From Idea to Impact: Crafting a Blueprint for High-Return R&D Ventures
Optimising R&D dollars for a thriving portfolio of product & services
Research and development is an important function for any company and takes a significant share of the revenue. The R&D spends vary in the range of 1% — 20% of the total revenue in a company and depend on the type of business.
A consumer goods and financial services company might have a small R&D expenditure in the range of 1%-3% while a technology company might have up to 10% of total revenue as their R&D expenditure. For a pharmaceutical company, the figure can go up to 20%.
Though high R&D expenditure depicts the growth mindset of any company it is not always true. At times companies invest too much into R&D and eventually discard the developments and projects due to failure, wrong market timings, and change of plans. One such example is the closure of the autonomous electric car program by Apple. The project was an ambitious project from Apple and they decided to stop it after spending close to $100 Bn on it (Source)
Not every R&D spark ignites a fire worth fueling
One cannot stop but wonder if there is a way to ensure maximum returns on your R&D spending. Is there a framework that one can follow to maximize the success of R&D?
After spending a decade in R&D consulting, I can give you a cheat sheet of how to select the best R&D out of hundreds of ideas that your teams keep bombarding you with.
Framework to identify the right R&D opportunities
Let us imagine the success of any R&D program. The success of any R&D program is when you can use the results to create a better product or service. Though it was hard to guess the success of the R&D program but it is easy to visualise the success.
Successful R&D means better products, more efficient services, high customer satisfaction, better quality, and high profit margins. In simple terms, successful R&D implies an innovation.
Innovation is the success of R&D
Once you start thinking about innovation rather than R&D, it is easy to come up with the right set of questions. So as a R&D head/ manager, your job is not to look at R&D but focus on the innovation. Start thinking about the success and after effects of R&D and speak in terms of innovation.
An innovation is usually triggered by four reasons:
- Competitive Needs
- Consumer Feedback
- Product/ Service Optimization
- Random Occurrence
I haven’t encountered a fifth reason for R&D till now. Usually, all inspirations fall in either of these four. However, if you feel there is another one, I would request you to comment and enlighten me with the reason
Each reason is simple to understand but knowing the reason is not enough, you should also be prepared for the next set of questions that should come to your mind once you understand the motivation of R&D. For that, let us look into each reason and discuss some questions that are valid for all industries
Competitive Needs
Most of the innovations are born out of competitive needs. The next time your R&D team comes with their brilliant ideas ask them how did they stumble on this idea and what is the need of this innovation?
Its highly likely they will speak about competitor and how this innovation would cover the product/ service gaps or give your products a competitive advantage over the other players. With that answer, you should also be ready for next set of questions.
Innovations targeting competitive needs usually fall in two parts: Competitive advantage and competitive need. Competitive advantage is your edge and can help you gain market share, increase margins, etc.,
Competitive need is your way of saving your product/ services. It won’t necessarily add any new margins or customers. Since you are already late to market, it is risky to follow the innovation and realise that the no need of product in futuristic market. There are better ways to target it, perhaps subtle product improvements, targeted customer feedback incoropration, licensing a better technology with some existing player or may be using already tested products/ services of any small player.
Smart leaders don’t make efforts on saving dying services, they focus on upcoming next gen product/ services and thus invest more on innovations which will create product leads and differentiation.
Some general questions that you should be asking your team are:
Is the product/ service major contributor to your business? How long the product/ service will last?
Is there any parallel product/ service that can replace it? What if we can work on something that can disrupt the space?
Will this innovation also address any customer feedback? Would it offer us more margins?
Shouldn’t we be directly licensing it from someone who is successful rather than working on it?
Based on the answers, you can think about next questions and decide the risk/ return ratios on the R&D investment.
Customer Feedback
Customer and consumer feedbacks are another prominent reason of innovations. This kind of innovations should be prioritized. But that doesn’t mean you should stop your R&D and focus only on these innovations.
You should be ready to ask questions such as:
What is the roadmap for product development?
How many customers are giving this feedback? Is this innovation applicable to other product/ services also?
Can we create differentiation in our product/ services after incorporating this innovation? Would that differentiation prompt users to pay more?
Is this a regional problem? Is the feedback for the issues that users are facing or for the next set of improvements in an already leading product?
Product/ Service Optimization
There are other innovations that target optimizing already introduced product/ services. These are usually lesser in number and not urgent. It is also the reason they are not followed. The innovators and the managers are also not serious because of non-urgent nature of the R&D.
Thus, whenever your team approaches you with an R&D project focusing on optimizing a product/ service that doesn’t fall into customer feedback and competitive need, you should be evaluating the need of innovation.
How much will this optimization save? Is it the benefit to customer or us?
Can we create product differentiation with this optimization? Why and How?
How much do we need to invest? Do we have any R&D projects that also falls into customer feedback and competitive need criteria?
Any R&D projects that only aim to optimize a service and doesn’t offer any product/ service differentiation are usually a low priority target. If they don’t offer any competitive advantage, address any product gap/ customer feedback, there is no significant value in following them. It is highly unlikely that you will get something good from them.
Random Occurence
Lastly, there are some innovations that happen randomly. You may also face similar R&D projects in your service. They will appear out of nowhere and look very promising. They won’t directly relate to your services/ projects, they are not the core need of your customers and they are obviously not the competitive need. These projects are the Random Occurence.
For random occurrence projects, it is important to understand their significance. Whether to follow them or not is more of an emotional decision. You and other stakeholders can discuss as much as you want but in the end, the final outcome is usually what your emotions and subconscious mind tells you.
Since the success and the results of these R&D projects cannot be correctly mapped to your existing operations, it is always hard to assess the risk/ reward ratio. The wise decision in such scenario is to limit R&D spends on these projects. If you engage in any such projects, always set up a limit of what you will invest and when you will quit.
Conclusion
R&D investment is subjective and always depends on your short & long-term strategies. A wise R&D manager always asks multiple questions to understand the risk/reward ratio for any R&D project. Knowing what is creating the need of R&D gives sets your expectation. It also helps you select which R&D tasks should be prioritized and when you should stop investing.
About: I am an R&D consultant specializing in maximizing returns on investment through strategic planning and guidance. My expertise lies in navigating the intricate realm of research and development, ensuring that each project receives the attention and resources it deserves for transformative outcomes. With a commitment to driving innovation and fostering growth, I partner with individuals and organizations to unlock the full potential of their R&D endeavors.
