible for the development of new technologies) T2 Program Managers (responsible for the development of new products) P1P2 Hewlett-Packard 29 H

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Advantage and disadvantage of Matrix structure The main advantage of the matrix structures is that there is a clear distinction between managerial and professional responsibilities: R&D managers take care of the professional standards, the competence development and the career development of R&D staff Project managers are responsible for the progress of the project work. The main disadvantage is that there may be ambiguity, as R&D people may be subject to two contemporary and potentially conflicting leads. 30

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Table of contents The structure of R&D Units The balance between centralization and decentralization of R&D Activities The separation between R & D 31

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The Balance between Centralization and Decentralization In large firms, there is usually a corporate R&D and a divisional R&D. The choice between centralization and decentralization is: first, mirrored by the division of labor between corporate and divisional R&D; second, by the amount of R&D investment assigned to corporate and to business units, respectively; A central issue is the balance between inner-orientation and outer- orientation of R&D, which can also be traced back to the problem of balancing technology push and market pull factors: the first R&D management generation corresponds to a view of R&D strongly centralized, inner-oriented and technology push minded. The second generation corresponds to a significant decentralization of R&D, a strong integration with business activities, a prevailing market pull mind set and outer orientation (towards customers and business). The third generation focuses on the interrelationships among projects within a business, across business, and for the corporation as a whole. It introduces the portfolio concept. 32

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The Balance between Centralization and Decentralization (continued) The competence or resource based view emphasizes the role of corporate R&D and the need to compensate the dominance of the business-oriented approach. Technological competencies cross businesses and grow as they are applied and shared. A business-unit-led process of technology strategy could lead to under-invest in developing core technological competencies and bound innovation; a firms critical capability is often synthesized cross- functional and cross-business. So this capability needs to be developed at corporate level; At the initial stage, it is necessary to create an appropriate level of absorptive capacity. This appears mostly to be a corporate rather than divisional task. 33

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Roles and characteristics of Corporate R&D Monitoring major scientific and technical developments Building new technological competencies Developing new technical and human resources Identifying potential applications of existing competencies Nurturing the knowledge base of a promising business Capturing technological synergies across business units Integrating different technologies and disciplines Establishing the trajectory for knowledge/competence development Creating an absorptive capacity Long term vision in technology strategy Carrying on radical innovation projects Avoiding business pressures 34

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Roles and characteristics of Divisional R&D Increasing market knowledge in innovation Searching for incremental innovation and continuous improvement Favoring the transfer from R to D Favoring the transfer from R&D to manufacturing and marketing Decreasing the uncertainty of R&D Facilitating the measure of R&D performance Putting emphasis on development time, cost and quality 35

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Main types of Structure totally centralized; centrally led; centrally supported; decentralized; totally decentralized 36

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Totally Centralized The whole R&D activity is done at corporate level. Divisions are receptacle and the commercial arm of what corporate R&D generates. R&D activity is strongly science-based, requires a lot of scientific orientation and critical mass. The integration with the manufacturing function does not represent a critical activity. The only form of integration is with the marketing functions of the divisions which have to provide inputs to the new product development process. 37

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Centrally Led In this structure there are both corporate and divisional R&D. Corporate R&D plays a key role. It has most R&D resources and manages R&D projects as far as the final stages of engineering and production scale up. Usually, corporate is responsible for exploring and experimenting new technologies and developing projects of high impact leading to the introduction of new technological platforms for different businesses. 38

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Centrally Supported There are both corporate and divisional R&D. Most R&D is at divisional level. The corporate R&D plays a support role. Three types of support by corporate R&D can be found: corporate R&D covers upstream activities of the R&D process. (typically basic research); corporate R&D covers only one or few stages of the R&D process, where there is the need for central coordination; corporate R&D does R&D for businesses different from those served by divisional R&D (spin-offs). 39

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Decentralized Corporate R&D has very limited resources dedicated to the exploration and scanning of new technologies 40

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Totally Decentralized the whole R&D concentrated at divisional level. Everything is done at divisional level to ensure that there is a strong integration with the other business functions and market focus 41

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Integrating Corporate and Divisional R&D the centrally led and centrally supported seem to have strong requirements for integration between corporate and divisional labs. To ensure that there is the appropriate integration two major ways can be followed: Joint development work: The R&D work is conducted jointly by groups of researchers and technicians from both corporate and divisional labs. R&D groups are created which follow the project from the beginning (when it is under corporate control) until its end at the factory level. Cross-funding: These mechanisms allow divisions to fund research carried out at corporate level and vice versa corporate to fund activities done at divisional level. corporate funding of divisional activity are appropriate when potential benefits are corporate-wide and the key interfaces required are with production, suppliers, customers. divisional funding of corporate activities is appropriate when the potential benefit is division-specific and the key interfaces concern science and technology centers. the counterpart buys the result of the project 42

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43 8 Labs IN 3 Labs (proto-research) Are going to be established IN 1) Sweden 2) Switzerland 3) Germany 4) Finland 5) Norway 6) Italy 7,8) US 1) Japan 2)Poland 3)Czech Republic R & D The case of ABB H

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44 Program Managers Program Managers Coordinate the research Program of Each Lab Coordinate the research Program of Each Lab The case of ABB H

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45 Divisional Labs Perform adaptation of existing products and exploitation of the existing technologies developed at corporate level Capture Customer Requirement and Adopt products to satisfy their needs. Capture Customer Requirement and Adopt products to satisfy their needs. Responsible for the development of new product The case of ABB H

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46 R&D STRUCTURED Central research at Corporate level Central research at Corporate level Product development Units at Divisional level Product development Units at Divisional level Production engineering Units at business unit level Production engineering Units at business unit level The case of Toshiba and Matsushita H

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Founded by divisions 1)Product divisions suggest projects they are available to sponsor 2)The central research labs present projects they are meeting to undertake at annual global meeting Founded by divisions 1)Product divisions suggest projects they are available to sponsor 2)The central research labs present projects they are meeting to undertake at annual global meeting 47 Founded by corporate: 1)Usually last more than 5 years 2)Activity concern basic research,Advanced research,early applied development 3)Aim to develop technologies critical to the firms long term position and applicable across various divisions Founded by corporate: 1)Usually last more than 5 years 2)Activity concern basic research,Advanced research,early applied development 3)Aim to develop technologies critical to the firms long term position and applicable across various divisions The case of Toshiba and Matsushita Central research at Corporate level Central research at Corporate level H

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48 Divisional units carry out product development and process technology Projects taking from two to five years. Divisional units carry out product development and process technology Projects taking from two to five years. The Divisional labs plays a key role in transferring new technological funding into commercial applications. Project results are product prototypes and pilot plants for production in small volumes Product development Units at Divisional level Product development Units at Divisional level The case of Toshiba and Matsushita H

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49 They located close to manufacturing plants They carry out projects lasting less than two years They cover the engineering phase for mass production Production engineering Units at business unit level Production engineering Units at business unit level The case of Toshiba and Matsushita H

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At corporate level R&D units look after : technologies embodied(or to be embodied) into multiple products and production engineering technologies and Techniques for cross divisional application 50 Corporate R&D plays an even stronger role The case of Canon H