Globalization of R&D Drivers and success factors. Study. Stuttgart, June Study Globalization of R&D_Long Version 1

Transcription

1 Globalization of R&D Drivers and success factors Study Stuttgart, June 2007 Study Globalization of R&D_Long Version 1

2 Content A. Management summary 3 B. Key questions and study approach Analysis of current practices in globalizing R&D in different industries 8 C. Drivers of globalization Access to markets and technology drives R&D globalization decisions 15 D. Organizational models Company clusters show distinct patterns of globalizing R&D 29 D.1 Cluster comparison Commonalities and differences 32 D.2 Cluster focus Organizational models by cluster 37 E. Consequences for management Successful models for globalizing R&D 62 F. Roland Berger and esb Research Institute Combining practical insights and scientific knowledge 79 Study Globalization of R&D_Long Version 2

3 A. Management summary Study Globalization of R&D_Long Version 3

4 MANAGEMENT SUMMARY The study examines current practices in globalizing R&D It considers the drivers and organizational models in six industries > Globalization of value chains has increased significantly in recent years The focus of globalization has expanded from manufacturing and assembly to the entire value chain > When it comes to R&D, however, the process of globalization is still largely unclear Various patterns can be found in practice > Roland Berger and the esb Research Institute have conducted an empirical study to explore the drivers of R&D globalization and the organizational models applied across six industries: Engineered products, Automotive, Pharmaceuticals, Electronics & IT, Chemicals, Consumer goods > The study especially addresses Drivers of R&D globalization Criteria for the selection of R&D locations Internal organization of R&D networks Tools for managing the global R&D process Communication in global R&D networks Study Globalization of R&D_Long Version 4

5 MANAGEMENT SUMMARY The examined companies can be grouped into four clusters based on the drivers that push the globalization of R&D forward > Three main drivers for globalization of R&D were examined Access to markets Access to technological know-how Reduction of R&D cost > Main drivers of R&D globalization are market and technology access The study revealed that reducing R&D costs is a less important driver > Based on the degree of importance of market access and technology access, companies can be grouped into four clusters Globalization leaders view market and technology access as being of high importance Global marketers view market access as being more important than technology access Technology hunters view access to technology as the main reason for globalization Opportunistic players are not driven to globalize R&D systematically but based on single, concrete business requirements Study Globalization of R&D_Long Version 5

6 MANAGEMENT SUMMARY Each cluster shows a typical model for globalizing their R&D > Globalization leaders create a network of central research and local development centers. Activities are coordinated throughout the entire global R&D network > Global marketers generate basic innovations and product platforms in global research centers. These are transformed into products for local markets in local development centers > Technology hunters focus R&D efforts on a small number of global research centers that specialize in individual research areas. Local customization of products is limited > Opportunistic players drive their R&D efforts mainly out of their home base. Global efforts are limited and typically driven by individual product, client or production requirements > Despite mainly company-specific differences, industries show a tendency towards certain clusters, e.g. pharmaceutical and electronics companies score high on the technology dimension, while automotive companies score high on the market dimension Study Globalization of R&D_Long Version 6

7 MANAGEMENT SUMMARY A set of success factors for the management of global R&D networks has been identified > To develop a successful R&D network, companies need to start from corporate and R&D strategy Importance of the drivers technology, market know-how, or opportunistic cost reduction to be determined first > Technological know-how should be concentrated as much as possible to leverage economies of scale and scope > Market know-how should be developed locally, in decentralized units > Managing globalization of R&D should never be an end in itself, concrete business reasons have to drive established structures and applied methods > Historically grown structures must be closely scrutinized and adapted to match current strategic considerations > While structures need to be adapted, particularly if grown historically, changes should be implemented carefully to avoid personnel and know-how loss Study Globalization of R&D_Long Version 7

8 B. Key questions and study approach Analysis of current practices in globalizing R&D in different industries Study Globalization of R&D_Long Version 8

9 Globalization has gone beyond mere trade relations Foreign direct investment grows stronger than global GDP and exports GDP, Exports, FDI World [1985=100] CAGR FDI 10.7% Exports 5.9% GDP 2.5% Study Globalization of R&D_Long Version 9

10 Companies drive the globalization process by relocating all parts of the value chain to lower-cost countries Including R&D Past relocation focus Functions Current relocation focus R&D Current focus Focus in the past Procurement Manufacturing Assembly Service Administration > Relocation focus in the past has been strongly on manufacturing and assembly functions > Focus has shifted towards globalization of entire value chain from R&D to Administration Source: RB Study "Global Footprint Design" Study Globalization of R&D_Long Version 10

11 Companies take very different paths when globalizing their R&D activities Some typical patterns are emerging Cost leverage System engineering remains in Germany Detailed engineering is outsourced to India to leverage cost advantages Global concentration Consolidation of research in three locations worldwide ThyssenKrupp Bayer Centralization Focus of R&D activities in Germany because of availability of experts German machinery producers Global decentralization 180 researchers in two central locations 1,200 developers in all relevant local markets Givaudan Differentiation New research centers have been opened in Shanghai and Singapore to benefit from local trends and know-how Novartis Global coordination 32 R&D locations in 30 countries coordinated by one global research center 3M Source: Roland Berger research Study Globalization of R&D_Long Version 11

