Working Papers | Carnegie Bosch Institute | Carnegie Mellon University

A report prepared at the International Executive Forum: Managing International Research and Development, Nov. 1996

Carnegie Bosch Institute Working Paper 96-3

MANAGING INTERNATIONAL RESEARCH AND DEVELOPMENT: STRATEGY, ORGANIZATIONAL PROCESSES AND ISSUES

INTRODUCTION

This report comes out of discussions that occurred during the week-long Managing International Research and Development Forum held at the Carnegie Bosch Institute at Carnegie Mellon University. The report describes some of the key challenges of managing international research and development (R&D) that emerged from those discussions; additionally, it identifies responses to particular challenges and offers a rationale for them.

FACTORS FOR R&D SUCCESS

Two general factors were identified which are important in ensuring R&D success. First, the company needs a strong corporate identity or commonly shared mission and goals. Unless the company has a clear focus, R&D may end up developing too many unrelated projects, or may end up producing products which are not linked to corporate strategy. Second, the company needs long-term, across-the-board coordination. Without this coordination, R&D may fail to draw upon the expertise existing throughout the organization, and therefore be hindered in taking advantage of opportunities. Unfortunately, these goals can be hard to achieve, due to a number of constraints, including both internal and external constraints, as shown below:

Internal constraints:

bottom line (head counts, costs, limited resources)
local planning and regional implementation
cross-cultural differences across business units
organizational structure

External constraints:

environment (local regulations, cost differences across regions, political and social factors, etc.)
market trend (expanding vs. shrinking) and product maturity

When making decisions regarding R&D it is important to take these constraints into consideration, as each of these plays a key role in the success or failure of R&D projects.

R&D type can also impact upon the attainment of corporate goals and the coordination of R&D efforts. R&D can be distributed, with R&D decisions made at headquarters as well as at local sites, or it can be centralized, with R&D decisions made only at the headquarters. However, in either case, opportunities for new products or developments may be overlooked. For example, in a centralized strategy, the potential for new products can be overlooked when R&D strategy is set by management that is physically distant from the site where an innovation is being developed. Similarly, in a distributed strategy, the potential for new product developments can be overlooked because of failure to successfully link pieces into a cohesive whole, or due to failure to identify the combined potential of new developments made at distributed R&D sites. It is critical, therefore, that management recognize the respective challenges presented by the R&D type utilized, and actively seek to coordinate R&D efforts and corporate strategy in a manner which will ensure that the two are mutually supportive.

R&D STRATEGY ISSUES

Two central issues relevant to strategy were identified. These include the integration of R&D into corporate strategy, and the selection of an R&D portfolio.

Integrating R&D into Corporate Strategy

As business units are responsible for identifying markets, customers, and often corporate identity, it is possible for R&D to be left out of the corporate strategy process, or to play only a small role. However, R&D clearly has valuable input to add to this process, and so should be fully integrated into it.

In the strategy process, R&D can provide valuable information about the potential of technologies, drawing upon its understanding of market requirements, competitive position, benchmarking with competition, patents, and intellectual properties. In times of tough competition, R&D may be called upon to focus on product modification in order to reduce overall production costs. This demands that R&D work closely with manufacturing and sales when identifying and determining how to implement those technical changes which will best support the company's overall business strategy.

Given the benefits that can be derived from the integration of R&D into corporate strategy decision-making, it is important that steps be taken to ensure that this occurs. One approach is to conduct annual meetings which provide a forum for discussing the business unit strategy with all functional departments. This gives R&D (and other relevant departments) the opportunity to share their insights and ideas regarding marketing, price, technology, strategy, and expected future market developments. Such contributions can only help to strengthen the business unit's chances for success.

When making these strategy decisions, it is important to consider:

Product life cycle:

if the product is brand new, functional departments and R&D should work together on the strategy in an iterative manner;
if the product is old, the business strategy will probably drive the decision making process.

Product cycle type:

in slow- and fast-cycle businesses, R&D may set the corporate strategy;
in standard-cycle businesses, the business plan may set the corporate strategy.

(It is important to note that at any point in time, different product lines within a given company can be considered to be in fast, slow, or standard cycles within the same business unit.)

Selecting a Portfolio

Selecting a portfolio is an important step in thinking about where the company is and where it wants to be in the future. However, criteria for selection must be clearly defined, as the portfolio is to serve as a guide to the future.

