Security and IP control in R&D outsourcing

Yale Global Online magazine has an interesting article that reinforces strong processes and security in R&D outsourcing: Google’s Lesson: Innovation Has to Be Accompanied by Reliability. The article distills lessons learned from the Google-China incident and points out that that manufacturing outsourcing will continue, but needs controls for IP:

Outsourcing of manufacturing will continue, but it must do so under much tighter monitoring of the transfer from intellectual property to production.

I was talking with a large US manufacturer moving production lines to China. Besides IP exposure, the company actually found that they needed new processes to link US R&D to manufacturing. When the manufacturing was in-house, R&D team members could walk over and see how manufacturing was doing of vice-versa. None of that was possible when manufacturing was in a different country.

Actually moving production and R&D, not just connecting them virtually, can have a negative impact on security.

Furthermore, R&D outsourcing is different from manufacturing and control of IP is much more difficult. R&D is essentially a process of manufacturing (creating) knowledge on how to manufacture widgets. Once the knowledge is with people, it is difficult to remove it. I have heard of Japanese strategy of keeping key component manufacturing in Japan and thereby protecting their IP. That will not be possible when R&D or parts of R&D are outsourced.

The lesson for the IT industry is that security has to be a primary concern in the next generation of innovation.

Strategic Skill-set management key to sustainable growth

Washington Post had an article about how growth caused skill-set imbalances at Toyota and may have lead to quality problems – Toyota Way’ was lost on road to phenomenal worldwide growth:

How did Toyota lose its way? The core reason, according to a number of auto-industry experts, is that the carmaker outgrew its human expertise. ‘Toyota cannot develop engineers as fast as they can proliferate new models,’ said Jeffrey Liker, a professor of engineering at the University of Michigan and author of five recent books on the virtues of the Toyota Way. ‘Each engineer is doing more and has more opportunity for error.’ Before the avalanche of growth, Toyota took about 10 years to train first-class engineers, Liker said. These engineers and senior managers had time to absorb company values that gave them an intuitive feel for weighing quality demands against cost concerns — and how to squeeze suppliers on cost without getting inferior parts, said Susan Helper, a professor of economics at Case Western University in Cleveland and an expert on global manufacturing.

As per the article, rapid growth prevented Toyota from allowing the 10 years required for training. The key question for R&D managers is not whether growth is good (it is required, necessary), nor is it if they can afford to spend 10 years to train engineers (they can not), but how do they use new R&D processes and tools to accelerate training and transfer more knowledge to engineers.

An added dimension is that of complexity – not just from increasing complexity of products but also from inclusion of new technology (electronics, computers etc):

As Toyota’s new cars became less mechanical and more dependent on electronics and computers, management’s intuitive feel for quality was further diluted, along with its expert understanding of how suppliers made parts, Helper said.

Clearly, traditional training regime will be challenged in this new world of doubling capabilities every 18 months. It is pretty well known how automotive companies have trouble synchronizing development with electronics such as GPS or entertainment systems.

To cut costs, Toyota “dramatically reduced” crash testing of new car models, according to Koji Endo, a longtime auto analyst and managing director of Advanced Research Japan, a corporate research firm in Tokyo.
“They do virtual testing using computer models, and it is expertly done,” Endo said. “But from time to time there are unexpected real-world problems that the computer models do not account for.”

This is the final challenge – integrating new and advanced R&D tools into management and making sure that processes to manage risks scale with R&D tools. As tools such as Finite Element Method (FEM) or Computational Fluid Dynamics (CFD) become even more capable / cheaper (due to computing enhancements), R&D managers will have even more pressure to use numerical models instead of physical.

Not only do managers have to evolve new processes and tools for skill-set management, but they have to align skill-sets with strategic needs. Exciting times!

Enemy Lurks in Briefings on Afghan War – PowerPoint

NY times had a quick little post on how PowerPoint can sometimes lead to meaningless briefings: Enemy Lurks in Briefings on Afghan War – PowerPoint:

“The slide has since bounced around the Internet as an example of a military tool that has spun out of control. Like an insurgency, PowerPoint has crept into the daily lives of military commanders and reached the level of near obsession. The amount of time expended on PowerPoint, the Microsoft presentation program of computer-generated charts, graphs and bullet points, has made it a running joke in the Pentagon and in Iraq and Afghanistan. – Sent using Google Toolbar”

Another place where I have found PowerPoint to cause problems is project reviews. Not only do R&D teams spend a significant amount of time developing review packages, but also the briefings tend to be so dense that it is rather difficult to identify and focus on issues of importance. I am sometimes amazed that reviews actually are useful. Templates can definitely help, but in the end, I am still looking for a meaningful solutions…

Need for cross-organization cross-cultural R&D management

A semiconductor industry focused article in Nikkei Electronics Asia (Semiconductors the Key to the “Green” Society : System-Level Optimization a Must) points out issues of increasing importance to R&D management: Cross-organizational Cross-Cultural R&D Management.

A number of environmentally sound products utilize devices such as solar cells, LED lighting and Li-ion rechargeable batteries, but these devices do not play the crucial roles. The electricity created by energy devices such as solar cells must be transmitted efficiently, and excess electricity stored in energy storage devices. Electricity must then be output from these storage devices without loss to energy-conserving devices for use. System-level performance optimization, linking all of these components without waste, is crucial.

