Managing Innovation And Quality of Collaborative R & D *
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1 Managing Innovation And Quality of Collaborative R & D * Dr Fang Zhao The Centre for Management Quality Research, RMIT University P O Box 71 Bundoora 3083 Victoria Australia Tel: , Fax: , fang.zhao@rmit.edu.au ABSTRACT This paper addresses key issues of innovation and quality in inter-organisational R & D where research providers collaborate with research users. The paper contributes to the theory and practice of managing inter-organisational R & D through developing strategies to enhance innovation, quality and entrepreneurship of the partnerships. The paper concludes that effective innovation management combined with TQM principles enhances quality of collaborative R & D and promotes cutting edge application and practice of research outputs. Key-words: Innovation Process, Quality Management, Collaborative R & D 1.0 Introduction As we enter the new millennium, knowledge-based industries are increasingly becoming a key part of our industrial landscape. In the current knowledge-driven economy, innovation obviously underpins the quality of R & D and the constant generation of novel technologies. Also, in the current economy, innovation, quality and entrepreneurship become essential to R & D management including the management of collaborative R & D projects involving several organisations. The objectives of the current paper are: to identify critical factors affecting innovation management in collaborative R and D; to explore management and entrepreneurial skills that are required to take and develop innovative R and D; to explore the relationship between quality and innovation in fostering and sustaining successful partnerships between research providers and users; and to develop strategies to enhance innovation, quality and entrepreneurship of collaborative R & D. *The author gratefully acknowledges the support of Computing Devices Canada - a General Dynamics Company - in carrying out the research reported in this paper. 1
2 In Australia, the Cooperative Research Centre (CRC) Program plays an important role in the Australian innovation system and CRCs embody the most formalised structure of research providers and industries (Moore, 1998). The paper draws upon a case study of the Australian CRC Program to illustrate innovation implementation and management in R & D in which research organisations collaborate with industries as research users. This paper is important because it deals with innovation management in one of the most pivotal areas of the current knowledge-driven economy, namely, in R & D the specialised, scientific realm of research and development. Moreover, the paper contributes to theory and practice of managing inter-organisational R & D where research organisations and industries join together in R & D, through developing strategies for innovation, quality and entrepreneurship within the partnerships. The paper starts with exploration of the synergy between R & D and innovation through examining the role of R & D in the processes of innovation and innovation evaluation. The paper extends the discussion to the key issues and critical factors of innovation management in R & D as well as in collaborative R & D involving several organisations. Then follows an exposition of the relationship between innovation and quality improvement. By synthesising the key issues of innovation and quality management in R & D identified in the literature and the case study of the Australian CRC Program, the paper concludes with a proposal of strategies to promote innovation, quality and entrepreneurship in collaborative R & D, based upon Makinsey s 7Ss management model (Peters and Waterman, 1982). 2.0 Innovation and R & D 2.1 Role of R & D in Innovation Process Over half a century, R & D has been associated closely with technological innovation. The high points of the first generation of R & D departments occurred in the mid-20 th century. At that time, the scope and scale of the innovation were large. Mostly standing alone, R & D came up with new inventions which large organisations having engineering skills transferred into products and delivered to expectant and receptive consumers. After nearly half a century of evolution in this capricious environment, R & D is said to have entered into its fourth generation with its clear mission of managing knowledge, technology and innovation (Miller & Morris, 1999). It is obvious that R & D is bound tightly with technological innovation. Technological innovation is a complex socio-economic and technological process. There have been a variety of descriptions of the details of the process based upon theory and 2
3 empirical observations (Sundbo, 1998; Rothwell, 1992; Saren, 1984; Bright, 1969). Bright (1969) simplified the complex process with an eight-stage conceptual treatment as follows (modified here). 1. The innovation originates either from scientific or technological suggestion or discovery, or from perceptions of environmental or commercial opportunity. 2. The innovation is a proposed theory or design concept, which synthesises the existing knowledge and technique to provide the theoretical basis for the technical concept. 3. The verification of the theory and concept follows. 4. The applicability of the concept is tested in the laboratory. 5. Alternative versions of the concept are evaluated and developed. Meanwhile, a prototype is developed or a pilot production of a small quantity of the new product may be made to test markets or, for example, its clinical value. 6. The innovation comes to a stage of commercial introduction or initial operational use. 7. The innovation is adopted widely when it is able to generate significant financial and/or societal benefits and impacts. 8. Proliferation. At this final stage, either the generic product or generic technology is adapted for use in newly defined markets. While the actual technological and societal innovative process is diverse and far more complex than this generalised treatment, the description illustrates the vital role of R & D in the technological innovative process. In other words, innovation is developed by R & D function in response to an identified market need. Innovation has to address market needs if it warrants attention and success. 