12 To find out more about the patterns and success factors of R&D globalization, our study set out to answer five main questions Guiding questions What drives companies in globalizing their R&D? How do companies pick their R&D locations? How do companies organize their global R&D network? What tools do companies apply to manage their global R&D process? How do companies communicate and exchange know-how globally? > Are cost savings the main driver? > How important is access to local markets? > What role does access to technology play? > Are locations picked for strategic reasons? > What impact do historically grown structures have? > How are tasks distributed among locations? > To what extent do different locations collaborate? > How are external partners included? > Do patterns differ depending on the type of R&D project? > What tools are used to achieve different strategic goals? > Are there any differentiating tools and methods? > Do different organizational setups require different means of communication? Study Globalization of R&D_Long Version 12

13 The study covered a balanced sample of six industries, with a focus on large companies Evenly balanced responses from six industries Majority of companies with more than EUR 500 m turnover Chemicals By industry By turnover [EUR m] Consumer goods 17 (17%) 17 (17%) 17 (17%) Engineering products 20 (19%) Automotive 1, I2, (22%) 17 (17%) 41 (40%) <500 Electronics and IT 15 (15%) 17 (17%) Pharmaceuticals 22 (21%) Study Globalization of R&D_Long Version 13

14 An overview of current R&D globalization practices was gained through a quantitative survey In-depth insight via expert interviews Applied research methods METHODOLOGY QUANTITATIVE SURVEY EXPERT INTERVIEWS Research goal Method of data collection Sample choice Type of questions > Empirical description of status quo of internationalization of R&D > Computer Assisted Telephone Interviews (n = 103) > Germany based multi-nationals > Selection based on turnover > Highly structured > Closed questions > Deeper understanding of mechanisms, challenges, and best practices in internationalizing R&D > Personal interviews > By quota per industry > Semi-structured > Open questions Time frame > 3 rd /4 th quarter 2006 > Until 1 st quarter 2007 Study Globalization of R&D_Long Version 14

15 C. Drivers of globalization Access to markets and technology drives R&D globalization decisions Study Globalization of R&D_Long Version 15

16 Drivers for globalization of R&D Market and technology access are clearly more important than cost Drivers for globalization of R&D 1) Rationale Access to markets Access to technological know-how MAIN DRIVERS > Market and technology access play the most important role in decisions to globalize R&D > Cost considerations play a role in individual projects, but are generally less important for strategic globalization decisions Reduction of cost 2.4 1) Likert scale importance of driver 1 low... 5 high Study Globalization of R&D_Long Version 16

17 BACKUP Drivers of R&D globalization have been checked using a set of criteria in the study DRIVER Access to markets Access to technology Reduction of cost CRITERIA IN QUESTIONNAIRE > Access to local market > Better response to local market requirements > Fulfillment of local content requirements > More successful market introductions > Technologically more advanced innovations > Reduction of time-to-market > Access to qualified R&D staff > Access to global pools of professional know-how > Reduction of R&D cost > Access to subsidies Importance of drivers assessed based on an evaluation of each criterion on the Likert scale (1-5) Study Globalization of R&D_Long Version 17

18 BACKUP Market and technological aspects gained higher ratings than cost savings in all industries examined in the study Importance of R&D cost reduction vs. most important driver by industry AUTOMOTIVE CHEMICALS CONSUMER GOODS Local market requirements Reduction of R&D cost Access to local market Reduction of R&D cost Local market requirements Reduction of R&D cost ELECTRONICS & IT ENGINEERED PRODUCTS PHARMA INDUSTRY Reduction of time to market Reduction of R&D cost More successful market introduction Reduction of R&D cost Access to global pools of professional know-how Reduction of R&D cost Scale: Lickert; range: 1-5 Value 1: not important Value 5: very important Study Globalization of R&D_Long Version 18

19 Depending on technology and market drivers, the study identified four R&D globalization clusters Clusters of R&D globalization Importance of technology drivers TECHNOLOGY HUNTERS GLOBALIZATION LEADERS OPPORTUNISTIC PLAYERS GLOBAL MARKETERS Importance of market drivers Study Globalization of R&D_Long Version 19

20 Companies within each cluster have different competitive reasons for globalizing R&D Competitive rationale by cluster TECHNOLOGY HUNTERS > Competitive advantage largely based on superior technology > Technological advances based on basic innovations > Access to qualified staff is a key prerequisite for defending technology leadership > Local production, customization is limited > Companies are rather independent from global R&D resources > Technological expertise is readily available at home base > Adaptation of products to local market requirements on a client-/project-specific basis OPPORTUNISTIC PLAYERS FOUR CLUSTERS OF GLOBAL R&D GLOBALIZATION LEADERS > Competitive position based on leading technology and adaptation of products to local market needs > Strong focus on leveraging local developments to other markets > Success based on offering products that perfectly fit local needs > Need for integrating local trends and tastes into the R&D process is high > Fast adaptation to market and customer requirements is key GLOBAL MARKETERS > Organizational capability to transform leading technology into locally adapted products is key Study Globalization of R&D_Long Version 20

21 The companies participating in the study equally cover all four globalization clusters Clusters of surveyed companies IMPORTANCE OF TECHNOLOGY DRIVERS TECHNOLOGY HUNTERS GLOBALIZATION LEADERS OPPORTUNISTIC PLAYERS GLOBAL MARKETERS IMPORANCE OF MARKET DRIVERS Study Globalization of R&D_Long Version 21