R&D managers will face many new problems in this new environment where many of the “low-hanging fruits” have already been taken and innovation will move from component / process level to product / ecosystem level. Many of the tools necessary to manage R&D in this environment are not easy to find. Key challenges include:

Communicate across language and cultural boundaries
Align goals / objectives / requirements / risks (e.g. in an automotive environment, changing suspension requirements will impact tires and frames)
Bubble up risks and ensure they are addressed across vendors
Manage investments
Protect IP
Manage morale and reward innovation
Others…

Thoughts?

Alternate approach to aid brainstorming

HBR had an interesting article about brainstorming in My Eureka Moment With Strategy – Roger Martin:

Rather than have them talk about what they thought was true, ask them to specify what would have to be true for the option on the table to be a fantastic choice. It was magic. Clashing views turned into collaboration on really understanding the logic of the options.”
Why is it so important? The central reason is that it allows managers to step back from their beliefs and contemplate the possibility that they might not be entirely correct.

I really like this approach and am going to try it out in my next brainstorming meeting. What has your experience been?

If you think an idea is the wrong way to approach a problem and someone asks you if you think it’s the right way, you’ll reply “no” and defend that answer against all comers. But if someone asks you to figure out what would have to be true for that approach to work, your frame of thinking changes. No one is asking you to take a stand on the idea, just to focus on what would have to be true for that idea to work. This subtle shift gives people a way to back away from their beliefs and allow exploration by which they give themselves the opportunity to learn something new.

Tatas learn to innovate

I really enjoyed this article in the Business Standard on innovation management in India –Tatas learn to innovate:

While this is aimed to lift the inhibitions that failure can cause, TGIF realised that several employees are afraid to question conventional wisdom. Thus in the works is a series of seminars called Courage to be Curious and Question. “The Tata Management Training Centre is working on it. This is to tell people how to ask questions without being intrusive and offensive. We will do the pilot in the next two or three months,” says Gopalakrishnan.

I guess this is an important problem in most corporate cultures – lack of questioning or open debate. But I found India to have a tendency towards top-down management cultures. I do believe that the culture is changing. I talked with the CEO of a large Indian conglomerate and was very impressed with his approach to make sure decisions are as much bottom-up as top down. It will be interesting to see how Tata achieves the change in culture…

Below was another impressive paragraph. Tata attempted to define Innovation and baseline initial level of innovation before proceeding with change.

Before any effort to boost innovation, it is essential to know the state of innovation in the company. The treatment will emanate from this. After much deliberation, TGIF has adopted the Innometer developed by Julian Birkinshaw of the London Business School. It measures the innovation process and culture on a scale of zero to five, and can be run on the whole company, a unit or even a small team. So far, about ten Tata Group companies have gone through it. The scores, of course, are confidential. “We are medium to upper-medium. We are not on top. It’s a 5-point scale, and I haven’t seen a 4.9 score. But I have seen scores between 3.6 and 4.3,” says Gopalakrishnan.

This was another impressive paragraph. I am not familiar with the Innometer, but I hope to check it out soon and post about it. Unfortunately, Prof. Birkinshaw’s website does not appear to have any material on it.The only page with information I find is from Tata itself.

Another barrier to innovation was that the various Tata companies wouldn’t talk to each other. There was always scope for collaboration, but seldom was it exploited. This was because large group companies like Tata Steel, Tata Chemicals and Indian Hotels Company were run like independent fiefdoms. Ratan Tata, when he became chairman in the early 1990s, eased out powerful chieftains like Rusi Modi, Ajit Kerkar and Darbari Seth. A cohesive group identity was forged, but collaboration still did not happen. So, TGIF decided to set up InnoClusters — groups of companies that could work together in different areas. There are four such clusters: Nanotechnology, plastics & composites, information technology and water. At the moment, the biggest cluster, of ten companies, is around nanotechnology.

Finally, TGIF has setup an innovation market place and they seem to have a good plan for staged implementation…

TGIF has come out with a web-based open innovation initiative called InnoVerse. Employees can post a problem on the intranet, to which anybody can provide a solution. People can bet on ideas with the 1,000 karma points they get. If the idea is accepted, your pile of points goes up. More than that, this will show which solutions are popular. A pilot is being run at the moment. Can all 300,000-odd Tata Group employees access it? “Not all, but most can,” says Tata Quality Management Services Vice-president Ravi Arora. “You must remember that a large chunk of these employees (almost 40 per cent) are from TCS, who are all net-savvy.

Rewarding Failure

The Kellogg Insights from Kellogg School of Business has an article justifying Bonuses Despite Billion Dollar Bailouts:

Eisfeldt and Rampini’s research suggests that their function is less about the past than the future. Bonuses provide managers with an incentive to be honest about their own performance and about the firm’s prospects earlier rather than later, when shifting capital to more productive managers and more productive uses can have the greatest impact.

Clearly, large bonuses in failing financial institutions is a touchy subject and I would like to stay away from it. However, there is definitely a case for rewarding failure in R&D. If all R&D efforts are successful, than the organization is not taking large enough risks and would likely not be able to compete long-term. Managers need to drive a healthy risk appetite, while managing overall exposure. Furthermore, if failures are not exposed early, more money is normally wasted in keeping wasteful projects alive. It also means that the R&D culture is not accepting of failure and that is a dangerous path.

One effective approach to encouraging/managing risk is to tie some fraction of executive compensation to “Wasted Development Effort.” The idea here is to recognize that some R&D should fail and that the executives should be encouraged to talk about it. If the term wasted development effort does not sound appropriate, consider Technology Path Elimination. My boss a few years ago came up with this term and it sounds much better: Encouraging R&D organizations to eliminate technology paths that will eventually lead to failure. Thoughts?

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?