2.2 R & D in Innovation Evaluation Process As in innovation process, R & D plays a pivotal role in the innovation evaluation process as well. The innovation evaluation process concerns identification of technology-market synergies. A technological innovation and its market must match in a complementary manner in order to be successful. The marketing function identifies and feeds information back to R & D and production. The R & D function interacts with technological knowledge to identify new technological trends and opportunities. New product ideas or inventions may be generated from the two sources of information to meet ever-changing market needs or opportunities. In many cases, the R & D, production, and marketing functions interact in the innovation process simultaneously rather than sequentially. As any innovation is to be superceded or replaced by a new and/or a better one, the innovation evaluation process is necessary to maintain technology and market monitoring activities and to renew or extend the life span of an innovation (Martin, 1994). 3
4 In summary, through examining respectively the innovation process and innovation evaluation process in this section, it is clear that innovation, R & D and marketing functions interact closely to achieve success. Managing innovation as an important integral part of R & D management underpins the quality of R & D and requires entrepreneurship to take risks to promote and commercialize innovation. Further discussion is presented in the next section. 3.0 Management of Innovation and Collaborative R & D 3.1 R & D and Innovation Management: Key Issues Managing innovation is a complex and challenging task. The key areas of managing innovation include innovative strategy, new product development and human resource management. As R & D and technological innovation interact, R & D management is able to influence technological innovation through managerial action. Likewise, technological innovation also influences R & D management and may be partially conducive to managerial innovations. Both the technology factor and the management factor are important features in R & D management and in the process of innovation. Studies showed that some common shortcomings or failures related to R & D management included: Policy evasiveness on the part of top management Lacking strategic planning of R & D, Inadequate top management involvement in R & D management Lacking entrepreneurial R & D management and managerial barriers to innovation (Granstrand, 1982). The studies provide empirical insights into key issues relating to management of R & D and innovation in large corporations. The commitment of top management to R & D and innovation, strategic planning and management, and entrepreneurship are some of the key factors that determine the success of R & D and innovation. In today s knowledge-based economy, the current generation R & D takes knowledge and innovation management as its primary function. Sharing knowledge including testing technologies with customers and other stakeholders is regarded as essential at each stage of the innovation process. Due to the uncertainty of today s environment, managing innovation is a complex task as it manages change. Recognition of the need for change is essential at all levels of an organization and at all stages in the development process of innovation. Decision making often involves environmental scanning, interpretation and learning. Managers scan the environment by collecting information about the actions of customers, suppliers, competitors and regulators. They interpret it using their cognitive 4
5 schemata and structures that encode past experience and guide future action (Fiske and Taylor, 1991). They learn through determining their future actions, either by continued exploitation of their existing activities or by changing their actions to search for better rewards (March, 1991). Therefore, in the current economy and the turbulent environment, knowledge management becomes an increasingly important issue in R & D and innovation management. What we need today is constant innovation in a world of constant change. Recent studies of innovation management show that companies may recognise the importance of innovation as a source of competitive advantage but they stumble when trying to manage the innovation process. The study of 212 companies in the UK and Germany demonstrate that, on average new products generate almost 30 percent of revenues in the electrical and electronics sector and 26 percent in the engineering sector (Goffin and Pfeiffer, 1999). It is obvious that innovation is vital to business profitability and survivability. But how to manage innovation effectively remains a formidable challenge to corporate managers. 3.2 Critical Factors of Innovation Management in Collaborative R & D In this century, few organisations can rely on their internal strengths only to gain a competitive advantage in national and/or international markets. Inter-organisational collaborations, alliances, joint ventures, partnering and the like are gaining unprecedented momentum. Some of the driving forces behind building an R & D alliance include: optimising the risks, costs and time to develop a new product or technology, and tackling complexities of integration of technologies involving ever-wider range of expertise (Dussauge and Garette, 1999, Sierra, 1994). In the alliance, innovation processes are often shared between two or more organisations. Inter-organisational alliances that bring together the complementary expertise of several organisations needed to execute the innovation processes have been a remarkable feature of industry over recent years. R & D consortia and the like become increasingly popular, especially in the performance of precompetitive research at the discovery end of the innovation processes (Martin, 1994). In addition to the key issues in R & D and innovation management discussed in the previous section, innovation management in the context of inter-organizational R & D is confronting more challenges than its intra-organisational counterpart if success is to be achieved in the innovation process and its management. The critical factors of managing inter-organizational collaboration in innovation may include: Shared vision, culture and values in relation to innovation Cooperative strategies for innovation 5
