The last corporate black box

These days, CEOs are pretty much in control of their companies. They have metrics in place across the value chain, and they can control value generation, costs, quality, efficiency and effectiveness in all core and supporting areas. Except one. R&D. Let me take you through a small corporate play in four acts:

Scene 1, the boardroom, annual budgeting session, the chairman: “I suggest that we (again) allocate 7% of our revenue to R&D. I must say, however, that I find it highly dissatisfactory that despite having allocated 7% for many years (and this being above industry standards), we have not seen the company grow much, we have not seen our quality costs go down, we have not seen our profitability go up, nor have we seen higher customer satisfaction with our products. I urge management to take action to improve the performance of our R&D.”

Scene 2, 12 months later, product review session of the latest product that is meant to save the company: The CEO: “My dear lead engineer, are you absolutely certain that this product design is the best possible? Have we taken this product design through all of our internal review processes?” Lead engineer: “Yes.”

Scene 3, 24 months later, quality meeting regarding the same product, Head of Quality: “I am sorry to report that we are seeing multiple and non-systematic errors in our new product. The number of recalls is high. The number of complaints is high. Rework and scrap rates are high. And we do not know exactly why – we are trying to make a root cause analysis, and right now everything points to a lack of fundamental robustness in the product design. Basically, we are seeing the same problems as with our last product introduction.”

Scene 4, 36 months later, the boardroom, the chairman: “It is very disappointing that our new product, that we had such high hopes for, did not perform well in the market. Our ramp-up was extremely slow and costly due to erroneous design, poor handover from R&D to Production and basically a perception of low quality among the customers. I hope that we have learned from this and will do better the next time.”

And so – the loop starts over again. Going through the same motions – expecting (or hoping for) a very different and better outcome (corporate insanity, by definition!). The CEO will (again) have a very serious meeting with the CTO, explaining that product quality is paramount and that we really need to tighten our processes. The CTO will (again) install QA processes, gates, etc. where intelligent engineers will meet and challenge each other. And (again) – it is all down to experience, gut feelings, brain power, etc. to identify product design issues and to come up with a better solution.

Recognise this? I do! Corporate R&D is the last functional area in most companies where we accept no real content KPIs, where we accept no real transparency between input and output, where we accept that “good” is defined by experience and not by science. It is – for many executives – the last black box in the company. You pour money into it, fold your hands and pray for a desired output. You can’t really challenge what goes on in there. Yeah, sure, you can see how much money they burn. And you can see if they follow a pre-defined developmental process. All good. But you do not know if they will really deliver on product quality. You do not know if the product design is overly costly. You do not know if Production will actually be able to produce the product. And you do not know what quality levels to anticipate from that new product.

And you don’t do anything about all this but accept that this is probably the only way it can be.

Wrong!

Of course this can be changed. But it starts with executives demanding that it does in fact change. Not by replicating what we have done for so many years but by doing something different. By insisting on a shift in paradigm. That requires courage and leadership – but that is the job of an executive. Insist on a change in R&D!

P.S. Why do you think Executives continue to allow R&D to be a corporate black box?

P.P.S. There is a solution, by the way. It is called Six Theta. It will have as large an impact on R&D as Six Sigma had on Production. Google it!