R&D Collaborations and Product Innovation

The paper R&D Collaborations and Product Innovation in Journal of Product Innovation Management confirms some of the findings we discussed earlier in the week: It is good to collaborate with suppliers and not so good to develop products with customers. Specifically, this particular paper is based on R&D collaborations undertaken by a sample of 781 manufacturing firms during 1998–2002. The paper finds that:

Collaborations with suppliers have the highest positive impact on product innovation, followed by collaborations with universities.
R&D collaborations with customers do not appear to affect product innovation
Collaborations with competitors appear to harm
Positive influence of R&D collaborations with universities and suppliers is sustained over the long-term
Negative influence of R&D collaborations with competitors is, fortunately, short-lived.

Also, some specifics about quality of collaboration:

Their findings indicate that ease of knowledge access, rather than breadth of knowledge, appears to drive the success of R&D collaborations for product innovation. R&D collaborations with suppliers or universities, which are characterized by relatively easy knowledge access, have a positive influence on product innovation, whereas R&D collaborations with customers or competitors, which are characterized by reduced ease in knowledge access, are not related or are even negatively related to product innovation.

More importantly, partners with a narrow knowledge-base (at least the part that is shared) is better for collaboration than otherwise. This is similar to what we discussed in the paper on cross-function collaborations.

Moreover, to achieve product innovation with the help of R&D collaborations, it appears that the collaboration must first have mechanisms in place to facilitate the transfer of knowledge; once these are in place, it is better if the partner has a relatively narrow knowledge base. Thus, while R&D collaborations with both suppliers and universities are positively related to product innovation, the narrow knowledge base provided by collaborations with suppliers appears to have a larger positive impact on product innovation than the wider knowledge base provided by collaborations with universities

Social Networking Helps R&D Collaboration?

The article Frontiers of Collaboration: The Evolution of Social Networking in Knowledge@Wharton discusses how social networking (Wiki, Blogs, tweets, etc.) is replacing Knowledge Management and improving communication at the same time

Weinberger began the session by asking panelists what made the introduction of social networking tools different from previous technological endeavors to improve communication and collaboration. One significant issue discussed was how social networking compared with knowledge management (KM). KM systems first appeared on the scene about 20 years ago and once represented the frontier, embodying companies’ most innovative ideas for integrating internal access to disparate information in order to improve communication, collaboration and business processes.
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before social networking tools enabled quick and casual communication, many bloggers in corporate organizations had “some KM tool where you captured the knowledge in the tool’s silo and assigned all sorts of tags, folders and so on to it. You would then pass the blog to your manager for him or her to [learn from] what you were writing.
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Social networking is easing some of the frustration users in many organizations have encountered with traditional KM systems. Through use of Twitter and other tools, more of the intellectual capital that KM systems once guarded is flowing freely, in real time, inside and outside organizations. If an employee needs to find expertise or share information, he or she doesn’t have to work within the rigid confines of a KM system, or even the confines of his or her organization. Instead, the employee can use social media to collaborate with others and to find answers more quickly and put relevant advice into practice.

Clearly, social networking can add value to R&D community. However, I am not sure if I would agree with this as whole heartedly as the authors / speakers about replacing KM.

One problem with social networking is the volume of information that can become available and time/effort needed to find the right information. Consider if all employees in a 10,000 person R&D house started tweeting what they were doing – the signal to noise ratio would be terrible. Add to this personal tweets and the entire system would become unmanageable. Furthermore, how does one control the flow of information and ensure that proprietary information is not accidentally leaked? The panelist thought that all that the risks outweigh benefits – I am not sure I agree:

Fitton, whose consulting firm focuses on helping companies to use micro-blogging in a business environment, suggested that companies may find the “messy and random serendipity” of Twitter and other social networks to be more efficient than lumbering KM systems and processes. “It brings an infusion of humanity to business,”

There might be value to social networking in building R&D communities and helping virtual teams collaborate effectively, but the idea that real R&D knowledge can be shared effectively through micro-blogging sounds a bit simplistic. R&D teams do not just need access to knowledge, they need access to the right type of knowledge at the right time. If one is designing a new cell phone and has a question about what impact human body will have on reception, it does not help to go search through blogs, nor does one have time to do mass mailing / tweets to request help, weed out the responses and find the right person.