6 Organisational and individual commitment to innovation Appropriate structures and systems to accommodate the innovation process Human and financial resources contributed by each participating organisation Information management and sharing amongst partners Inter-organizational transfer of learning Customer focus and feedback Collaboration and creative teamwork Autonomy and empowerment Visionary leadership to foster strategic alliance Continuous improvement to achieve excellence through innovation Innovation education and training of staff 3.3 Relationship between Innovation Management and Quality Management As shown above, the critical factors of successful innovation management embody and are interrelated with the key concepts associated with quality management. The challenge for all organisations to gain competitive advantage in the market is to exploit innovative opportunities and deliver what the customer wants in the fastest and most effective and economically viable way. Innovation in the current economy is related to everything that impacts on customer satisfaction and needs and adds value to technologies, products and services offered to customers. Research studies show that innovation in a modern business context is about organisation s ability to provide the highest quality that will differentiate a product or service through newness and originality (Zairi, 1996). Like quality management, managing innovation is strategic process management that requires the establishment of an organisational culture and procedures that promote innovation, and the commitment of top management as well as of all the other levels of staff to innovation. Continuous improvement is based upon continuous learning and acquiring innovative skills, technologies and knowledge to meet and exceed customer needs. Therefore, the achievement of quality management is attributed to innovation management which enhances quality of R & D and propels cutting edge application and practice of research outputs. This should also be true of collaborative R & D between industry and research organisations, as long as barriers to the partnership can be overcome. The barriers are mostly caused by differences in culture between industry and research organisations (mostly in the public sector) which may impinge on expectations, values and criteria of industry and researchers in evaluating the performance, productivity and outputs of their collaborative projects. A case study of the partnership is presented in the following section. 6
7 4.0 Innovation - Case Study of CRC Program 4.1 CRC Program An Innovation in Australian R & D According to Australian Government policy, science and innovation are central to improving Australia s economic growth and standard of living. The Co-operative Research Centre (CRC) Program as a key component of the Australia Government s innovation strategy, plays an important role in the Australian innovation system incorporating the value of science and technology. The Program is claimed to have reduced impediments to interaction between public sector research organisations (mostly universities) and industry and other research users (Mercer and Stocker, 1998; Moore, 1998). The CRC Program has set up the most important formal structure and mechanism for collaborative R & D and research training in Australia and brought together a number of participants from a wide range of organisations in both public and private sectors. The CRC Program was established by the Federal Government in 1990 to encourage the delivery of innovation in order to provide greater returns to Australia as a result of greater uptake of more focused R & D efforts. The first CRC was seen in Australia in With the inclusion of the new Centres announced in 2000, there are 65 CRCs across Australia today. All Centres fit within the six targeted industry sectors - manufacturing technology, information and communications technology, mining and energy, agricultural and ruralbased manufacturing, environment, and medical science and technology. The CRCs are designed to encourage collaboration between industry, educational institutions and government, thus leading to the development of leading edge research. The program provides business with a unique opportunity to work in partnership with research institutions and to focus on research relevant to industry's needs. The Government financial support of around $2 million a year is granted to each CRC for seven years. Annual Commonwealth funding for both the new Centres and existing CRCs is around $140 million in and $141 million in The overall objective of the CRC is said to strengthen long-term collaboration between research organisations, and between these organisations and the users of the research. In detail, the objectives of the CRC Program are focused on four areas: Commitment to national scientific, social and economic development objectives; Helping industry to gain international competitive advantage through the support of long-term, high quality scientific research; Commercialisation of research products through the active involvement of the users of the research in the work and the centre s management, and strengthening research 7
