Approaches to accelerating product and process development

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Approaches to Accelerating Product and Process Development Bela Gold

How can organizations shorten the length of the new products development process? This is undoubtedly one of the key questions facing managers today. One important goal is early market entry, maximizing competitive advantage in the process. Bela Gold draws on his experience with product and process development in a wide array of industries to identify eight approaches to accelerating development. Drawing on his field research, he brie$y appraises the potentials, limitations, and risks of each and then discusses implications for a more promising strategy.

Introduction As is widely recognized, firms in virtually all industries are facing intensified competition from foreign as well as domestic suppliers. Under such pressures, one of the more obvious means of maintaining or improving market position involves accelerating the development of advances in products and processes. But how is this to be accomplished? Within this vast domain, our field research during the past two decades has included explorations of a variety of major industries having to cope with important technological advances, including steel, machine tools and other industrial machinery, automobiles, tires, glass, and electronics in Western Europe and Japan as well as in the United States.’ Our findings reveal that broad recognition of the need to accelerate product and process development has led to reliance on at least eight forms of strategies, or what may more realistically be termed expedients. These differ in respect to such important managerial criteria as: the probabilities of success; expected costs; time to fruition; and duration of resulting benefits. The eight may be combined into three groups: 1. Those involving reliance on external sources of advances; 2. Those involving reliance on internal research and development projects; and

Address correspondence to Bela Gold, Fletcher Jones Professor of Technology and Management, The Claremont Graduate School, Claremont, CA 91711. 0 1987 Elsevier Science Publishing Co., Inc. 52 Vanderbilt Ave., New York, NY 10017

’ For general approaches to, and analyses of, prospective and actual technological innovations, see the following publications: [2], [3], [4, Part 11, [1 I-141. Studies focusing on particular technological innovations include: [6], [lo], [13], [16], and [18]. 0737-67821871fa3.50

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BIOGRAPHICAL Bela Gold. Professor

SKETCH

an economist of Technology

and engineer,

nomics and Director at Case Western United costs.

States

books are: Productiuit~, loKicn/

on industrial

competitiveness. Technology

Progrrss und Industrial

mm Iron und Steel Industry Economics

and Japan

and Management

Eco-

Economics

published.

and

as well as in the

productivity,

technology,

The most recent of his ten

and Cupitul(1982)

Lrmitwhip:

The Grosd

(1984). He is also president Associates,

Jones

Graduate

of Industrial

in Industrial

He has lectured.

Europe

and Canada

and international

Program

University.

in Western

Fletcher

in the Claremont

the Timkin Professor

of the Research

Reserve

widely

is currently

and Management

School and was until recently

consulted

B. GOLD

MANAG

and Technoofthe Amrriof Industrial

Inc.

3. Those relying primarily on innovative management approaches to research and development programs. Reliance

on External Sources

Internal research and development programs seeking to generate substantial advances in products or processes have commonly been characterized by high costs, uncertain duration, and variable success. This has led many firms to give increasing consideration to the potentials of acquiring needed advances from external sources. Such efforts have been dominated by four primary alternatives: 1. Licensing or buying advances already achieved by others in order to catch up; 2. Licensing or buying advances by others to provide an advanced base for seeking future advantages; 3. Buying firms that have already achieved desired advances; and 4. Contracting with independent R&D firms for specific innovational projects. Analysis suggests that each of these has certain advantages and disadvantages that alter its relative attractiveness depending on each buyer’s circumstances at the time of decision. Buying or Licensing Advances with Competitors [7/

to Catch Up

The most common reason for resorting to this approach is to minimize gaps relative to technologically more advanced competitors. When such advances have been achieved by foreign pro-

