Independent Research- R&D_Innovation Update

The Strategic Impact
of R&D & Innovation
May 13
2016
An outline focused on the Strategic Impact of R&D and Innovation
activities, the current theories around these impacts, success and failures
of research in various companies, and our recommendations.
Chandana Annavaram, Priya
Halankar, Meghan Harra,
Jonathan Moats & Alye Villani

The Strategic Impact of R&D and Innovation
Chandana Annavaram, Priya Halankar, Meghan Harra, Jonathan Moats & Alye Villani
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Contents
Introduction ..................................................................................................................................................2
Innovation Correlation to R&D..................................................................................................................2
Current Theories & Research........................................................................................................................4
Exhibit 1: Literature on R&D .....................................................................................................................4
Exhibit 2: R&D Theory List.........................................................................................................................5
Successes & Failures .....................................................................................................................................5
Research & Correlation.............................................................................................................................7
Recommendations........................................................................................................................................8
Conclusion...................................................................................................................................................11
Works Cited.................................................................................................................................................13

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Introduction
In the annals of technology, we have numerous examples of individuals and companies with a
clear vision of what the future holds; but, who failed to capitalize the insight they had and monetize
their vision. The list of global challenges in the immediate future is long. Environmental degradation,
global warming, proliferating the pandemics, terrorism are some of the examples which require
scientific and engineering breakthrough technologies and methods.
The amount of spending on R&D in the Unites states increased more than tenfold even after
adjusting for inflation. The United States alone accounts for 35% of world R&D spending. Most of the
firms were simply not very good at doing research during a particular period or in translating that
research into profits. The three distinct factors that are seen behind the emergence of corporate
research labs prior to late nineteenth century are relative simplicity of technology, precluding the
formation of centralized research facilities, and the unappealing nature of patents. There was a
compelling rationale for establishing centralized research facilities, which appears to have been as true
at the end of twentieth century as it’s at the beginning. Many companies struggled to define the
appropriate scale for their organizations, with numerous reversals of course and false starts. By breaking
the research efforts into smaller teams, management can seek to encourage more collaborative thinking
and interactions than the traditional centralized research would allow.
The three factors shifted in nineteenth century:
1) Technology became more complex and costly to develop
2) Transportation made markets more centralized
3) Ambiguities around the value and assignment of patents were resolved
By the early days of nineteenth century, thoughtful industrial leaders recognized the need for corporate
research laboratory. The three questions the firms used to struggle in nineteenth century:
1) The management of research projects (especially when to kill a project)
2) The retention of innovation and research labs
3) Appropriate organization of the research effort
Innovation Correlation to R&D
When a company or person conducts research and development, whether to create a new product
or service or update an existing one, the desired end result is always innovation. Innovation can be
defined as a new method, product or idea, so the successful application of research and development
results in a new idea or product and therefore achieves innovation. Research and development consists
of the investigative activities that a person or business chooses to do with the desired result of a
discovery that will either create an entirely new product, product line or service, or strengthen an
existing product or service with additional features. Although it's possible to achieve innovation without
research and development and it's possible to conduct research and development without achieving
innovation; there is a very tight relationship between them. When a person or company conducts
research and development, it normally results in innovation.

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Innovation is at the very heart of any society’s sustained wellbeing and it is the source of
competitive differentiation. Correctly predicting the future is just the beginning, not the end of
innovation process. Innovation has not just made our lives more comfortable and longer than those of
our greater grandparents; but, has made us richer as well. It is the intrinsic productivity growth and
innovation rate of business that will ultimately determine the economic health of nations of the world.
The direct relation between innovation, productivity increase and social wealth is not a secret. The sum
of existing innovations defines current reality for organizations, communities, and Nations; it is the
capability to innovate progressively discontinuous environment that will determine the futures.
Investment in innovation is required for more efficient use of resources, improved productivity,
increased global trade, and increased individual and aggregate wealth that the members of society
experience as improved standard of living. Innovation is a compelling source of competitive advantage
for business because it represents new value for customers. An innovation improves the value of a
product or a service in a critical attribute or combination of attributes, all in the context of knowledge
infrastructure and a physical infrastructure. Innovation improves economic value or emotive value or
both. Innovation is the process of transforming invention into something that is commercially useful and
valuable. Whereas innovation occurs apparently and unpredictably at random, it is manageable as a
business process and must be managed. There is no substitute for effective innovation. When an
innovation does become dominant, knowledge attached to it that it gets “locked in”. Discontinuous
innovation force major shifts in both architecture and capability, continuous innovations are absorbed
relatively effortlessly.
Success is defined by leadership and leadership is achieved not only by evolving today’s products
and services; but, more powerfully by evolving and even redefining the very industries in which
competition takes place. Innovation does require investment and often in substantial amounts.
Breakthrough innovations are based on fundamental scientific research that lead to new markets which
emerge unpredictably. In the innovation business process, the economic architecture describes broad
patterns of investment and development. One of the most critical functions of innovation management
is integrating the apparent contradictions that they present.
Simple innovations which represent one technology usually do not flourish. Integrated sets of
technologies which can be assembled together into a product than delivered to the market place are the
only things that modern innovators can be successful utilizing. Groups of innovators coming together for
an integrated product seem to be necessary today rather than individual effort. Innovation is achieved
by breaking through the boundaries of existing technology. To manage innovation effectively, a new
core process is required in the organization with the important core concepts of competitive
architecture and organizational capability. Recent invention in mechatronics and optoelectronics;
however, make it more appropriate to view innovation as the fusion of different types of technology
rather than as a series of technical breakthroughs. Shifting funds indicate a concentration in
technologies where innovation cycle is shorter, such as social media and software, rather than long
gestating advanced materials and clean-tech.

