Key challege for R&D Manages: Manage Complexity

Knowledge@Wharton had an immensely relevant article for R&D management:
Under the Hood of Toyota’s Recall: ‘A Tremendous Expansion of Complexity. The article is a discussion between Prof Fujimoto and Prof McDuffie about the root causes of Toyota’s current troubles.

“MacDuffie: You have studied Toyota and its production system for a long time. Can you tell us what surprised you about the recall crisis, and if there was anything that didn’t surprise you? Fujimoto: I was surprised to see that Toyota was the first to be caught in this trap of what we may call complexity problems. Society and the market are making stricter and stricter demands on all the cars and vehicles in the world. So this could happen to anybody. But I was a bit surprised that this happened to Toyota first, because Toyota executives had [issued] a warning about [being] in a very difficult situation regarding complexity. So they knew that this could happen to anybody.”

I am not sure if many people recognize this rise in complexity. As the pace of R&D increases around the world and products get ever more advanced, the demands on R&D teams are increasing exponentially. Instead of improving cross functional communication, the need for specialization is actually fragmenting the R&D and associated management environment. Cultural and geographical boundaries introduced by multinational multi-organizational teams further exacerbates this fragmentation.

MacDuffie: And that creates tremendous demands on the designers, right?
Fujimoto: Right, it’s a nightmare for the designers. You have to take on all these constraints. It’s like solving gigantic simultaneous equations involving structures and functions. For example, with the Prius recall, the problem resulted because Toyota tried to improve fuel efficiency and safety and quietness at the same time through a nice combination of very powerful regenerating brakes, plus the latest antilock brake system, plus the hydraulic braking system.
But the relationship between the three kinds of brakes changed with the new design, and then drivers could have an uneasy experience when there was switching between the different brakes a little bit…. Toyota failed to see this problem in the right way, at least in the beginning.

The key challenge for R&D managers to come up with approaches to manage this complexity effectively. Since the trend for faster cheaper and more advanced is not going away anytime soon. What has your experience been?

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Use of checklists in R&D management

A blog post in the Harvard Business Review talks about “What Sort of Checklist Should You Be Using?” The post lays out five types of checklists based on Mr. Gawande’s work. I believe two are important to R&D management

3. At a construction site in Boston, Gawande encounters what I’ll call a coordination list. You have an extremely complicated endeavor that no one person can fully understand, so you set up procedures that force the various specialists involved to consult each other on a regular basis. Again, this seems like something with all sorts of applications outside of construction (and medicine).

4. Gawande describes several value investment managers who use checklists to make sure they always follow certain steps before putting money into a company. This is a discipline list. In a calm, reasoned state of mind, you set down a list of procedures you want to follow to keep you from making bad decisions later, in the heat of the moment. It seems like these can’t really be standardized but, in part because they’re not standardized, they can be used almost anywhere.

Add a sixth type which I have found to be extremely important in R&D Management: Review Checklist. This is probably a combination of 3 and 4 with a flavor of risk management and project management. My experience is that feedback from project reviews is very useful, but extremely difficult to capture. There is also a lot of variability on types of responses you get from reviewers (based on their backgrounds). I believe standardized checklists can help improve review effectiveness immensely. Even so, many firms I have visited do not use them consistently. Even when the do, they do not capture all aspects of project management in their checklists. What have you seen?

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Invention vs. Innovation

The article “Innovation is key to prosperity” from Canada (The Star) does not have a lot of useful information, but it does actually make a claim that there is too much money being spent on invention and too little on innovation:

The Canadian government puts too much emphasis on invention, and not enough on innovation – even though the latter drives economic prosperity, according to a new report from a competitiveness think-tank. Government policy tends to support inventions at the expense of improvements in existing products or processes that would provide value to consumers, says the provincially funded Institute for Competitiveness and Prosperity.”

The article makes amazing claims: Innovation needs to be improvement of existing products. “Business Innovation” can be the real driver of innovation and not science and technology.

“Obviously, we need science-based discovery as a foundation for innovation. But our prosperity is the result of business innovation that adds value to our day-to-day lives,” said Roger Martin, chair of the institute.