ducers, additional potential advantages may be derived either through purchasing exclusive licenses for specified markets, or through being among the earliest licensees in given markets. The primary advantages of this strategy, as contrasted with reliance on internal R&D to achieve the needed advances, are believed to be: the elimination of managerial uncertainties concerning whether the desired capabilities will be achieved; how long it will take to achieve practical applicability; and how much the undertaking will cost. But the potential disadvantages and limitations of this approach seem to be less widely recognized. One of these is that important technological advances may not be available to competitorsespecially in the case of innovators operating in domestic markets-until the innovator has exploited much of its advantages and is already well along towards developing further advances, thus ensuring a continuing though presumably reduced technological gap. In addition, the duration of this technological gap is likely to be extended in the case of major innovations by the fact that it may take many months, and even years, before the purchasing firm learns how: to utilize the innovation effectively; to integrate it into the surrounding production processes; and to adapt it to continuing adjustments in product designs, product mix, and other kinds of technological innovations. For example, transfers of continuous casters from Japan to French, Italian, and U.S. steel mills have failed to reach expected levels of effectiveness for years. And even a technological leader like Caterpillar Tractor took years to achieve effective utilization of a limited pioneering flexible manufacturing system which it purchased. Third, licensers often specify certain restrictive conditions in selling their technological advances. One common form is to prevent the sale of resulting products to certain markets. Thus, foreign licensers often restrict such sales to the purchaser’s domestic markets. Another condition may require granting the licenser free access to any improvements developed by the licensee. As a result, PPG’s successful commercialization of the float glass process, which had been licensed from Pilkington before it was fully developed, enabled Pilkington to license the successful product to one of PPG’s major U.S. competitors immedi-

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ately, thereby sharply reducing PPG’s expected benefits. Fourth, it is important to recognize that buying or licensing a product or process usually covers only a narrowly defined specific product and specific means of utilizing it. But it usually omits the seller’s underlying body of experience in having explored alternatives, learned the limitations of the licensed technology, uncovered its further developmental potentials, and enabled its technical and operating staffs to adapt it effectively to changing applications. Thus, transfers often fall short of encompassing the full range of knowledge underlying the development, utilization, and further capabilities of the licensed products or processes. As for costs of licensing, two strategies were encountered. Some innovators offer licenses at relatively low costs with a view to discouraging prospective users from undertaking major programs to develop alternatives, which might result in upgrading their ability to contrive competitive advantages of their own over time. Other innovators may charge relatively high licensing fees, either because they feel that it means giving up access to possible markets, or because R&D executives are intent on maximizing the economic value of their efforts. In either case, the attractiveness of licensing terms also depends, of course, on whether the licensee is assured exclusive rights in given markets for extended periods, or faces equal access to the innovation by competitors.

Buying or Licensing Advances as a Foundation for Developing Competitive Advantage This is one of the strategies likely to be considered by firms considering entry into new fields of production with a view towards becoming effective competitors in as short a period as possible. It was encountered in a number of Japanese companies, where it was referred to as “standing on the foreigners’ shoulders.” Specifically, a firm would buy several competing forms of the relevant innovations as a basis for appraising their relative advantages and limitations in order: 1. To explore the current and future potentials of each; and 2. To develop some modifications, extensions, or

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combinations offering additional net advantages beyond the existing innovations. Such an approach offers all the advantages of licensing and also results in a more thorough understanding of the potentials and limitations of the technologies involved, thereby facilitating more effective use, as well as efforts to explore further improvement capabilities. Its disadvantages obviously center around the higher costs involved and the need for a longer period to test multiple alternatives before undertaking the development of improved applications. Common examples encountered have included experimentation with various types of robots, various types and combinations of sensing and control devices for machinery, and alternative means of combining distinctive machining capabilities into complex “machining centers” and into flexible production lines.

Buying Firms with Desired Technological Advances This strategy has become increasingly common in recent years, partly as a result of the increasing diversifications of long established firms into promising new sectors of industry and partly because new forms of technology are demonstrating applicability to wider sectors of industry. The former may be illustrated by General Motors’ entry into systems development and control (through acquiring Electronic Data Systems), robotics (through a joint venture with Fujitsu), and avionics (through acquiring Hughes). Such efforts have also been paralleled by General Electric, IBM, and others. Acquisitions involving increasing awareness of the progressively expanding potentials of new technologies may be illustrated by purchases of relatively small firms that have been developing new applications of computers, of computeraided engineering and manufacturing, and of computer-integrated management systems as well as of robotics, lasers, and multimaterial combinations (including metals with ceramics and textiles with plastics). The advantages of such acquisitions derive from their including not only patents and equipment, but also the specialized knowledge and experienced manpower needed to maximize contin-

