Debbie Giggle discovers how some of the most advanced and creative companies structure, finance and manage new product development, and what the rest of industry can learn about effective innovation strategy
Birmingham City University’s Technology Innovation Centre (TIC) recently flagged up perceived shortcomings in the way UK manufacturers manage innovation. Professor Adrian Cole reported: “We found short-term, often customer-driven, urgency dominated the long-term importance of innovation. Top managers often believe their companies perform well in innovation, however, line managers and technical staff are often frustrated, because short-term demands dominate.”
It’s true that structuring R&D has its challenges.
It’s as easy as knitting with yogurt. But many UK businesses excel in this area and are driving massive growth. So what’s the secret?
First of all, who should formulate innovation strategy in the first place? The board? Head of development? Sales and marketing? The customer?
The answer from biotech company Antisoma – a developer of cancer treatments – was quite surprising.
Sharon Grimster, director of technical and business operations, said: “Our innovation strategy is led by our contractors. Biotech development is highly collaborative. Our products are developed from single living cells in suspension.
The process can be very long – for example, a month for culturing, and everything you do to the cells during that time produces a different outcome. So the process is the product. All of our manufacturing is outsourced, with Antisoma reviewing and auditing production methods at every stage. So, frequently, the advances made by our supply partners are the ones that shape our innovation strategy.
“As development is highly collaborative, a number of organisations often have intellectual property involvement in the same project. So a key factor in innovation strategy for us, is understanding the royalty burden.”
Saint-Gobain (a world leader in materials including glass, insulation, ceramics and plastics) dictates its own strategy. The company’s R&D function involves 3,500 researchers of 37 different nationalities. Over 600 projects are in progress at all times, with around 250 new patents filed each year. The R&D budget for 2007 was 370 million euros, an increase of 10 per cent on the previous year.
Roland Lazard, general delegate of Saint-Gobain UK, explained: “The overall strategy is supervised by Jacques Aschenbroich, president innovation and R&D, and Didier Roux, vice president R&D. They oversee our R&D centres – about 20 in all. Four of these – two in France, one in the US, and one in China – are larger, with between 200 and 400 personnel. These have specific areas of excellence and carry out fundamental research for the group. For example our site near Avignon specialises in glass, while the Massachusetts centre focuses on plastics and abrasives.
“Every year project managers across the group meet to put forward potential projects. Mr Aschenbroich and his team select from these and present the strategy to the board. Once apportioned budget, projects are subject to rigorous monitoring and six-monthly reviews, at which budgets can be increased or decreased, or projects discontinued if necessary.”
The system in place at e2v has some similarities.
e2v designs, develops and manufactures electronic tube, advanced CCD and CMOS imaging, sensing and specialist semiconductor technologies. Of its 1,800 employees, more than 600 are graduates or technicians, with80 holding PhDs. It has three UK-based manufacturing sites (in Chelmsford, Lincoln and High Wycombe), one in Grenoble, France and one in Corcelles, Switzerland.
Trevor Cross, CTO, explained: “Our personnel and resources for design and test are essentially the same as those for production. R&D is based around sophisticated production equipment like our two silicon fabrication lines rather than in a laboratory. Ideas for potential projects are drawn from an extremely wide base – from personnel at all levels and from customers. It’s like a funnel of ideas inviting contributions from the widest possible arena and then putting them through a series of filters to determine priorities. A small technical team oversees all projects.”
So how do these companies decide where to spend their innovation budget?
Although operating in extremely diverse markets, all three are identical in that their systems for deciding development priorities and determining whether to continue to launch are highly formalised.
Antisoma operates within a strict external regulatory framework in which bodies like the FDA dictate the path a new treatment takes through development and clinical trials. As a result, the point at which Antisoma embarks on clinical trials is crucial. The data is accumulated across three phases of development, and each involves a wider sample than the last. Any change to the product will mean begin ning the data collection process again from the beginning.
“The three phases of development focus on safety, potential dosages and the efficacy of the treatment at a fixed dosage,” explained Grimster.
“We need to be very sure of our parameters from the outset if expensive late changes are to be avoided. We need to understand the royalty burden at all stages, the market we could sell to, and the real cost of manufacture – the cost of goods per gram of protein.”
For e2v and Saint-Gobain the frameworks for determining R&D priorities have been developed internally.
e2v uses a balanced score card system to assess project desirability. Potential projects are scored against a wide range of requirements such as the maturity of the technology, how closely it fits existing technology and production capability, and the size of the market.
“Too small a demand may mean it’s not worth investing,” explained Cross, “while a large demand might indicate a product that could turn into a low-added-value commodity.”
Scores are reviewed regularly as the development concept progresses through the staging gate project management process.
“A systematic approach is crucial. It would be irresponsible to embark on projects without rigorous validation,” commented Cross. “And, if we decide not to proceed, it is clear to all those involved why resources are being withdrawn.”
This level of objectivity, he feels, is important where the people involved are passionate about their work and areas of technical interest.
Saint-Gobain also has a formalised framework.
A tool developed by the company – SG Gate – breaks R&D projects down into five stages – from exploratory phase through to product industrialisation.
Each phase requires a series of tasks to be completed. At the end of each phase, the team prepares the project deliverables to be handed over to the next ‘gate’ – with each gate leading to a decision.
Lazard said: “When determining whether to progress with a project, a steering committee uses an evaluation sheet to qualify the project’s overall levels of interest and risk.”
Sirius, another Saint-Gobain tool, is used to manage the R&D project portfolio, prepare budgets and generate financial reports. With these two tools in place, Jacques Aschenbroich can see, at any given point, the overall and quantified view of the company’s R&D effort in terms of budget, project progress, target markets, and expected benefits from the new products, services or processes.
How do you avoid the scenario outlined by TIC – where the loudest shouting customer bags the R&D spend while long-term opportunities are put on the back burner?
Cross commented: “The majority of our projects are based on existing products and processes.
As a public company with shareholders we can’t lose sight of our need to deliver revenue. But, each year, around 10 per cent of our research budget (£15 million in 2007) is earmarked for blue sky concepts. These are assessed equally rigorously, but are not expected to deliver the same immediate return.”
Saint-Gobain also apportions a separate budget for longer-term projects.
“Finance is raised by our member companies,” said Lazard. “In Europe, each contributes a kind of R&D levy – a GIE – for central projects which will enable the company to target new markets in the future.”
In 2007 GIE collected about 80 million euros, roughly 20 per cent of the total research budget, which is being used to further understanding of technologies such as SOFC fuel cells and electronic lighting.
Both e2v and Saint-Gobain tend to self-finance R&D. Lazard commented: “Sometimes we secure external grants, but often the paperwork takes too much time, so we reinvest to fund development.”
Both companies have developed relationships with academic bodies to access pure research. e2v has forged links with UCL, Brunel, Nottingham and Strathclyde University.
The Research Division of Saint-Gobain set up SG UN (Saint-Gobain University Network) two years ago to develop relationships from a worldwide academic ‘pool’.
In conclusion, robust systematic validation of projects is a common denominator across Saint-Gobain, e2v and Antisoma. In addition, however, each company leaves some space for flexibility. For Antisoma, scientific discoveries can turn a nearly completed project on its head. At e2v the method of manufacture can be vastly different depending on the product. At Saint-Gobain the technology net is spread so far that the entire shape of the company could change within the next decade. What all three appear to have in common is a facility for imposing structure on the ‘unstructurable’. Knitting with yogurt.