When criteria for portfolio selection are not well-defined, management may acquire a portfolio that is too broad to be sustained by the company. Thus, when choosing a portfolio, R&D management needs to evaluate the projects under consideration against a number of factors, including current and anticipated budgetary and manpower limitations, development time, and the capacity of the existing physical facilities. Management also should consider whether the projects build on core competencies or core technologies. Evaluating R&D projects in this manner will help to ensure that the resulting portfolio is feasible and is in line with the overall corporate strategy and goals.

In addition to the above, R&D management may also find it helpful to develop criteria for the prioritization of projects, utilizing input from R&D as well as from marketing and manufacturing. When doing so, it is useful to keep in mind that criteria and decision-making processes will vary from company to company.

Although the final portfolio decisions will be driven largely by current corporate capabilities, it should be noted that there are ways to move beyond existing constraints by utilizing external resources. For instance, management can choose to outsource some of its R&D projects (e.g., to institutes or universities), and so take advantage of the capacities of other R&D-related organizations. It can also choose to acquire other companies, thereby strengthening the corporation's own set of capabilities.

One central problem in portfolio development, is the tendency to invest when the company is doing well and not to invest when it is not doing well. This leads to the problem of always being "out of phase." This means that the company will tend to develop products during times of high productivity, but will not develop products during times of low productivity, so products are brought out too early. Another issue that exacerbates this problem is that portfolios are typically assessed on an annual basis and are tied to annual budgets; they are generally not assessed on any long-term basis.

Problems with balancing a portfolio can be addressed in the following ways:

decisions should be tied to the long-term business plan, rather than made solely on an annual basis
management should recognize the tendency to underestimate the importance of investment in standard-cycle companies and make adjustments accordingly
funding and financing should be thought of differently (in some cases, separately) so as to maintain regular contributions
adjustments should be made according to long-term business plan, not present capital resources

By making these changes, portfolios should become less tied to budgets and more tied to strategic long-range planning.

CHALLENGES FOR THE R&D MANAGER

Dealing with Mergers and Acquisitions

There are many challenges that managers of international R&D face. One of the most daunting of these occurs when one company merges with another or is acquired by another. In the case of a merger or acquisition, the cultures of the companies involved are likely to be quite different. Unspoken policies may exist, both in the company being acquired and the company doing the acquisition. Until these policies become apparent to both sides, complications in the communication process may arise when the integrated teams are established and attempt to function. Team members from both sides may feel as though they are following appropriate procedures while members from the other company are not.

Company culture can be a powerful force in drawing employees together toward the successful attainment of a common goal, but only if the culture is shared. The speed with which company culture changes will depend largely on the size of the entities involved and the time elapsed since the acquisition. It is important to consider these variables in order to have realistic expectations regarding how soon changes in company culture can be seen.

In practical terms, R&D managers can facilitate the corporate change process in a merger or an acquisition by:

creating task forces to address communication, general business, common values, and emerging technology issues to facilitate what team members talk about and to consider how soon changes can occur
encouraging individual research labs to see themselves as part of the larger group by defining basic values across labs

Legal Entities and Control

The legal aspects of international R&D are also important to take into consideration, as an organization's operations and the way the people in it function are strongly influenced by the legal environment under which they work. Differences between countries in financial reporting practices and tax structures, separation of technical and legal responsibilities, and shifting lines of accountability can all complicate the coordination of international R&D groups.

Some suggestions for addressing these issues include:

develop well-defined global goals in order to coordinate work across legal entities, being sensitive to financial reporting differences;
educate higher-level management about the need to constantly reinforce global goals;
evaluate the coordination efforts in order to assess their level of success;
use facilitation, when necessary, to reconcile conflicting demands.

Intercultural Differences and Regional Thinking

In international R&D efforts, employees have the tendency to think regionally, focusing on the interests and the values of their region of origin, even when the issues at stake require a global approach. Sometimes people are not aware of how much their actions, including their judgment and decision-making processes are affected by their cultural background. This can become an issue when employees are communicating across geographic and cultural boundaries, as they send and interpret messages through their own cultural filter. This can result in miscommunications, strained professional relationships, and delays in completion of project objectives.

This may become even more pronounced when the R&D manager tries to bring team members from different sites together to work collaboratively on a project. Frequently, one culture will "win out" over another, which may mean that the individuals may not contribute equally, and that the project will not be able to benefit fully from the expertise of all team members.

Given the importance of the establishment of positive team relationships across national boundaries, managers should take steps to minimize cultural barriers among team members. They may wish to utilize cross-cultural training to provide team members with a better understanding of their colleagues' culture and business practices. In addition, employee exchanges, while expensive, can also provide a valuable means of helping employees to understand more about their professional counterparts abroad, and can play a significant role in facilitating future collaborative R&D efforts.

