Is Your Research and Development Under House Arrest?
Research and Development Spending: Where Did the Money Go?
I recently read Borderless World by Kenichi Ohmae in which he discusses the approaches companies take in terms of their technology growth and research investment. In his book, Ohmae highlights the differences between companies that truly flood the pipeline with investment, and those that play the betting game with a handful of specific projects. Having personally experienced the betting game approach at an old company, Ohmae’s discussion of R&D spending hit home.
In particular, the book reminded me of a dinner meeting I had with an executive at a former company, during which we talked about our firm’s growth strategies. I challenged him on why the R&D budget was never really pegged for development, but rather, was slated for day-to-day projects. For example, customer X came in and wanted product Y, and our R&D finances went into delivering Y. The executive suggested that customers were at the cutting edge and if we gave them what they want, we were in essence doing real R&D work. Though I declined to challenge him, it was a weak argument that made little sense.
Creating and Managing Your R&D Budget
In the classic sense, R&D is really your organization’s pursuit of developing new products, exploring new processes, and finding ways to leverage technology to help you grow.
However, to keep costs down, true research and development funding is often among the first expenses to get cut in budget planning cycles. Of course, firms have limited resources – cash and people – to devote to real technology growth. We often find ourselves stuck fighting for the same resources as the folks in the other departments. The flip side of this, though, is that if you let your customer do the pioneering, what prevents competitors from taking market space?
I encountered these issues on several occasions at that firm. The issue was painfully clear when the time for us to develop what the customer wanted exceeded their needs by a factor of three. Because of the technology hurdles we needed to be overcome, we needed 18 months to deliver what they wanted, as compared to their desire to have it in just 6 months. Unsurprisingly, our lack of independent product development and technology investment over the years had caught up with us. It reduced our competitiveness, and this particular customer was no longer willing to wait for us.
The Borderless World by Kenichi Ohmae
Although first published over 20 years ago, The Borderless World by Kenichi Ohmae is a good read for managers who lead technology and development teams. Ohmae highlights numerous examples of mistakes firms made in their product development strategy, and how rethinking their approach put them back on course for prosperity. He also provides an in-depth discussion about the benefit of partnerships when dealing with new markets.
Overcoming My R&D Budget Woes
Tired of seeing my R&D Proposals get cut from the budget, and watching our customers walk away, I took matters into my own hands. Here are the 3 steps I took to regain our product development footing:
1. Get Your Experts Together – The first thing I did was get my team together. I gathered my most senior developers in a conference room and threw the data in front of them: we were not competitive and we were now losing our market edge. Having been on the team for nearly two decades longer than I, they agreed. “Long overdue,” they said. Resources were needed to invest in testing, development and prototyping – without it, the situation would only get worse. We discussed the issues and the technical hurdles that needed to be overcome, and made a list.
2. Put Together a Product Strategy and Roadmap – With my team’s support and input, we then began to carve out a strategy to secure greater funding from the business. More than just a wish list, we collected several years of data that illustrated the unsettling trend of lost business. For example, “This product gap was the reason we lost a $27 million dollar contract.” Some of the projects would need require several years of investment, so we identified key milestones that would be accomplished each year as a means of measuring progress.
3. Paint A Clear Picture for Management – Two months later, during our annual technology reviews, we used the data to link millions of dollars in lost business to technology gaps that had been known, but were left unfunded. We did the same thing a few months later during the annual budget planning cycle, taking a few minutes to put a plug-in for our R&D needs. In both sessions, we presented our technology plans, the milestones, and the investments needed to get to where we needed in order to regain our position in the market.
The Results of Our R&D Budget Request
The end result of our campaign for an R&D budget increase: a 47% increase in our overall budget the following year, all earmarked for technology growth projects. After the budget was secured, we then began introducing our new projects and technology initiatives to customers, subsequently receiving invitations to their technology summits. Our customers were so excited by our new research and development plans, they wanted to discuss synergies and share ideas. How better to win business than when the customer feels they can’t live without you?
A Strategy Based on Details and Data
What made the difference was the level of detail behind our requests. We didn’t simply say ‘we need more money.’ After all, how many times do decision makers hear that phrase? We put a plan together that said 24% of the investment would go into a new university partnership, 38% towards an advanced testing program, 13% would go into materials, and 25% was for prototyping.
The Takeaway for Technology Managers
The key to selling your technology growth strategy is to be very specific in your requests. Do your homework. What type of testing do you need to do? How will you make your prototypes? How will you resource the project? What are the risks and decision gates? Details are a sign that ideas and plans are well-thought out. By contrast, lack of details suggest the big picture is not wel understood.
Borderless World by Kenichi Ohmae is a great read for anyone leading technology and development teams as Ohmae highlights numerous examples of mistakes firms made, and how rethinking their strategies put them back on course for prosperity. True technology growth requires real investment.
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