Out of all the corporate functions of modern business, R&D is probably the most unpredictable one. On the one hand, everyone understands that there is no progress without constant research and development, this function moves the company forward. On the other hand, it is unclear what results can be expected from these activities and in what time frame, whether the company will be able to commercialize the achievements of the R&D or not, and most importantly, how to build management processes in this department.

Dr. Tatjana Samsonowa,  founder of SAMSONOWA & Partners and an expert in R&D and innovation management with experience in international companies, will share her expertise on R&D performance management. Tatjana will talk about how R&D departments are fundamentally different from other business units, what are the main challenges of working in R&D, and share some practical recommendations.

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Dr. Tatjana Samsonowa

A bit of history

I have been studying innovation management for more than 20 years, both as a researcher and as a practitioner. I worked for a long time in the R&D department of SAP, then founded a research institute in Germany – IPERF, which specializes in innovation management. Together with a team of experts, we conducted research with the ICT industry leaders: SAP, Microsoft, Philips, ABB and others. We studied how R&D departments work. Based on the results of this study, the book “Industrial Research Performance Management – Key Performance Indicators in the ICT Industry” was written and published (2012, Springer, Heidelberg).

Later, in order to apply and transfer the knowledge gained during the research, I founded a consulting company in Russia. Now we have been working on the Russian market for 9 years: we advise and train large corporations and startups on creating innovations, help them build R&D processes, and implement R&D measurement and management systems.

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Uncertain Future

Research and development processes are vital for any company. Especially today, when the world is changing quickly, and every day new technologies appear. I remember a quote from Lewis Carroll: “It takes all the running you can do, to keep in the same place. If you want to get somewhere else, you must run at least twice as fast as that!”. This is from his book “Through the Looking-Glass” which was written in 1871, but now this quote is more relevant than ever. In order not to stay in the past, companies should constantly look into the future and think strategically about what might happen tomorrow and how would that affect their business? Partly for that reason the R&D departments exist: it is a bridge between the present and the future.

On the one hand, everyone understands the necessity of R&D, but on the other, it can be very difficult to formulate and measure the specific value of that department. We never know for sure which research will be useful and will lead to innovations and which, on the contrary, will turn out to be dead ends. We can evaluate the real results and value of R&D efforts only by looking back “from the future”.

In my opinion, this story about PDF-files teaches us to be open to potential opportunities. Of course, we do not know how to predict the future, and we cannot say which innovation idea will change history. But that is why we should be open to various new things, look for different ways, and not blindly follow one set plan. Actually, the future is not as unpredictable as we think. We can and should work with it: analyze the past and present trends, make predictions and evaluate probabilities. There are special methodologies that help not only to explore, but also to shape the future.

Read more about Foresight methods in the article “Study the past, observe the present, shape the future”

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Case “History of PDF files”

How often do you use pdf files? You have probably been using them almost every day for many years. Other document formats are constantly changing, they can be supported by different software. For example, a document created in Pages will be difficult to open in MS Word, and vice versa. The files that we worked with 10 years ago in MS Word, today in the new version of the software will no longer open. But the pdf format is used all over the world for years without any changes.

How did the format appear? Many people know that it was proposed and developed by the founders of Adobe in the early 1990s. But in order to track the innovation and follow the development of the idea, you need to go even earlier. John Warnock and Charles Geschke worked at Xerox PARC in the 1970s, where they created the concept of the pdf format. It was quite simple – to create a digital analogue of paper that would look the same on any device. At that time Xerox management decided that this idea had no potential, and did not develop the project. Only now, many years later, can we evaluate and analyze this decision based on the result. Then it was impossible to imagine how strong and long-term this idea would be. Moreover, it was impossible to predict its business potential together with other projects that eventually led Adobe to a market capitalization of $277 billion in 2021.

Challenges and features for R&D management

The most frequent challenge that the heads of R&D departments face is to convince management to invest into the future. It is difficult because investments are required right now without any guarantees of success.Top management usually (rightfully) thinks in terms of profit, and focuses on rather short-term goals. For any other department, such as sales or marketing these profit indicators can be formulated and evaluated, for example, how useful the specific marketing initiatives were to the company, whether it brought profit / new customers / higher customer loyalty or not.

But in the case of research and development, it’s not like that. And for Research the problems are even more pronounced.

Its goals do not have a clear time limit, and it is difficult to evaluate them in terms of money. Often, Research goals are by nature very long term goals. But we can link the company’s goals and R&D goals together. One of my tasks as an R&D manager was to do this. It’s like a translation from the language of the “scientific world” to the business language.

Over the years of research and practice, I have formulated three main insights about how to manage R&D. Today I want to share them with you. These are three insights which you can rely on when managing R&D processes in your company.