Administrative Issues and Regional Thinking

Administrative reporting may also present challenges. When called upon to report to managers both locally and abroad, employees have a tendency to adhere more to their local lines of responsibility than to support the manager who is based in a foreign country. When conflicts occur between the requirements of their local supervisor and the demands of their project manager abroad, their greater loyalty to local management may result in project delays and shortfalls. The managers involved can take an active role in overcoming this by communicating with one another frequently and by remaining actively aware that these conflicts need permanent attention.

Conflicts may also occur when the reward system for the employees stationed in their home country differs greatly from that of the ex-patriot employee working with them. Although this is likely to remain an on-going issue for managers, it is important for them to be sensitive to its existence, and to be willing to discuss it with their employees, should the need arise.

Managing Risk Assessment and Project Cancellation

Risk Assessment
Part of being an effective manager includes successfully assessing risks. In the process of risk assessment and management, it is helpful for R&D managers to:

identify early warning signs from previous projects, and use these to predict possible problems in current projects;
teach employees to recognize that various types of risk are inherent in different projects;
discuss lessons learned at the end of each project, and disseminate information about decision making with regard to risk (particularly if there were failures in not identifying and responding to risk early enough). This will help to reduce risk in future projects.

Because project cancellations can be demoralizing, knowing how and when to cancel a project is important to successful R&D managers. Some recommendations for R&D managers who wish to minimize the demoralizing aspect of project cancellations include:

build in tolerance for failure; let employees know that they can't expect success with every project;
establish a culture in which people are willing to talk about failure, and learn from one another's experiences;
if a project must be canceled, either let the team make the decision to cancel, or explain to them all of the reasons for canceling the project (particularly when the project is canceled due to something beyond the control of the employees);
have feedback sessions after every project where employees feel that they can talk about everything so as to be able to learn from past mistakes.

IMPROVING COORDINATION AND COMMUNICATION IN INTERNATIONAL R&D

Coordination and Communication Issues

Many constraints make achieving a high level of coordination and communication difficult in international R&D. These include: regional constraints, structural constraints, legal constraints, and time and space constraints. As communication and coordination skills vary widely from person to person, the skills of the individuals charged with the coordination and communication task will also affect the outcome of the processes.

There are several factors that can help to motivate a positive change in coordination and communication practices. Perhaps most importantly, employees need to recognize why improvements in coordination are desirable. This awareness might be brought about by asking employees to examine existing practices or by a more formal audit of important core competencies. Second, changes should be built into the corporate culture. For example, rewards could be built in, where groups working together would receive a larger research allowance than individuals working alone.

Making the most effective use of employee exchanges is a challenge all international R&D managers will face. Since these exchanges are expensive and will tend to occur infrequently, it is particularly important that every effort be made to maximize the benefits of this approach. Fortunately, there are several steps that can be taken before, during, and after the overseas assignment, which can help to produce successful results.

Identification of Personnel
Managers should take particular care when identifying the individuals to be sent abroad. Deciding who should be appointed to facilitate coordination across R&D groups is complicated because of the need to select facilitators based upon both interpersonal skills as well as technical competency. The employees chosen to facilitate coordination will have a strong impact upon the issues that are discussed, the professional contacts and relationships that develop, and ultimately how soon changes will occur. Given the importance of their role in the outcome of international R&D projects, it is especially critical that the appropriate individuals be selected.

Identification of Networks
R&D managers can help the departing employees get a running start in their overseas assignments by informing them, in advance, of the formal and informal networks that exist in their assigned office abroad. This will save them valuable time when they arrive at their overseas post, time that they would have spent trying to decipher the networks on their own. If the employees have been fully briefed, when they arrive in-country they can quickly identify who knows whom, who knows what, and who knows how to get things done. This enables them to focus their efforts upon obtaining the necessary information for their project and upon working with the overseas team in the most efficient manner possible.

Networking
Networking can be defined as the sharing of information or knowledge that generally occurs outside of the formal structure of the organization. Particularly in the case of geographically-dispersed R&D, employees' effective use of networking can be extremely valuable. Networking can help them to fill in information gaps and work around obstacles in the existing formal communication system. As they avoid the normal hierarchical distribution of information, employees can gain access to critical information they might not otherwise have been able to attain. In addition, by tapping into informal networks of development engineers at various sites, employees are better equipped to identify shortfalls in their own planning process. By comparing results from different countries where similar projects have been completed, they are able to apply the significant experience of others to their own efforts.