“Without greater emphasis on true innovation, we will continue to spend billions of dollars funding invention and get little innovation to show for it.”

I have found definition of innovation to be a pretty regular problem R&D management. How one defines innovation will decide how much money is being spent on innovative projects and how much on the others? How does your organization measure innovation?

BCG Innovation Study

The management consulting firm BCG has a very informative annual Innovation survey. The results of the sixth survey were published recently. The study provides very informative results and may help with benchmarking your organization.

The fraction of executives being satisfied with the return on their R&D investment went up from 43% in 2008 to 52% in 2009. I wonder what has caused the change. May be because the budgets have been cut enough to drive the return or the executives are working harder to drive focus.

Another interesting result is that everyone believes that innovation should be measured rigorously and less than 50% of the organizations actually do so. I have found that measuring innovation requires defining what is innovation. Many of the companies I have worked with have no clear definition of what is innovation and how it is different from R&D in general.
What is your experience?

2010 Global R&D funding forecast at greater than $1.1 Trillion

R&D magazine produces an annual Study on global R&D funding forecast that is full of great information. In 2010 R&D spending is going to exceed $1.1T globally (flat from 2008). US continues to lead at almost 35% of the global R&D budgets, but the share seems to be flat to declining. Finland and Sweden lead the world in number of scientists/engineers per million people.

Almost 75% of the organizations have changed R&D plans because of the recession and a similar fraction has actually reduced focus on R&D.

Lots of interesting data. Check it out…

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Disruptive and sustaining innovation

Inder Sandhu, SVP of Strategy and Planning at Cisco has written an article in Forbes about new product platform development and product improvement. The idea is that an organization needs to focus on developing new product platforms while generating revenues from incremental improvements to existing platforms. He calls it Disruptive and Sustaining Innovation.

But doing both isn’t easy. Start-ups often prefer the dogged pursuit of the next big idea. And large companies are often reluctant to invest in disruptive innovation, feeling constricted by their commitments to existing customers, pressure from investors for short-term results or even fear of upsetting existing revenue streams.

But when companies do both, the payoff can be great. Two complementary options, in this case sustaining and disruptive innovation, can amplify one another many times over. When Cisco makes an advance in one form of innovation, it usually gains a benefit in the other. And that is the true power of doing both.

Clearly, author has a great point and R&D managers need to effectively balance R&D investments across disruptive and sustaining projects. There are also other axes that factor in: Early stage or mature, discriminating vs sustaining, skill-set enhancing vs. feature developing etc. However, the right balance is often difficult to find and tools to visualize and effectively guide the R&D portfolio are nonexistent.

I am not sure if I would necessarily call adding features to an existing product innovation. However, definition of innovation it self is some what confusing. Clearly, one can make disruptive innovations in production of an existing product and there by gaining a new advantage in the market place (see the earlier post about R&D at 3M). However, calling all R&D innovation may hinder effective R&D portfolio balancing.

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Why are companies still struggling with cross functional core teams?

The concept of cross-functional core teams have been around for decades. The belief is that a diversified team will be able to make better collective decisions and move projects faster by taking parallel, but coordinated functional paths. Most companies have embraced the concept and run development project teams with members from Marketing, Quality, R&D, Operations, etc. A closer look reveals, however, that these companies have the form but not function. It continues to amaze me how even multi-billion dollar technology companies struggle with it. Functional areas are highly siloed with each not knowing what they need to produce for other functions to do the work. Why are we still struggling with this?

R&D at 3M

WSJ has interviewed 3M CEO Mr. Buckley in the article At 3M, Innovation Comes in Tweaks and Snips. Even though the article title is about innovation, the actual interview has some excellent points about effective R&D management, skill-set management and motivation.