Underlying assumption for social networking in R&D world is that someone has the right information available at their finger-tips and are willing and able to stop what they are doing to provide that information back. How likely is that going to be? Not to mention the constraints that social networking tools like tweeter add to communication… Unlike the speaker, I am not sure that constraint is actually valuable:

But does the 140-character limit for posts to Twitter enable engagement, or is it “a sign of triviality?” asked Weinberger. “Constraints breed invention,” replied Shellen. Douglas added that communities using Twitter, Google Wave and other tools are creating their own etiquette. Panelists agreed that both the creation of etiquette for particular conversations and the sheer ability to engage in several discussions at once would be difficult using blogs and older forms of web content sharing programs.

There are more problems with sharing:

Lippe noted that, in the legal field, “there’s already a structure of knowledge, and most knowledge repositories and structures of the collaborative web have existed for multiple generations. So, the question is, how do you tap into them?” One core structure is attorney-client privilege, which Lippe said “has long preceded the information confidentiality and security regime that we all have now. It creates the structure of what you can and cannot share.” In the legal universe, he added, the messy serendipity of “horizontal” social networking cannot solve the hardest problems.

Just to be clear, I do not think that social networking does not have value. If used properly, it can help companies build focused virtual R&D communities across geographical and cultural boundaries. However, R&D managers will need to do a lot of work structuring and managing the flow of information so it be value-added. Furthermore, objectives of social networking should be crafted very carefully and monitored consistently to ensure that it is indeed delivering results.

Strategic considerations for teaming, alliances and collaborations

Management Science has a cool (at least I think so) paper on Cross-Function and Same-Function Alliances: How Does Alliance Structure Affect the Behavior of Partnering Firms:

Firms collaborate to develop and deliver new products. These collaborations vary in terms of the similarity of the competencies that partnering firms bring to the alliance. In same-function alliances, partnering firms have similar competencies, whereas in cross-function alliances, partners have very different competencies.

This is very important in co-development. If a company in consumer electronics is co-designing a new device with a PCB manufacturer, the alliance is likely to be same-functional. Good news is that alliance between firms with similar competencies seem to work well (with caveats – see below).

On examining managers’ view of these alliances, we find that, on average, same-function alliances are expected to perform better than cross-function alliances, holding fixed the level of inputs.

However, if the same consumer electronics firm wanted to work with a new company on wireless power, a brand new technology, the alliance might be cross-functional. Many R&D managers are apprehensive of collaboration with dissimilar firms. The paper uses game theory to come up with a very interesting finding that cross-functional collaboration leads to increased investments:

partners in cross-function alliances may invest more in their alliances than those in same-function alliances.

And that multiple partners are not a problem in cross-functional collaboration, but they are if the firms collaborating have similar competencies. This is very important in Aerospace & Defense world as many government contracts do indeed have several same-functional parters:

It is also often believed that increasing the number of partnering firms is not conducive for collaborative effort. Our analysis shows that this belief is correct for same-function alliances, but not for cross-function alliances.

Finally, a somewhat straight forward learning – once the firms have learned from each other and become more similar in competency, they do stop investing the way they used to in the cross-functional stage:

We extend our model to consider alliances where firms have an opportunity to learn from their partners and later leverage this knowledge outside the scope of their alliance. Though such learning increases the resources committed by alliance partners in the learning phase, it decreases investment in the subsequent competition and also dampens the overall investment across the two stages.

Does innovation improve with external collaboration?