While some employees will be more effective at using informal networks than others (either because of their own skill at establishing personal relationships, or because of their skill at providing and receiving information), networking can also be encouraged by R&D managers. Some of the ways that this can be done include the following:

Establish company yellow pages to identify corporate expertise and contact names for additional help.
Encourage face-to-face meetings. This is particularly important for first meetings, when employees are trying to establish a direct connection.
Situate project teams in the same space. When group members are located in close physical proximity to one another, either by sharing the same suite of offices or by sharing a common space, it makes it more likely that informal communications will take place.
Rotate jobs. Have individuals work in new groups both to gain new expertise and to establish new relationships.

Starting Small
When trying to facilitate the efforts of geographically-dispersed teams, the increased complexity of the situation creates additional challenges for team members. Nevertheless, if the teams begin by working together on small tasks first, they can build for themselves a history of successes, and can establish a basic procedural framework for collaboration. These outcomes will then provide a solid basis for the successful achievement of more complex tasks in the future.

Selecting Appropriate Communication Tools to Facilitate Coordination
A wide range of communications tools are available to support coordination of team members. These tools can be particularly valuable in facilitating the communication and coordinated efforts of geographically-dispersed teams. Examples of these tools include:

E-mail: good for passing along information efficiently after the initial face-to-face meeting.
Videoconferencing: Although videoconferencing is widely used, it often poses limitations because of limited bandwidth and in capturing complex discussions or negotiations.
Net meeting (supports voice, text, white board use): new and potentially useful, but not widely used.

Typically, electronic communication tools are most effective when all members of the team have access to the same tools. All employees and teams should be connected on-line if they are to work successfully on the same project.

Knowing when it is appropriate to use these different technologies will affect the success of the communication. While the tools complement face-to-face meetings, they are not intended to replace them entirely, as face-to-face communication provides an added psychological element not presently possible via electronic communication. Startup efforts generally will need to be done face-to-face in order to establish a common understanding of the task and its goals. (Many report that electronic meetings tend to be more successful after team members have had the opportunity to meet face-to-face at least once.) Even after the project is in process, face-to-face communication can be helpful in supplementing other information technologies. Electronic communication can also be supplemented by other kinds of written documents, such as:

One-page biographies with photos and background information. This can help to give a human face to those employees that not all team members may know.
Field reports can help team members know what is being done off-site and can be sent to the home office.

Debriefing and Reintegration of Returning Employees
When an employee is sent abroad, he gains a large amount of valuable information. Often, however, that information is not disseminated as widely as it might be, making it difficult for other employees to learn from his experience.

The international R&D manager can take steps to address this by:

arranging a special group meeting to discuss lessons learned and what the employee experienced.
providing the returning employee with formal access to other groups placing the returning employee back into the mainstream right away in order to take full advantage of his skills and new knowledge, and to provide him with better opportunities for sharing informally what he has learned
establishing and implementing a set procedure for the reintegration of returning employees

Organizational Memory
Throughout international R&D efforts, an enormous amount of energy is spent gathering information. Unfortunately, many R&D managers are unable to take advantage of all of their corporate knowledge and information as many organizations do not have a formal approach to maintaining their organizational memory. As a result, knowledge may often walk out the door when an employee resigns or retires, or an employee may wrestle long and hard with a problem that had been solved long-ago by someone else in the company.

Organizational memory is a critical resource to international R&D as access to key historical information can help companies to stay ahead of their competition. In order to reap the benefits of organizational memory, however, it is important for managers to invest the necessary time and resources into the creation and maintenance of a system that is readily accessible, retrievable, and usable.

A number of costs are associated with building organizational memory, including the cost of the original development of the program. Often, collecting and storing the information will be time-intensive. However, since the history itself will be entered by the employees on an ongoing basis, the costs for data input on a per person basis will be nominal

Information that is often stored includes databases produced from question logs and databases with summaries of minutes or abstracts of meetings. This means that the system will contain a wide variety of information which may or may not be appropriate for all employees to view. For this reason, when creating the system it is important to ensure that only appropriate employees have access to certain types of information.

Current systems of supporting organizational memory still have some drawbacks. While computer tools such as Lotus Notes, Intranets, and the World Wide Web can be used to support the company's organizational memory, none of them provide an easy method for analyzing the available information. Unfortunately, this may leave the user wading through numbers of irrelevant documents before finding the information that he or she needs.

CONCLUSION

In sum, a number of challenges face managers of international R&D, including strategy, cross-cultural, and cross-border communication and coordination issues. Nevertheless, R&D managers can help to minimize some of the potential for negative impacts emerging from these factors, by recognizing their existence and by applying the approaches identified in this document. In this manner, they will play a strong role toward ensuring the effectiveness and success of their international R&D efforts.