22 Different R&D globalization cluster patterns emerge when viewed from an industry perspective Drivers for globalization of R&D Industry patterns CHEMICALS ELECTRONICS / IT AUTOMOTIVE SUPPLIERS CONSUMER GOODS PHARMACEUTICALS ENGINEERED PRODUCTS Study Globalization of R&D_Long Version 22

23 CHEMICALS INDUSTRY The chemicals industry typically conducts its basic R&D in global development centers and application engineering locally Industry-specific drivers for R&D globalization (1/6) TECHNOLOGY GLOBALIZATION LEADERS MARKET > Generally there is a strong differentiation between basic engineering and application engineering Basic engineering is conducted in large R&D centers typically in Germany and USA, but more and more in India and China Application engineering requires proximity to markets (for instance in agriculture and petrochemicals) > Organical chemistry is generally more technology oriented, similar to the pharmaceutical industry as the focus is often on API development Study Globalization of R&D_Long Version 23

24 ELECTRONICS INDUSTRY The electronics industry is driven by the need to have access to leading technology worldwide Industry-specific drivers for R&D globalization (2/6) TECHNOLOGY TECHNOLOGY HUNTERS MARKET > Technology is the main driver for the success of a product > Customizing products to the needs of local markets is less important Products in this industry are frequently similar around the globe > Combinations of various software and hardware technologies are required to create a new product > Access to all relevant technologies for a product on time is key for keeping pace with the market > Presence at global technology centers (e.g. Bangalore, India) is required to be part of global technology trends Study Globalization of R&D_Long Version 24

25 AUTOMOTIVE SUPPLIERS Automotive suppliers typically globalize R&D to provide local application support to customers Industry-specific drivers for R&D globalization (3/6) TECHNOLOGY GLOBAL MARKETERS MARKET > Automotive suppliers typically differentiate between basic engineering and application engineering > Basic engineering is often conducted centrally in the industry's big technology clusters (Germany, Japan) > Application and production engineering are close to customers and manufacturing > Since automotive suppliers are already located in the industry's technology clusters, globalization decisions are mainly taken to follow markets > Cost is expected to play a much stronger role in the future Study Globalization of R&D_Long Version 25

26 CONSUMER GOODS In consumer goods market orientation tends to be more important than technology access for globalizing R&D Industry-specific drivers for R&D globalization (4/6) TECHNOLOGY GLOBAL MARKETERS > Market orientation is key, since consumer products depend strongly upon local tastes and trends > Product development is done for local markets and centralization of R&D for other markets is difficult > Technology orientation is important for the development of global platforms (e.g. basic ingredients in the food industry) > Therefore market orientation tends to outweigh technology orientation in globalization of R&D MARKET Study Globalization of R&D_Long Version 26

27 PHARMACEUTICALS INDUSTRY In pharmaceuticals, technology access is a more important driver of globalization than market access Industry-specific drivers for R&D globalization (5/6) TECHNOLOGY TECHNOLOGY HUNTERS > Technology orientation is important to access know-how in global hot spots > Market orientation is particularly important for development, e.g. for clinical studies, patient availability and bridging studies > Know-how is spread globally, while only a few markets (Western Europe, USA, Japan) are really important > Technology outweighs market orientation MARKET Study Globalization of R&D_Long Version 27

28 ENGINEERED PRODUCTS In engineered products, some companies focus on central R&D, while others globalize for better market access Industry-specific drivers for R&D globalization (6/6) TECHNOLOGY OPPORTUNISTIC PLAYERS/ GLOBAL MARKETERS > Two trends can be distinguished Companies focus on a central R&D network, e.g. export-oriented machinery producers in Germany Companies globalize R&D for better market access, e.g. to provide local application support or local design > Technology access does not play a vital role as it is readily available in existing locations MARKET Study Globalization of R&D_Long Version 28

29 D. Organizational models Company clusters show distinct patterns of globalizing R&D Study Globalization of R&D_Long Version 29

30 For each R&D globalization cluster, a typical organizational model has been identified Organizational models for globalizing R&D TECHNOLOGY HUNTERS Coordination OPPORTUNISTIC PLAYERS > R&D concentrated in global centers of excellence > R&D locations focused on individual research areas > Research efforts centrally coordinated > R&D mainly in central locations in home countries > International locations managed independently > Globalization efforts focused on specific product/production support GLOBALIZATION LEADERS GLOBAL MARKETERS > Network of central research and local development > Strong coordination among central and local units > Significant development/ customization for local markets > Basic innovation and leverage of scale effects in global research centers > Development of concrete products in local development centers > Focal point of R&D in local development centers Study Globalization of R&D_Long Version 30