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Samsonowa, T. (2012). Industrial Research Performance Management. Springer, Heidelberg

“If You Can’t Measure It, You Can’t Manage It” – Peter Druker

We can only manage what we understand and what we know how to measure. While there is no understanding of how research is conducted or how the process of developing new technologies works, it is too early to talk about management. Therefore, the first step to effective management of R&D is a description of the current state of the processes in order to understand them.

The next important point, even critical, is setting goals. Any project begins with the goal definition and formulation, otherwise all our steps and actions will be meaningless. In the case of R&D departments, it is important to understand the goals at three different levels – strategic, tactical and operational. The strategic level is the most general, it is about company mission and its vision of the future. The tactical level is more specific, it helps to formulate what exactly needs to be done in R&D (for example which projects are needed) and in which time period. The operational level is the most detailed one, it answers the question “how to do it?” (for example – how to set up a process) and thus helps to form criteria for evaluating the progress. These criteria eventually help to measure the effectiveness of the R&D department. Often they are defined in the form of KPIs – key performance indicators. From my experience, determining the KPIs and moving to the operational level is one of the most difficult tasks. In each case, in each company, the final criteria will be individual.

Time gap in R&D

In the case of R&D, it is very difficult to measure work efficiency because of the time gap between the activities and the results. The benefits of research and development can only be assessed a few years after the work, and the real commercialization effect or profit from final products comes even later. But knowing about this effect, you can take it into account in long-term business and investment planning.

In my experience, large technology companies such as SAP, IBM, Philips have a time gap of approximately 3-4 years. This happens because of the process of transferring research results to development and further into the other company departments. The diagram below illustrates the typical structure of interaction between research and development departments and other functions within large companies.

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T. Samsonowa, P. Buxmann & W. Gerteis. (2009). Defining KPI Sets for Industrial Research Organizations — a Performance Measurement Approach. International Journal of Innovation Management. Vol. 13, No. 2, pp. 157–176.

The case “R&D in SAP”

Let me explain the time gap problem in more detail with an example. The diagram shows a typical process in the R&D department of a large industrial company, which we described based on the SAP case. Research begins with an idea, which can be external (dictated by market trends) or internal (of interest to some employee). Next, an analysis of similar ideas, a review of scientific topical literature, theoretical or experimental research, publishing articles and creating prototypes are carried out. The result of the research can be a specific demo of devices, IDFs (Invention Disclosure Forms), or working prototypes. Such a research process in the company takes 1-2 years on average.

The development process is built on the basis of the research results. Specific systems are designed, prototypes are created and tested. On the scale of the SAP company, such a process may also take 1-2 years before the product is ready to enter the market. And after the launch of the finished product, it takes some more time to calculate the effect (check whether the sales have increased, or the costs have decreased). And only after these assessments, after 3-4 years, it is possible to draw conclusions about the final R&D results.

Separate R and D

As can be seen from the example above, to measure and evaluate the work of the R&D department, it is useful to separate these two functions: R – research and D – development. Of course, research and development in companies are very closely related to each other, but it is important to see their differences.

“R” or research is always a long-term process that is most difficult to measure. It depends primarily on qualitative indicators, such as the experience and expertise of employees in a particular field, their passion, and the opportunity to work in the company for a long time. In the “R” process, it is almost impossible to plan or predict the results in advance, it is difficult to determine the deadlines, and to set the specific quantitative KPIs. The most frequent difficulties are associated with this function, as it contains a high degree of uncertainty.

“D” or development uses the results of research to create final products from them. Thus, one study can serve as a basis for the future development of several products. Or vice versa, the development of a particular product may require the results of several studies. The development process is already easier to describe formally, as well as to measure and present through quantitative KPIs. Many companies use agile methodologies for that.

To quote my favourite paper from Brown and Svenson, who analyzed failures in the R&D management in general: “research and development clearly perform different functions and produce quite different outputs”. Therefore, you simply cannot use the same performance indicators for both functions.

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I want to share a table that illustrates why separating R and D in a company is useful and even necessary. In this table, I have collected 9 qualitative characteristics that distinguish research processes from development. Understanding these features will enable you to manage both functions more efficiently.

Conclusion

In conclusion, I would like to say once again that R&D management is a complex task that affects almost all elements of the company’s internal ecosystem. In my professional activity, I use a comprehensive 5-level performance management model that takes into account not only the processes within R&D, but also their interaction with other departments and functions of the company. You can read more about the application of this model in the book “Industrial Research Performance Management – Key Performance Indicators in the ICT Industry” (2012, Springer, Heidelberg).

And if you have any questions about managing R&D processes, I will be happy to answer them!

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