Can You Say What Your R&D Strategy Is?
Many, if not most, great innovations have technology as an enabler. With global research and development (R&D) spending of over $2T, R&D is essential to business success as science and technology are often the spark that creates opportunity and a critical basis for advantage. Consider the impact major technologies, such as AI, biologics, robotics, and blockchain, are poised to have across major markets such as automotive, chemicals, healthcare, and consumer electronics. AI, for instance, is estimated to drive between $13T and $16T in global economic growth by 2030, and will enable autonomous driving, change how we discover and develop materials, enhance patient diagnoses, and enable new types of consumer experiences.
Yet the promise of these technologies is taking place against a backdrop of declining R&D productivity. According to research featured in Harvard Business Review, R&D productivity has declined as much as 65% over the last three decades. One of the causes of this decline is the increase in the number of technology spaces companies must monitor and pursue. In petrochemicals, for example, R&D teams that were once traditionally focused on hydrocarbon feedstock, process, and catalyst technologies today must also explore and build capabilities in areas like biologic feedstocks and materials, and digital technologies. Another driver of decline in R&D productivity is the increased complexity of technology development. In agriculture, for example, the number of researchers required to sustain increases in crop productivity has multiplied by as much as 23 times compared to the 1970s.
The decline in productivity of R&D pursuits means that companies need to be more intentional about the technology spaces they go after as well as the capabilities they need to succeed. A future-focused R&D organization should manage a carefully designed portfolio of initiatives that advances the business strategy and builds options to deliver on such a strategy.
However, while most organizations are effective in justifying individual R&D project-level investments, there is often no strategy that globally optimizes priorities across multiple dimensions – for example, near-term vs. long-term investments, core vs. adjacent vs. new innovation, or market-facing vs internal capability development. This is, in part, because there is no common language to discuss R&D strategies and because R&D leaders often rise through technical tracks with limited exposure to strategy and portfolio management best practices.
As a result, instead of having a portfolio balanced by design, many organizations end up with an implicit “barbell” R&D portfolio. On one end of the spectrum, they support a host of projects that help sustain and evolve the current business. R&D is told what the priorities are and acts as a service organization to the business. On the other end, R&D has an assortment of future-oriented efforts, but because of a lack of strategic intent, these are not tied to clear long-term business priorities, so their likelihood of having impact is often low. As such, they are often under-resourced, make little progress, and are often criticized for being pet projects of investigators.
Read and download the full report by my Innosight colleague and me here.