31 The organizational models are compared by cluster and analyzed along the lines of four design criteria Analysis of organizational models Clusters Globalization leaders Global marketers Technology hunters Opportunistic players Design criteria Global R&D network design Organization of R&D network Management methods Communication tools Cluster comparison Comparison by design criteria D.1 D.2 Cluster details Details of design criteria by cluster GLOBAL R&D NETWORK DESIGN I GLOBALIZATION LEADERS The interplay of central and local units differs depending on the reasons for globalizing R&D Comparison of network design by cluster Top 3 criteria for network design Dominating roles of locations Rationale I GLOBALIZATION II GLOBAL III TECHNOLOGY IV OPPORTUNISTIC LEADERS MARKETERS HUNTERS PLAYERS 1. Qualified personnel 2. Proximity to customers 3. Access to markets Globalresearch and local development centers > Pooling of know-how in central R&D locations > R&D centers in locations with favorable research conditions > Adaptation of common technologies/platforms in local markets 1. Proximity to customers 2. Access to markets 3. Qualified personnel Globalresearch and local development centers > Local development centers are the dominating structure > Central research activities to leverage scale effects across markets 1. Qualified personnel 2. Legal conditions 3. Proximity to production Activities largely centralized in single R&D center > Centralized research and product development > Only little local adaptation of products is needed > Favorable research conditions drive location decisions 1. Qualified personnel 2. Proximity to customers 3. Personnel costs R&D in independent locations, both centralized and local > Globalization of R&D for pragmatic reasons (customer requirements, cost reduction, production support) > Globalization not a core driver of R&D strategy Study Globalization of R&D.ppt 33 Globalization leaders leverage global R&D to maximize both market and technological know-how NETWORK High Low COMMUNICATION > Network of central research and local development > Strong coordination of centralized and decentralized units > Significant development/ customization for localmarkets > Focus on establishing close personalcommunication across locations and functions > Formal communication has become standard ORGANIZATION Global Local External GLOBALIZATION LEADERS METHODS High Low > Strengths of local and global teams systematically combined > Global teams share technological know-how, local teams address local market needs > Extensive collaboration with external partners > Extensive use of management methods > Utilization of standard processes and structures is common practice > Best companies use more advanced methods Study Globalization of R&D.ppt 38 Study Globalization of R&D_Long Version 31

32 D.1 Cluster comparison Commonalities and differences Study Globalization of R&D_Long Version 32

33 GLOBAL R&D NETWORK DESIGN The interplay of central and local units differs depending on the reasons for globalizing R&D Comparison of network design by cluster I GLOBALIZATION II GLOBAL III TECHNOLOGY IV LEADERS MARKETERS HUNTERS OPPORTUNISTIC PLAYERS Top 3 criteria for network design 1. Qualified personnel 2. Proximity to customers 3. Access to markets 1. Proximity to customers 2. Access to markets 3. Qualified personnel 1. Qualified personnel 2. Legal conditions 3. Proximity to production 1. Qualified personnel 2. Proximity to customers 3. Personnel costs Dominating roles of locations Global research and local development centers Global research and local development centers Activities largely centralized in single R&D center R&D in independent locations, both centralized and local Rationale > Pooling of know-how in central R&D locations > R&D centers in locations with favorable research conditions > Adaptation of common technologies/platforms in local markets > Local development centers are the dominating structure > Central research activities to leverage scale effects across markets > Centralized research and product development > Only little local adaptation of products is needed > Favorable research conditions drive location decisions > Globalization of R&D for pragmatic reasons (customer requirements, cost reduction, production support) > Globalization not a core driver of R&D strategy Study Globalization of R&D_Long Version 33

34 ORGANIZATION OF R&D NETWORK The internal organization of global R&D networks is adapted to fit the requirements of centralized and decentralized locations Comparison of network organization by cluster I GLOBALIZATION II GLOBAL III TECHNOLOGY IV LEADERS MARKETERS HUNTERS OPPORTUNISTIC PLAYERS Dominating internal organization Dual model 27% 1) of companies with global, 35% with local teams 40% of companies with global platform teams 38% of companies use locally centralized teams > No preferred structure visible Major form of external collaboration 50% project-specific collaboration with customers and partners from other industries 36% largest share of strategic alliances with customers and suppliers 33% largest share of strategic alliances with research providers 38% largest share of uncoordinated collaboration Rationale > Company-specific global and local structures to combine know- how and market needs > External collaboration focused on concrete projects and products > Research driven by local markets > Consolidation and leverage of scale effects through global platform teams > Internal organization supports know-how concentration > External know-how is integrated into the organization on a long-term basis > Organizational structures follow considerations other than R&D strategy > External know-how only used opportunistically 1) Share of respondents per cluster Study Globalization of R&D_Long Version 34

35 MANAGEMENT METHODS Systematic management seems beneficial in most cases Global marketers however require local freedom Comparison of management methods by cluster I GLOBALIZATION II GLOBAL III TECHNOLOGY IV LEADERS MARKETERS HUNTERS OPPORTUNISTIC PLAYERS Methods 1) Companies with + high low achievement of R&D goals Process Personnel Control Process Personnel Control Process Personnel Control Process Personnel Control > Highest tool utilization > Best companies use fewer coordination tools > Comparatively low tool usage overall > Lowest use of personnelfocused tools Rationale > Tools particularly important to successfully combine central technology development and local market knowhow 1) Likert scale importance of method 1 low... 5 high > Freedom required to enable local development centers to adapt to local market needs > High degree of geographical concentration makes managing R&D processes easier Fewer tools required > Focus is on controlling global R&D activities > Strategic use of global R&D is of secondary importance Study Globalization of R&D_Long Version 35