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ued progress-instead of facing the prospect of years of effort to build such capabilities anew. Because of these gains, however, such acquisitions often command very high prices relative to their already established earnings. In addition, experience suggests that a more serious problem may be posed by the difficulties that are often encountered in seeking to integrate such small and more innovative acquisitions into large organizations that have long emphasized relatively standard products and processes, except for slow incremental modifications. Resulting personnel frustrations and organizational conflicts have often eventuated in the departure of key incoming personnel after relatively short periods, significantly undermining the expected benefits of the acquisition-as in the acquisition of pioneering robot producer Unimation by Westinghouse. Expected benefits may also be undermined by two other developments: 1. Refusal of the parent organization’s staff to accept the newly available innovation-as may be illustrated by the early refusal of Firestone’s domestic engineers to adopt the radial tire technology of its European plants; and 2. The gradual transfer of the best people from the acquired firm to the parent along with the progressive tightening of budget allocations to the newcomer, resulting in its progressive deterioration-as occurred repeatedly in one of the best-known machine tool firms, which acquired and eventually sapped a series of leading single product manufacturers. Because such examples of at least partial disappointments are likely to multiply, the need should be recognized for more effective studies of the means of improving the introduction and integration of new firm capabilities within long established and substantially larger parents. Contracting for External Development The design and production activities of many large companies encompass more sectors of science, engineering, and manufacturing practices than can be explored carefully within available research budgets. Moreover, the development of effective R&D staffs and facilities requires considerable specialization in each chosen sector of endeavor in order to ensure competitive levels of

capabilities. Hence, in order to achieve needed peripheral advances in support of the central and continuing foci of the R&D program, an increasing number of firms are finding it both valuable and economical to draw on the distinctive capabilities of contract R&D firms, such as Arthur D. Little, Battelle, Stanford Research Institute, Midwest Research, and others. Such an expedient facilitates supplementing internal capabilities in dealing with specialized short-term problems. Moreover, it offers full proprietary benefits at costs which may well prove more favorable than attempting to develop a new staff to cope with transitional problems and then having either to disband it or to shift its members into unfamiliar tasks. Reliance on Intensified R&D Programs

Internal

Our field research has encountered three kinds of strategies designed to increase contribution from internal R&D programs. Increasing Rewards for Successful

Performance

This has been the most commonly encountered incentive to intensifying the efforts of R&D staffs. It usually takes the form of extra salary increases or bonuses as rewards, either for completing projects more quickly or for carrying more projects to a successful completion. Our research suggests, however, that such performance criteria may tend to encourage increasing emphasis on short-term projects seeking only incremental improvements in current products and processes as over against more far-reaching, longer-term, and more risky undertakings. Moreover, such shifts in emphasis are likely to be intensified by the accompanying tendency to encourage the departure of those committed to more ambitious targets, thereby rendering it more difficult to reverse risk-averse preferences. For example, an effort was made years ago to effect such a reversal in a major manufacturing firm in Pittsburgh by offering a guaranteed 5-year commitment to support advanced high-risk projects with potentially important results, subject to the condition that the recipients would receive no salary increases until the project was completed, at which time the salary would be doubled in case of

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success or left unchanged. The fact that not one proposal was received may have been due either to the fact that the reward was not sufficiently superior to the expected annual 10% increments received for completing relatively riskless projects, or to the fact that those temperamentally inclined to respond to such risky challenges had already left. But such experiences also raise the question of whether expecting R&D personnel to bear the full risks of these undertakings is likely to encourage an adequate proportion of higher risk-higher payoff projects, or whether this would require more active leadership and risk-bearing by management. Organizing Internal Competition

in Research

Another strategy, one that was implemented in the computer manufacturing industry, sought to encourage innovative R&D projects by defining an advanced target, establishing multiple competing teams to work towards its attainment, and then eliminating the least successful at successive stages of the planned development. This seems to offer the advantage of increasing the chances of success through exploring multiple approaches in parallel, and it also helps to intensify motivations because of the competitive pressure. On the other hand, it involves dispersing capable staff members into competing groups instead of concentrating their efforts. And it represents a potentially more costly approach-although it should be borne in mind that such costs usually tend to be relatively low during the early stages of research. Initiating Simultaneous Stages of Innovation