The article Effects of Supplier and Customer Integration on Product Innovation and Performance in the Journal of Product Innovation Management has some empirical evidence on impact of co-design and information sharing with suppliers and customers:

After surveying 251 manufacturers in Hong Kong, this study tested the relationships among information sharing, product codevelopment, product innovativeness, and performance with three control variables (i.e., company size, type of industry, and market certainty).

The findings seem to indicate a direct, positive relationship between supplier and customer integration and product performance. However, there are a couple of key learnings: For brand new product families (that have not yet percolated through the supply-chain), it is much more important to partner with the emerging customer to learn and perfect the product. On the other hand, for improving existing product lines, it pays to work with suppliers. Information sharing with existing customers is not that important, but customer intimacy is:

The empirical findings show that product codevelopment with suppliers improves performance, mediated by innovation. However, the sampled firms cannot improve their product innovation by sharing information with their current customers and suppliers as well as codeveloping new products with the customers. If the adoption of supplier and customer integration is not cost free, the findings of this study may suggest firms work on particular supplier and customer integration processes (i.e., product codevelopment with suppliers) to improve their product innovation. The study also suggests that companies codevelop new products only with new customers and lead users instead of current ones for product innovation.

Codesign – Another increase in R&D management complexity

An article in Nikkei Electronics Asia describes a new trend in consumer electronics: Codesign Begins with Product Implementation. Codesign is simultaneous development of different subsystems, features and manufacturing process of a product across suppliers leading to cost and performance optimization at a system level.

Digital consumer electronics manufacturers are beginning to adopt codesign in product implementation. They hope to achieve both improved performance and reduced cost by optimizing chips, packages and boards in toto. PC-class performance at the implementation cost of consumer electronics would mean competitiveness sufficient for the global marketplace. Codesign is being implemented full-scale in digital consumer electronics. Until now separate design tasks were optimized individually, but now codesign is being used to improve overall system optimization. This approach makes it possible to cut design margins to the limit and develop products delivering powerful functionality for minimal price.

With increasing complexity and somewhat nascent processes for cross-cultural cross-organizational R&D management, this can be a very challenging task for managers. Especially, the biggest bang-for-the-buck for codesign is if it is implemented during concept development phase. That means that all the different organizations have to align their processes, tools and metrics during the entire R&D pipeline.

Codesign can be applied to a wide range of design phases, but the most important one is concept design. The design enjoys the greatest freedom in the initial design phase, and as a result this is there the greatest optimization is possible. Codesign is entering use now in the conceptual design phase of digital consumer electronics.

Furthermore, communications between different organizations gets to be even more critical (and difficult). As the article explains with an example of consumer electronics design, not only does design / development need to be synchronized, but also the testing / evaluation as well. Reliability analysis & risk assessment can also become a nightmare.

There are two axes in codesign, the first of which is the target of the codesign process. There are three targets involved here, namely the chip design and package design (handled by the semiconductor manufacturer), and the board design (handled by the set manufacturer). The second axis is the set of indices used for design evaluation, such as signal integrity† and power integrity†. These indices are essential guides in avoiding product problems, and the goal in codesign is to satisfy all of the simultaneously.

However, this trend is likely to not be a passing fad. As competition becomes global and need to address developing market becomes even greater, innovation will likely move to system level from components.

Better Performance at Lower Cost Digital consumer electronics designers are being pressed to slash margins to the bone, delivering better performance than prior models at the same or lower cost. ‘It used to be that we could afford a little cost increase if the product was the smallest one in the world, for example, and we could utilize high-performance boards or components. Not any more. Even if we make the smallest one in the world, the key point now is how cheap the parts are,’ complains Makoto Suzuki, Chief Distinguished Engineer, General Manager, EDA Design Technology Solutions Dept., MONO-ZUKURI Technology Div., Production Group, Sony Corp. of Japan. In this situation, continuing the established approach of individual design optimization would result in excessively large margins, and a loss in product competitiveness.