36 COMMUNICATION TOOLS Formal communication still dominates inter-personal methods Globalization leaders communicate most intensively Comparison of communication tools by cluster I GLOBALIZATION II GLOBAL III TECHNOLOGY IV LEADERS MARKETERS HUNTERS OPPORTUNISTIC PLAYERS Use of communication tools 1) 80% 75% 78% 69% 75% 65% 69% 66% Formal Formal Formal Formal Interpersonal Interpersonal Interpersonal Interpersonal > Most extensive use of communication tools DECREASE IN UTILIZATION > Lowest use of communication tools Rationale > Communication tools are key to share know-how between research centers and local development > Extensive communication to provide central platform know-how to local product development > Local concentration of R&D supports informal communication > Comparatively few tools required > Communication focused on controlling international R&D activities > Few tools required 1) Share of respondents per cluster Study Globalization of R&D_Long Version 36

37 D.2 Cluster details Organizational models by cluster Study Globalization of R&D_Long Version 37

38 I GLOBALIZATION LEADERS Globalization leaders leverage global R&D to maximize both market and technological know-how NETWORK ORGANIZATION > Network of central research and local development > Strong coordination of centralized and decentralized units > Significant development/ customization for local markets Global Local External GLOBALIZATION LEADERS > Strengths of local and global teams systematically combined > Global teams share technological know-how, local teams address local market needs > Extensive collaboration with external partners High Low > Focus on establishing close personal communication across locations and functions > Formal communication has become standard High Low > Extensive use of management methods > Utilization of standard processes and structures is common practice > Best companies use more advanced methods COMMUNICATION METHODS Study Globalization of R&D_Long Version 38

39 I GLOBALIZATION LEADERS Location decisions are determined by both technology and market considerations Global R&D network design CRITERIA FOR LOCATION SELECTION [Importance of criteria 1...5] Availability of qualified personnel Proximity to customer locations Access to local markets Legal conditions Proximity to existing production facilities Proximity to research partners Local content requirements Personnel costs Subsidies ROLES OF LOCATIONS > Research activities are concentrated in global competence centers Preferably located in global centers of excellence > Research centers are often co-located with local development centers in key markets to facilitate project transition from research to development > Global research centers develop technological solutions Transformation into concrete products completed in local development units > Independent locations are rarely found in either home country or abroad Study Globalization of R&D_Long Version 39

40 I GLOBALIZATION LEADERS Global and local teams are combined to leverage both central technology and local market know-how Organization of R&D network Internal structures TEAM STRUCTURE TEAM TASKS [No. of responses in %] Global teams Regional teams Local teams > Research projects combine the most advanced available know-how If concentrated in single locations in local teams, if distributed across multiple locations in global teams > For platform development, global technology and local market experts collaborate to ensure an effective transfer of know-how Global lead locations Separate organizational units > The alternative structure for platform development are global lead locations which are not widely used > Incremental development is mainly undertaken in local teams to incorporate local market know-how Research project Platform development Incremental improvement Study Globalization of R&D_Long Version 40

41 I GLOBALIZATION LEADERS Collaboration occurs with universities and research institutions for know-how, and with customers to understand market requirements Organization of R&D network External linkages COLLABORATION WITH EXTERNAL PARTNERS [No. of responses in %] Universities Research institutions Partners from other industries Customers Suppliers Governmental institutions R&D service providers Competitors NATURE OF COLLABORATION > All respondents include universities in their R&D network > Generally high level of collaboration with external partners > Less attention spent on collaboration with governmental institutions > Focus on single project R&D collaboration > Reluctance to form strong ties with research partners through joint ventures and strategic alliances Uncoordinated exchange of experience Coordinated single R&D projects Strategic alliances JV Study Globalization of R&D_Long Version 41

42 I GLOBALIZATION LEADERS Innovation tools and methodologies are intensively used by globalization leaders Focus on standardized processes Management methods Methods compared to other clusters Globalization leaders Global marketers Globalization followers Technology hunters Importance of tools and methodologies for globalization leaders [Importance of criteria 1...5] [Importance of criteria 1...5] Standardized R&D processes Application of stage gate processes R&D cycles/ design freeze Cross functional teams Modularization of project team Project sponsor Formalized project controlling Use of supporting IT platform Portfolio management PROCESS PERSONNEL CONTROL PURPOSE OF METHODS > Globalization leaders apply tools most intensively > The best globalization leaders focus more than others on actively managing the R&D process > Complex process of collecting know-how globally and transforming it into marketspecific products requires advanced management tools Study Globalization of R&D_Long Version 42

43 I GLOBALIZATION LEADERS Globalization leaders use a comprehensive set of methods to communicate Communication tools FORMAL INTER-PERSONAL [No. of responses in %] [No. of responses in %] Formal documentation (reports, issue papers) 88% Meetings/seminars/ workshops 94% Public events (seminars, fairs) 71% Liaison officers Staff exchange programs 79% 74% IT platforms 82% Cross-functional R&D programs 53% Ø 80% Ø 75% > Formal tools widely used as basis for communication > Inter-personal know-how sharing supported through multiple methods > Cross-functional communication lags behind Study Globalization of R&D_Long Version 43