8 networks and building centres of research excellence to optimise human and financial resources; and Promoting research and education collaborative activities between industry/business and universities including industrial education/training and providing graduate students with opportunities to join in co-operative and user-oriented research programs (ISR, 2000). CRCs are established through a Centre Agreement, a contract among core participants, and a Commonwealth Agreement, a contract between the participants and the Commonwealth. Of the 65 CRCs, the majority is unincorporated joint ventures and only a few are incorporated companies. Those that have been incorporated are companies limited by a guarantee and without share capital. The management structure of the CRC is similar to that of companies, governed by a Board with an independent chair and led by a Director reporting to the Board. Most CRCs have advisory committees with oversight of different aspects the CRC activities research, education and training, interaction with users, commercialization or administration. Some CRCs have their own incorporated companies that provide the Centre with administrative, commercial, financial and legal operations. CRCs core participants are universities, public sector organizations and the users of new knowledge, from the private and public sector. Current participants include 250 companies; 35 universities; 61 State governments departments and agencies; 24 CSIRO Divisions; 8 other Commonwealth research agencies, 8 rural research corporations; and numerous other organisations (ISR, 2000). 4.2 Quality and Innovation in Management of CRCs As indicated above, a CRC serves as a bridging mechanism linking providers of innovative research and the users of new knowledge. In this regard, the CRC Program addresses some of the main problems perceived in the Australian innovation system, including disincentives to collaboration among research providers and Australian businesses, the weak links between research organisations and users, the lack of high intensities of R & D and research application, the lack of mobility of personnel between government research, academia and industry, and the lack of strong links to leading international R & D organisations (Mercer & Stockers, 1998). 8
9 As far as quality and innovation are concerned, the main output and benefit of the CRC Program lies in its strengthening CRCs capacities for innovation and knowledge development and transfer in Australia through building networks among researchers in different organisations and sectors, training postgraduates in the particular environment of a CRC, changes in culture and attitude that result from inter-organisational collaboration and developing international links, and R & D management involving users in decision making in every aspect of CRC operation (Mercer & Stockers, 1998). Quality and innovation are also addressed in the selection of CRC applicants and in the on-going CRC performance evaluation in terms of a set of Selection and Performance Criteria. The Selection and Performance Criteria concentrate on five areas: 1. Cooperative arrangements 2. Research and researchers 3. Education and training 4. Application of research 5. Management and budget. CRC applicants are required to demonstrate their ability to achieve the objectives of the CRC Program through efforts in these five areas. The quality aspect addressed in the assessment includes: The degree to which the objectives and proposed outcomes of the CRC capture the user requirements, The quality of the research and the likelihood of important advances, The significance of the research in relation to the objectives of the CRC, and The adequacy of internal performance evaluation processes (ISR, 2000). Innovation is another important criterion upon which evaluation and awards of individual CRCs are based. In the Award for Outstanding Achievement in Collaborative R & D chaired by the Business/Higher Education Round Table in Australia, innovation is one of the key criteria for the Award. Innovation, in the case of the Award, means new products or services, innovative concept or idea, design, delivery and context, new barriers surmounted and new challenges identified. In this year s Awards for Commercialisation and Utilisation of Research presented by the CRC Association, a clearly demonstrated innovative outcome is one of the main eligibility criteria for the Award (ISR, 2000). 9
10 It is quite clear that the CRC Program is designed to encourage innovation and high quality research and research training and promote application and commercialisation of research outcomes through collaboration between research providers and users. However, to succeed in innovation and achieve high quality of collaborative R & D, effective management and entrepreneurial skills and capacities are required of CRC managers to take and develop innovative R & D and enhance the quality through collaboration amongst research organisations and between research providers and users. The following section proposes, in a broad sense, leadership and management strategies relating to quality and innovation management in collaborative R & D, based on the critical issues identified in the previous discussion of this paper. 5.0 Strategies for Innovation, Quality and Entrepreneurship This author uses Mckinsey s 7Ss model (Peters and Waterman, 1982) to suggest and expound strategies to enhance quality and innovation management in collaborative R & D. The 7Ss fall into two categories, the hard Ss including Strategy, Structure and Systems, and the soft Ss including Staff, Style, Skills and Shared Values. The 7Ss are closely inter-linked and interrelated in the management processes. Strategy A well-defined and pro-active strategy is a central domain of R & D management. The strategy should address innovation, quality and entrepreneurship that are the keys to success in collaborative R & D. Meeting and exceeding customer (user) changing needs and emphasis on marketing to achieve user acceptance and emphasis on teamwork and cooperation should be the key management and entrepreneurial strategies of collaborative R & D organisations. Moreover, in the current economy and the turbulent environment, developing organisational capacity to acquire, create, accumulate and exploit the knowledge domain should be an essential strategy for gaining a competitive advantage through innovation. Structure A proper organisational structure often follows a right strategy. As no one organizational structure is perfect, an effective structure for collaborative R & D should be one that is able to successfully co-ordinate inter-organisational R & D teams with diverse expertise and skills and to enhance innovation, quality and market share of collaborative outcomes. As in Australian CRCs, both unincorporated joint ventures and incorporated companies are chosen to form the structures for inter-organisational R & D operation. 10