R&D on Successive

Still another innovative R&D strategy that was encountered involves simultaneous initiation of R&D projects covering successive stages of the development as well as of the implementation process, ranging from product research and process development through equipment development and even facilities construction. The objective of such an undertaking is to sharply reduce the usual multiyear duration of progress from the inception of research to commercial production. But this involves very high-risk assumptions of foreknowledge concerning the needed character-

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istics of each successive stage despite the need for continuing exploratory efforts within all of them. Proceeding on such a basis may well lead to costly delays, unexpected results, and even failures in some stages, with serious repercussions on preceding as well as on later stages of the planned operations. One striking illustration, underlying an earlier reference, is provided by the experience of Pittsburgh Plate Glass some years ago, when it was developing a new technology for the chemical polishing of plate glass. Because of promising results during the early stages of experimentation on a laboratory scale, eagerness to maximize the benefits of getting ahead of competitors led to commitments to proceed with building all other parts of the envisioned new plant while awaiting the expected early scale-up of the experimental process to commercial applications. But the scale-up efforts continued to fall short of needs for considerably more than a year after completion of the rest of the plant, imposing the combined burdens of costly but unusable facilities and of shortages of planned capacity. In order to minimize continued losses, PPG contracted to pay heavily to license an alternative technology (the float glass process) from Pilkington, although that process had not yet been developed beyond a pilot plant stage. As a result, PPG had to spend considerably more than 1 year, as well as attendant resources, to achieve effective commercialization. At that point, however, the original licensing terms required PPG to transfer to Pilkington all of the additional knowledge gained to achieve success. And Pilkington then sold the resulting “know-how” as well as the basic process license to one of PPG’s major U.S. competitors, thereby minimizing resulting competitive benefits.

Reliance on Innovative R&D Management Strategies Peer Review to Accelerate

Progress

One of the common methods of seeking to accelerate the progress of ongoing research and development projects is to organize regularized peer reviews of project performance and problems. This is expected both to intensify efforts in order to impress colleagues with interim achievements

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and also to help the researchers by making available to them the broader expertise of the larger groups in dealing with the problems that have been encountered as well as in choosing among alternative next steps. Although the potential benefits of such contributions are obvious, experience reveals two powerful sources of inhibitions concerning the importance of resulting suggestions. One of these reflects a form of “live and let live” reciprocity, which may lead members of the reviewing group not to be unduly critical in the hope of benefiting from comparable tolerance when their own projects come under review. On the other hand, because ideas are the basic capital of each rethere is also an understandable searcher, reluctance to give them away and thereby simultaneously improve the performance of competitors for recognition and rewards. Because of the potentially great value of having differently oriented specialists contribute unstintingly to the overall performance of the group, it is critically important for R&D managements to overcome such motivations towards only minimal or superficial cooperation. In some cases, significant progress along these lines was claimed to have been achieved through aggressive questioning by senior R&D officials concerning the relevance to project development issues of each attendee’s specialized expertise. Transfer Responsibility

to Accelerate Progress

Another, though still uncommon, approach by R&D managements seeking to accelerate progress towards salable results is to take away projects deemed to be within reasonable reach of commercialization from the original researcher in order to prevent long continued “polishing” and “perfecting.” This was reported by one of its R&D managers to be a common practice at Texas Instruments. Such practices may well hasten the attainment of practical results, of course, even if it should be frustrating for the originator. But it may also result in the belated discovery of unexpected difficulties, as was reported to have occurred in the closing of a large scale nuclear fuel rod reprocessing plant in this country that had been rushed into construction on the basis of seemingly successful