44 II GLOBAL MARKETERS Global marketers distribute centrally developed know-how to local markets for customization NETWORK ORGANIZATION > Product development driven by local development centers > Global research centers used to drive basic innovation and to leverage scale effects through global platforms Global Local External > Central and local activities combined through teams > External collaboration on a longterm basis with customers (and suppliers) extensive collaboration with research institutions on a project-to-project basis GLOBAL MARKETERS High Low > Formal communication used to support day-to-day work > Inter-personal means to ensure effective transfer of know-how between central locations and local units High Low > Simple methods sufficient to manage local adaptations of centrally developed products > Controlling focused on timely completion and conformity with local market requirements COMMUNICATION METHODS Study Globalization of R&D_Long Version 44

45 II GLOBAL MARKETERS Locations are chosen based on market considerations R&D locations led by central units for basic development Global R&D network design CRITERIA FOR LOCATION SELECTION [Importance of criteria 1...5] Proximity to customer location Access to local markets Availability of qualified personnel Proximity to existing production facilities Local content requirements Legal conditions Personnel costs Proximity to research partners (university ) Subsidies ROLES OF LOCATIONS > Product development driven out of local development units > Research centers serve as technical competence centers and serve all markets > Majority of R&D budget is spent on adaptations of individual products in local development centers > In cases where the adaptation to local needs dominates technology considerations, independent local R&D locations are also possible Study Globalization of R&D_Long Version 45

46 II GLOBAL MARKETERS Basic research and incremental development mainly take place in single locations Platform development aids global consolidation Organization of R&D network Internal structures TEAM STRUCTURE TEAM TASKS [No. of responses in %] Global teams > Local teams dominate the execution of research projects in central research units Regional teams > Knowledge is consolidated globally through the development of platforms in global teams Local teams Global lead locations Separate organizational units > Incremental development is done mostly in regional or local teams > In accordance with the high relevance of local markets, business units are core decision makers Research project Platform development Incremental improvement Study Globalization of R&D_Long Version 46

47 II GLOBAL MARKETERS Strategic alliances with customers and suppliers are plentiful Extensive project-specific collaboration with research institutions Organization of R&D network External partners COLLABORATION WITH EXTERNAL PARTNERS [No. of responses in %] Universities Research institutions R&D service providers Customers Suppliers Competitors Partners from other industries Governmental institutions NATURE OF COLLABORATION > Collaboration with customers is comparatively important and takes place both on a project-byproject basis and in strategic alliances > Collaboration with universities and research institutions is also high, but mainly for individual projects > Other organizations are only used in an uncoordinated fashion for R&D purposes Uncoordinated exchange of experience Coordinated single R&D projects Strategic alliances JV Study Globalization of R&D_Long Version 47

48 II GLOBAL MARKETERS Mix of easy-to-implement management methods is used to steer global R&D Freedom for local development seems preferable Management methods UTILIZATION OF METHODS [Importance of criteria 1...5] PROCESS PERSONNEL CONTROL Standardized R&D processes Application of stage gates R&D cycles/ design freezes Cross-functional teams Modularization of project team Selection of project sponsors Formalized project controlling Use of supporting IT platforms Portfolio management PURPOSE OF METHODS > Global marketers apply only basic processes, personal and formal methods to drive the global R&D process > Most widely used are IT platforms Cross-functional teams Standardized R&D processes > Best companies put less emphasis on the application of management methods. Rules and procedures do not seem to support the performance of locations in a distributed network these are typically managed in a decentralized manner Study Globalization of R&D_Long Version 48

49 II GLOBAL MARKETERS To communicate effectively, global marketers focus on means to communicate central R&D results to local units Communication tools FORMAL INTER-PERSONAL [No. of responses in %] [No. of responses in %] Formal documentation (reports, issue papers) 89% Meetings/seminars/ workshops 93% Public events (fairs, conferences) 63% Liaison officers Staff exchange programs 70% 93% IT platforms 81% Cross-functional R&D programs 22% Ø 78% Ø 69% > Focus on formal tools for collaboration in a global network > High focus on information dissemination > General exchange of know-how (e.g. through crossfunctional programs) of lower importance Study Globalization of R&D_Long Version 49

50 III TECHNOLOGY HUNTERS Technology hunters focus their R&D efforts on a few locations Support through systematic management and communication NETWORK ORGANIZATION Coordination > R&D locations in global centers of excellence > R&D locations focused on individual research areas > Research efforts centrally coordinated Global Local External > Large share of research done in local teams in few central locations > Extensive collaboration with external research institutions > Some global coordination of R&D activities TECHNOLOGY HUNTERS High > Formal communication has become standard > Best companies establish close personal communication across locations and functions High > Mainly application of management tools to coordinate activities in single location > Focus is on easy-to-implement methods Low Low COMMUNICATION METHODS Study Globalization of R&D_Long Version 50

51 III TECHNOLOGY HUNTERS Technology hunters select locations based on the available knowhow Structures are chiefly centralized Global R&D network design CRITERIA FOR LOCATION SELECTION [Importance of criteria 1...5] Availability of qualified personnel Legal conditions Proximity to existing production facilities Proximity to research partners Personnel costs Proximity to customer locations Access to local markets Fulfillment of local content requirements Subsidies ROLES OF LOCATIONS > Main R&D activities take place in research locations which are focused on individual research areas > Research centers can be distributed globally or located in the home country > Local R&D centers located close to pools of qualified personnel > R&D activities are coordinated globally Networks of independent R&D locations in which knowledge is not actively managed are rarely found Study Globalization of R&D_Long Version 51