11 System Given the nature and the role of R & D in the innovation process as discussed in section 2 of this paper, the control system for collaborative R & D should be flexible, depending on situational conditions of each project/program. Generally speaking, the innovation process is not suited to tightly constrained procedure and control. Empowerment and delegation are needed particularly during the early stages of innovation. But an appropriate control system should be maintained to monitor quality and costs, to meet tight time-lines and achieve pre-set milestones. In addition to the hard Ss, staff requirements, managerial and entrepreneurial skills, management skills and shared values (collectively called culture) of an organisation are also very important factors to sustainability and success of collaborative R & D. Staff Staff in an R & D organisation are assumed to be creative people with a flair for innovation. As in other organisations in the market economy, R & D organisations, in particular stand-alone R & D organisations like CRCs need both creative and innovative scientists and conscientious supporting staff on the one hand, and entrepreneurial project managers on the other to promote and coordinate the development of R & D projects. The right mix of people in a team and in an organisation is an essential part of successful innovation. Skills In the situation of CRCs and other collaborative R & D organisations, the range of managerial and entrepreneurial capacities and skills required include: Ability and effort to search for and identify innovation opportunities, Taking a pro-active attitude and manner to promote innovation with a strategic vision, Creating the culture, climate and environment which foster innovation and quality, Developing effective R & D plans to implement innovation and quality procedures, Integration of research, design and market information to convert invention (or new ideas) into a commercially viable innovation, Developing effective and realistic procedures for the evaluation of R & D projects in terms of innovation, quality and commercial value, Ability to coordinate inter-organisational partners to achieve pre-agreed goals, and Developing an effective network of communication amongst inter-organisational partners. 11
12 Style The management style of a company is generally formed by its top management, ranging from a very autocratic style to a democratic one. An ideal management style for collaborative R & D should be an open and supportive one to encourage and nurture innovation development and to identify timely new needs of customers, new users and new markets through absorbing quickly the input from every source. Shared Values Shared values represent the culture of an organisation. In the context of collaborative R & D involving several organisations, shared values are harder to achieve as every organisation has its own well-established and/or changing values and culture, as in the case of CRC partnerships. But so long as partners share the same goals to explore innovation and develop R & D products, it is likely for them to develop a shared vision and value to foster innovation, quality and entrepreneurship. 6.0 Concluding Remarks As demonstrated in this paper, effective innovation management combined with TQM principles enhances quality of collaborative R & D and promotes cutting edge application and practice of research outputs. 7.0 References Barclay, I. and Benson, M. (1990), New Product Development: Organisation and Current Practice, Leadership & Organisation Development Journal, 11, Bright J. R. (1969), Some Management Lessons from Technological Innovation Research. Long Range Planning 2 (1), Dussauge P. and B Garrette (1999), Cooperative Strategy: Competing Successfully through Strategic Alliances. New York: John Wiley & Son Fiske, S. T., and Taylor, S. E. (1991), Social Cognition. New York: McGraw-Hill. Goffin, K. and Pfeiffer, R. (1999), Innovation Management in U. K. and German Manufacturing Companies. York: Anglo-German Foundation Granstrand, O. (1982), Technology, Management and Markets: An Investigation of R & D and Innovation in Industrial Organisations. London: Frances Printer Industry Science Resources (ISR) (2000), web-site: March, J. G. (1991), Exploration and Exploitation in Organisational Learning, Organisation Science, 2, Martin, M. (1994), Managing Innovation and Entrepreneurship in Technology-Based Firms. New York: John Wiley & Son 12
13 Mercer, D. and Stocker, J. (1998), Review of Greater Commercialisation and Self- Funding in the CRC Program. Canberra: DIST Miller, W. and Morris, L. (1999), Fourth Generation R & D: Managing Knowledge, Technology, and Innovation. Chichester: John Wiley & Son Moore, J. (1998), Foreword by the Minister for Industry, Science and Tourism. CRC Compendium, DIST, Canberra Peters, T. J. and Waterman, R. H. (1982), In Search of Excellence, New York: Harper & Row Rothwell R. (1992), Successful Industrial Innovation: Critical Factors for the 1990s. R & D Management 22(3), Saren, M. A. (1984), A Classification and Review of Models of the Intra-Firm Innovation Process. R & D Management 14 (1), Sierra, M. C. D. L. (1994), Managing Global Alliances: Key Steps for Successful Collaboration. Wokingham: Addison-Wesley Publishing Sundbo, J. (1998), The Theory of Innovation: Entrepreneurs, Technology and Strategy. Massachusetts: E. Elgar Zairi, M. (1996), Benchmarking for Best Practice: Continuous Learning through Sustainable Innovation. Oxford: Butterworth-Heinemann 13
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