Senior leaders can reinvigorate an area just by making sure the team knows and feels that the area is important to them:

“Mr. Buckley: I remember my meeting with Chris Holmes [who heads 3M’s abrasives business]. I had been in the company maybe a month. During a business review I said, ‘Tell me what is going on in abrasives. What innovations are we doing?’ Chris said we were doing this and that, but abrasives [were] not considered sexy. I said, ‘Why not? I think abrasives are sexy. Why can’t abrasives be sexy?’ I think it’s those simple comments to people who have been convinced over a period of years that they are unimportant. Chris was utterly inspired by that.
Innovation and outside the box thinking is not cheap. Creativity requires significant commitment of resources and recognition at C level

WSJ: How else do you get your people to be creative? Mr. Buckley: Everybody wants to find out how to can creativity. You can’t. Creativity comes from freedom, not control. We let all the people in the R&D community spend 15% of their time researching whatever they like.
Innovation is not always targeted towards a brand new market. It can be a new way to manufacture a product to give the company a competitive advantage.

Mr. Buckley: It was finding ways to simplify how you make the lowest-cost high-performance respirator possible.
We often think innovation is making a breakthrough at the top of the pyramid. That’s often not where the hardest challenges are. The hardest challenges are often: How do I make a breakthrough for next to nothing?
R&D management improvement is not conducive to Six Sigma like processes. R&D is discontinuous and requires management insight

I don’t know because it isn’t a process. [The quality-improvement process] Six Sigma’s worked wonderfully in our factories, but we tried it in our labs and it doesn’t work. It’s obvious why. The creative process, whether it is with me or anybody else,is a discontinuous process. You can’t say if I put more money in it I am going to get more out.
Hands-on senior management that walks the lab has enormous value -both in motivation and in efficiency/results.

WSJ: How often do you go to the labs?
Mr. Buckley: It’s dangerous when I go over. I’m told, “Every time George goes over to the labs he gets a new idea for a new product.” I probably go once every two weeks.

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Ideation Tools for Your Mobile

ZDNet has a list of ideation and idea management tools for different mobile tools. Some of them are even free. I think it is great that we can capture ideas any where and queue them up for discussion.

The new clients all come as part of the innovation management platform provided by Spigit, Kindling, and just yesterday, Imaginatik, Each let’s you suggest and evaluate ideas, but in slightly different ways.

…

Brightidea Mobile Back in February, BrightIdea announced it’s mobile client for the iPhone and iPad as well as Android devices. With BrightIdea Mobile, users can view, post, comment, vote, and share ideas. They can also use Brightidea’s corporate micro-blogging feature to post and follow activity within their innovation community.

I find interesting how Innovation has become a favorite buzz word. The title of the article “4 Innovation Management Tools for Your Mobile.” I think there is a great deal of hard work between discussing ideas and developing innovative new products. I guess in my book, innovation is 99% perspiration and 1% inspiration!

Frugal Engineering

In the same theme as Reverse Innovation and may be Borderless Innovation, Strategy + Business has an article on The Importance of Frugal Engineering.

The central tenet behind every frugal engineering decision is maximizing value to the customer while minimizing nonessential costs. The term frugal engineering was coined in 2006 by Renault Chief Executive Carlos Ghosn to describe the competency of Indian engineers in developing products like Tata Motors’ Nano, the pint-sized, low-cost automobile.

Typically, when a well-established automaker designs and builds an inexpensive car, the company’s thinking is biased by decades of practices and procedures, and by its relationships with employees, customers, and suppliers. The approach reuses existing designs and relies on existing components. In essence, these companies start with a more expensive car and focus on ways to make it cheaper. That may count as a form of cost cutting, but it is not frugal engineering.

Instead, frugal engineering is an overarching philosophy that enables a true “clean sheet” approach to product development. Cost discipline is an intrinsic part of the process, but rather than simply cutting existing costs, frugal engineering seeks to avoid needless costs in the first place. It recognizes that merely removing features from existing products to sell them cheaper in emerging markets is a losing game. That’s because emerging-market customers have unique needs that usually aren’t addressed by mature-market products, and because the cost base of developed world products, even when stripped down, remains too high to allow competitive prices and reasonable profits in the developing world.

Clearly, going after new markets and new customer demographic can be better achieved with a clean sheet approach. Of course there is also a cost associated! It is expensive to start with a clean sheet. Each R&D organization will need to balance between disruptive and sustaining R&D. The article suggests three main ingredients for disruptive projects:

Cross-functional teams
Non-traditional supply-chain
Top-down support

I think I would add one of my own: Processes, tools and Metrics to ensure disruptive projects do not disrupt all the R&D. What do you think