52 III TECHNOLOGY HUNTERS Local teams are the main structure for research, platform development and incremental improvement Organization of R&D network Internal structures TEAM STRUCTURE TEAM TASKS [No. of responses in %] Global teams > Research and platform development projects mainly through local teams Regional teams > Global teams set-up if combination of know-how is necessary for specific projects Local teams > Regional teams used less frequently Mainly for platform development Global lead locations Separate organizational units Research project Platform development Incremental improvement Study Globalization of R&D_Long Version 52

53 III TECHNOLOGY HUNTERS Extensive coordinated collaboration with external research organizations Strategic alliances with R&D service providers Organization of R&D network External linkages COLLABORATION WITH EXTERNAL PARTNERS NATURE OF COLLABORATION [No. of responses in %] Universities > Extensive collaboration with external partners Research institutions R&D service providers Suppliers Governmental institutions Customers > Comparatively high share of longer-term collaboration through strategic alliances with selected R&D service providers, customers and suppliers for joint business development > Project-specific collaboration with universities, research and governmental institutions to acquire specialized know-how Competitors Partners from other industries Uncoordinated exchange of experience Coordinated single R&D projects Strategic alliances JV Study Globalization of R&D_Long Version 53

54 III TECHNOLOGY HUNTERS Technology hunters prefer a mix of easy-to-implement management methods to steer global R&D Management methods UTILIZATION OF METHODS [Importance of criteria 1...5] PROCESS PERSONNEL CONTROL Standardized R&D processes Application of stage gates R&D cycles/ design freezes Cross-functional teams Modularization of project team Selection of project sponsors Formalized project controlling Use of supporting IT platforms Portfolio management PURPOSE OF METHODS > Technology hunters apply processes, personal as well as formal management methods to drive the global R&D process > Most widely used are easy-to-implement methods Standardized R&D processes Cross-functional teams Formalized project controlling > Best companies pay greater attention to the application of tools than the worst performers Study Globalization of R&D_Long Version 54

55 III TECHNOLOGY HUNTERS Technology hunters focus on formal communication tools as know-how sharing across locations is less critical Communication tools FORMAL INTER-PERSONAL [No. of responses in %] [No. of responses in %] Formal documentation (reports, issue papers) 83% Meetings/seminars/ workshops 92% Public events (fairs, conferences) 67% Liaison officers Staff exchange programs 33% 75% IT platforms 75% Cross-functional R&D programs 58% Ø 75% Ø 65% > Formal communication tools as basis for managing the global R&D network > Comparatively low importance of inter-personal tools Know-how exchange already supported by high degree of centralization > High level of exchange across disciplines Study Globalization of R&D_Long Version 55

56 IV OPPORTUNISTIC PLAYERS The organizational models of opportunistic players vary according to the specific purpose of R&D globalization NETWORK ORGANIZATION > R&D mainly in centralized, historically grown R&D locations > International locations managed independently Global Local External > Globalization not actively pursued > No dominating structures in location selection and external collaboration OPPORTUNISTIC PLAYERS High > Mainly easy-to-use means of communication applied High > Focus on monitoring tools and formal management methods > Control of foreign locations as main purpose Low Low COMMUNICATION METHODS Study Globalization of R&D_Long Version 56

57 IV OPPORTUNISTIC PLAYERS Global R&D locations are selected by opportunistic players largely based on concrete, project-specific considerations Global R&D network design CRITERIA FOR LOCATION SELECTION [Importance of criteria 1...5] Availability of qualified personnel Proximity in existing production facilities Personnel costs Proximity to research partners Proximity to customer locations Access to local market ROLES OF LOCATIONS > Criteria for selecting global R&D locations follow no clear pattern > Locations in different countries mostly managed as independent units > Global collaboration only as an exception Legal conditions Local content requirements Subsidies Study Globalization of R&D_Long Version 57

58 IV OPPORTUNISTIC PLAYERS Local teams dominate among opportunistic players Activities are less frequently spread across different locations Organization of R&D network Internal structures TEAM STRUCTURE TEAM TASKS [No. of responses in %] Global teams Regional teams Local teams Global lead locations > Research projects are driven from one single research center Other locations are only included as needed > Incremental development is mainly a local activity > Strong guidance from central locations Impact mainly in research projects Separate organizational units Research project Platform development Incremental improvement Study Globalization of R&D_Long Version 58

59 IV OPPORTUNISTIC PLAYERS Collaboration with external partners is often ad-hoc Coordinated activities with R&D service providers are used to fill know-how gaps Organization of R&D network External linkages COLLABORATION WITH EXTERNAL PARTNERS NATURE OF COLLABORATION [No. of responses in %] Universities Research institutions > Main share of external collaboration with universities and research institutions R&D service providers > Also significant R&D together with customers and suppliers Customers > Collaboration often project-specific Suppliers Competitors > Relatively high share of joint ventures with customers and suppliers Partners from other industries Governmental institutions Uncoordinated exchange of experience Coordinated single R&D projects Strategic alliances JV Study Globalization of R&D_Long Version 59