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results during early stages of development testing. Closer Integration Other Functions

and

of R&D with

Repeated experiences with the complaints of R&D personnel about the resistance of production staffs to accepting significant changes in products and processes, as well as with the complaints of production staffs concerning the inadequate development and inapplicability of R&D results, have confronted company managements with continuing difficulties. One of the expedients that has been employed in efforts to ease such problems is to transfer the proponent of an R&D result to the production staff to facilitate its effective adaptation and integration. Although this has certainly been successful on occasion, efforts to determine the reasons for such results, and for the even more frequent nonsuccesses, have not yet yielded consistent findings-varying with such factors as the magnitude of the changes to be effected, the urgency of such adjustments to regain or maintain competitiveness, and the extent of higher management pressure to hasten effective utilization. For example, the combination of a need for substantial changes in manufacturing operations and controls, along with the absence of top management pressures for responsive adaptive efforts, helps to explain the extended failure at a nuclear engineering plant in Pennsylvania to make effective applications to manufacturing of the products of its nationally recognized computer-aided design group. A quite different approach focuses instead on the closer integration of R&D with marketing. The objective here is to sensitize R&D personnel to the emerging needs of actual and potential customers, thus helping in the choice of promising R&D projects and also facilitating the initiation of such projects in time to achieve reasonable progress before market demands have already become urgent. For example, Sandvik, a leading Swedish toolmaking firm, annually sends its R&D personnel to spend a few weeks with customers, not in order to support current sales efforts, but rather to explore future problems with specialists in product and process development as well as in production-thereby gaining time for research to

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develop advances in time to meet prospective needs [6]. A broader approach was encountered in our research in Japanese industries, where many companies follow the practice of rotating executive personnel through an array of line and staff functions over the course of their careers [18]. Such transfers every few years engender a range of experiential insights and a comprehensiveness of viewpoints that leads them to be far more receptive to the accommodation of differing pressures than is common in our vertically oriented promotional paths within major organizational functions. Although this tends to be less true of Japanese engaged in basic research, it does usually encompass many initially attached to development, engineering, production, and a variety of managerial activities.

Some More Basic Issues On Balancing R&D Project Portfolios There is widespread acceptance of the concept that R&D programs should represent a portfolio of projects covering a substantial range in respect to difficulty of achievement, time to fruition, and expected magnitude of pay-offs. But our exploration of actual programs reveals a heavy skewing in many companies towards short-term, low-risk projects with relatively modest expected benefits. This reflects an understandable response to the broad pressure on firms from financial markets for maintaining attractive short-term returns, which in turn encourages reliance on a “net present value” capital budgeting approach towards evaluating alternative resource allocations [13]. Unless this approach is revised in favor of what the author has called “a continuing horiwhich is concerned with safezons” approachguarding future competitiveness by also considering the longer term effects of repeatedly rejecting major R&D projects that offer unattractive net present values because of their unavoidably longer term periods of gestation-many firms will continue to delay needed advanced and risky R&D efforts to achieve basic improvements in products and processes. This can only assure continuing lags behind competitors, or seeking to

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escape them by shifting into other industries in which their lack of expertise may entail even greater risks. For example, domestic steel companies have undertaken significant shifts recently into banking and petroleum with less than encouraging results.

On Organizing and Evaluating R&D Programs Consideration might also be given to altering widely prevailing bases for evaluating R&D programs. Instead of treating such outlays as shortterm costs requiring essentially short-term payoffs, it may be sounder in terms of the managerial objectives involved to regard them as a form of long-term investment directed towards protecting the long-term viability of the firm. Such an approach would emphasize the development of multiyear core R&D programs providing for successively cumulative advances towards key targets representing major competitive advantages. Such a program would also encompass a penumbra of shorter term internal projects as well as provisions for buying or licensing or contracting for other innovations that are considered desirable but outside the central focus of the basic R&D program. There are sound reasons, however, for not leaving the formulation of an R&D program of this kind to the R&D staff alone, in view of their tendency to concentrate on the known frontiers in their respective areas of specialization. Nor should it be based primarily on reports from sales representatives concerning the technological advances being offered by competitors. Rather, the R&D program should be formulated as an integral part of a periodically updated 5-10 year broader program concerned with strengthening the competitiveness of the firm [17] and [14]. Such a program should be based on a careful diagnosis of probable key pressures and needs over an extended period, covering foreign as well as domestic competitors, and it should center around the following tasks: 1. Identify prospective changes and threats involving: a. The relative competitiveness of each major product’s performance capabilities and price in each major market;