60 IV OPPORTUNISTIC PLAYERS Opportunistic players largely manage their global R&D activities using control methods Management methods UTILIZATION OF METHODS PURPOSE OF METHODS [Importance of criteria 1...5] PROCESS Standardized R&D processes Application of stage gates R&D cycles/ design freezes > Focus of global R&D management on formal methods > R&D processes are mainly standardized More advanced process management rarely used PERSONNEL Cross-functional teams Modularization of project team Selection of project sponsors > Very little use of personnel-related methods Only cross-functional teams with relevant score CONTROL Formalized project controlling Use of supporting IT platforms Portfolio management Study Globalization of R&D_Long Version 60

61 IV OPPORTUNISTIC PLAYERS Opportunistic players mainly use formal communication tools Inter-personal channels used only for support purposes Communication tools FORMAL INTER-PERSONAL [No. of responses in %] [No. of responses in %] Formal documentation (reports, issue papers) 83% Meetings/Seminars/ Workshops 96% Public events (fairs, conferences) 50% Liaison officers Staff exchange programs 42% 75% IT platforms 75% Cross-functional R&D programs 50% Ø 69% Ø 66% > Formal communication tools as basis for managing the global R&D network > Inter-personal channels used to transfer know-how to locations outside of R&D center > Personal contacts used to verify information from formal channels (reports etc.) Study Globalization of R&D_Long Version 61

62 E. Consequences for management Successful models for globalizing R&D Study Globalization of R&D_Long Version 62

63 For a R&D network to be world class, it has to fit a company's business and R&D strategy Derivation of R&D network design Business Strategy > Product portfolio > Target markets > Value proposition > Strategic positioning R&D Strategy > Core technologies > Technology roadmap > R&D project portfolio R&D Network Design > R&D locations > Internal organization > Collaboration with external partners > Management and communication tools Study Globalization of R&D_Long Version 63

64 Six common success factors were identified for developing a global R&D network 1 Start from corporate and R&D strategy Determine first whether it is technology, market know-how, or opportunistic cost reduction that drives global R&D 2 Concentrate technological know-how as much as possible Leveraging the available know-how is most effective if it can be bundled in one place 3 Develop market know-how in decentralized units Local knowledge requires autonomy, central influence should be limited to monitoring and general guidelines 4 Be pragmatic in applying R&D management methods Standard tools are required for any global R&D Advanced methods need to be tailored to their specific purpose to be effective 5 Manage historical growth Do not let R&D structures develop without a clear strategy and direction, but instead actively manage the development 6 Implement organizational changes carefully Manage change and transition processes to avoid a loss of key personnel and know-how Study Globalization of R&D_Long Version 64

65 Organizational models and success factors can be described in more detail cluster by cluster Translation of study results into cluster-specific recommendations I GLOBALIZATION LEADERS Recommended organizational model Cluster-specific success factors Globalization leaders should establish a R&D network that covers all main regions and markets Systematic management is key TECHNOLOGY HUNTERS OPPORTUNISTIC PLAYERS GLOBALIZATION LEADERS GLOBAL MARKETERS GLOBALIZATION LEADERS ORGANIZATIONAL MODEL > Develop strong research centers in global centers of excellence (NA, Europe, India, East/South East Asia) > Establish development centers in all key markets (Americas, Europe, Asia) and collaborate often with research centers > Establish global research teams to promote sharing of market and technological know-how across locations globally > Leverage external relations in R&D centers to gain access to local pools of knowledge > Implement strong communication channels Fosterparticularly inter-personal communication for effective know-how sharing > Systematically manage global R&D activities Project performance, individual performance, market fit SUCCESS FACTORS 1 Fund R&D projects through BUs Prevent technology centers from becoming the sole driver of innovation 2 Provide attractive working conditions Retain key staff in locations and avoid loss of know-how due to personnel turnover 3 Manage cultural integration Overcome social hurdles to gain effective collaboration on a global level 4 Reward collaboration Avoid incentive schemes that place too much emphasis on the performance of own unit Study Globalization of R&D.ppt 1 I GLOBALIZATION LEADERS Cluster-specific examples 3M has R&D I GLOBALIZATION locations in LEADERS 30 countries supported by a central research center at corporate headquarters in St. Paul, USA Example 3M develops products in close co-operation with customers and shares the technology with the whole GLOBAL company R&D NETWORK Example 3M > Central basic research in St. PaulUSA > Further corporate research centers in BUSINESS CHALLENGES R&D ORGANIZATION Japan and China BENEFITS Japan > 32 R&D locations worldwide in 30 > Large diversity of products Corporate research center countries affiliated > Integration to BUs of customer and services (over 50,000 know how in R&D process Basic research in different products) > R&D strategy definition China > Leverage of know-how St. Paul Minnesota USA > Highly decentralized > Basic technology development COMPANY PROFILE across markets and BUs (about 600 researchers) organization > Coordination of development > Industry: Highlydiversified > Creation of a strong global > Different customer needs activities across R&D locations conglomerate innovation culture in local markets > Headquarters: > St. Strong Paul, Minnesota recognition of 3M as Business unit R&D USA innovation leader locations Key success factors: > Sales (2006): USD 22.9 bn > Regional product development > R&D (2006): USD 1.5 bn (7%) Basic research > Customized Laboratories product affiliated with BUs with close customer interaction "The product belongs to the development in local division, the technology to the markets and transfer of > Strong focus on know-how Study Globalization of R&D.ppt 67 whole company" know-how across sharing facilitated by extensive BUs/markets staff exchange across BUs Study Globalization of R&D.ppt 68 Study Globalization of R&D_Long Version 65