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b. The availability and prices of all needed inputs and resulting changes in cost competitiveness; and c. The emergence of new kinds of product needs and new kinds of markets. 2. Appraise the benefits, costs, and risks of alternative means of improving product capabilities and production efficiency in comparison with the probable effects of continuing improvement efforts by competitors. 3. Evaluate needed adjustments in personnel and organizational arrangements as well as in marketing and finance to ensure effective harnessing of resulting technological potentials.

II.

Unfortunately, the author has found few such solidly founded bases for planning technological improvement programs in the United States so far despite increasing recognition of the need for extraordinary efforts.

to the economic evaluation of future manu12. Revising approaches facturing systems. In: Emerging Worldnide Trends in the Industrial Adoption of Advunced Manufacturing Techniques, Proceedings of an international conference sponsored by the National Science Foundation Chicago, IL: Illinois Institute of Technology, 1985.

References (the following are all authored or edited by Bela Gold) 1. “Analyzing the effects of computer-aided manufacturing systems on productivity and costs. In: A. Dogramaci and N. R. Adam (eds.). Managerial Issues in Productivity Analysis (Boston: Kluwer-Nijholf, 1985. 2. Appraising and stimulating technological advances Omega: The International Journal of Management tober 1980) (editor and co-author).

in industry. Science (Oc-

product innovation and market development to 6. Integrating strengthen long term planning. Journal of Product Innovation Management (September 1984). 7. Managerial considerations in evaluating the role of licensing in technological development strategies. Managerial and Decision Economics (November 1982). innovations in industry: super8. On the adoption of technological ficial models and complex decision processes. In: S. Macdonald, D. M. Lamberton, and T. Mandeville (eds.). The Trouble x2th Technology: E?rplorations in the Process of Technological Change. London: Frances Pinter, 1983. on continuing advances in automation: past limita9. Perspectives tions and emerging potentials. Technouation: The Inlernational Journal of Technological Innouution (Fall 1986). 10. Potentials and limitations of robotics: guides to managerial evaluations. Europeun Journal of Operational Research (Summer 1983). Productivity, Technology und Capital: Economic, Analysis, Managerial Strategies and Governmental Policies. Lexington, MA: D.C. Heath-Lexington Books, 1982.

programmable automation and improving competi13. Robotics, tiveness. In: E.rploratory Workshop on lhe Social Impacts of Rohotic,s. Washington, D.C.: U.S. Congress Office of Technology Assessment, 1982. 14. Strengthening the foundations of investment strategy and capital budgeting. In: M. Kaufman (ed.). Hundbook of Capitul Budgeting. New York: Dow-lrwin, 1985. management 1.5. Strengthening ical capabilities. Strafegic 1983).

approaches to improving technologManagemenf Journal (September

sets new rules for pro(November-December

and other determinents of the international com16. Technological petitiveness of U.S. industries. Transactions in Engineering Manugement of the Institute of Elecrricul and Electronic Engineers (May 1983).

of strategic management for productivity improve4. Foundations ment. Interfuces: SpecialIssue on Product&i/y (The Institute of Management Sciences) (May-June 1985).

Progress and Industrial Leadership: The Growth 17. Technological of ihe American Iron und Steel Industry, 1904-1970. Lexington, MA: D.C. Heath-Lexington Books, 1985 (editor and coauthor).

5. Improving Managerial facturing. (Washington, Press. 1981.

progress in Japanese industries: computerization 18. Technological in steel. Quarterly Revietq of Economics und Business (Winter 1978).

3. CAM (Computer-Aided Manufacturing) duction. Harvard Business Remeti’ 1982).

Evuluations of Computer-Aided ManuD.C.: National Academv of Science