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The two critical issues that corporate R&D’s have struggled:
1) Confusion over the ultimate objectives of research program which translates into poor
decision making and swings between the emphasis on central and divisional research
2) Unwillingness to match the compensation offered by the independent venture groups
The first set of lessons for corporate R&D is the importance of commitment, compensation, and the
tolerance of failure.
Current Theories & Research
We first decided to start our process by researching the major, relevant, currently practiced
theories being used today. When facing an innovation block or an R&D problem, it seems that the vast
majority of companies operating today address that problem in on way; smart people and more money.
Most companies think they can beat the R&D problem by hiring really smart engineers or project
managers while simultaneously spending vast amounts of money on labor, prototypes, parts, travel, etc.
We wanted to see what the literature presented that was different than this mainstream strategy.
What was out there in the way of culture? What did those who had succeeded say got them there?
What were those who were experts indicating companies should be doing?
We narrowed our field to a list of the following books.
Exhibit 1: Literature on R&D
This seemed to be a good sample to glean a concrete list of theories. We focused more on what
the author was saying could be done or used in order to foster a culture of R&D. Our goal was to
develop a list of theories to then run against a second list of books and companies to draw out
similarities, discrepancies or even anomalies. We narrowed our list of theories to the following:

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Exhibit 2: R&D Theory List
These twenty three theories shape the majority of the companies currently operating today
with R&D programs. Most likely they all use one or a combination from this list. We utilized this list to
examine specific examples of companies or organizations that succeeded or failed in using or not using
these theories. With technology rapidly revolutionizing industry after industry, companies must
constantly re-evaluate their services and product offerings and look for new ways to keep their
customers satisfied.
Successes & Failures
There is often no guarantee of successful innovation despite huge investments in research and
development by companies. Innovation often fails and even successful companies find continued
success difficult.
The innovation process adopted by companies are each different and often a random mix of
ideas, without a guideline in place to help in streamlining the process. Throwing finances and smart
people together to achieve successful innovation is not the answer. Successful innovation is much more
than that. Though there isn’t an “innovation strategy”, in place our study has shown that successfully
innovative companies do have some common processes in place.

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Corporate Culture: The successful innovator had a corporate culture which is centered on a
mission, whether it is human dedication by Genentech, a new company in the genetic engineering
industry. Other examples include: Google’s mission is to organize the world’s information and make it
universally accessible or Apple which empowers its employees with its mission “make a dent in the
universe.” The mission has a way of touching the lives of many, giving employees a connection and
empowerment to the cause.
Customer Centric Focus: All those with success also keep a customer centric focus, never losing
sight of what their customer base needs.
Creative thinking defines innovation. A culture which boosts innovation begins with an
innovative leader, making innovation a priority. Encouraging blue sky thinking by Google or developing a
segmented stratified organizational structure for the innovator. A collaborative effort by different
disciplines brings together people with the same focus and different skill set. Google, a strong believer,
has offices and cafes designed to increase interaction between Googlers and across teams to spark
conversation. This coupled with an open culture promotes sharing of ideas and opinions. Every
organization has unique insights and ideas which taken to a logical conclusion leads to major innovation.
This solution center mindset in business today has its roots in scientific discovery; the Manhattan Project
during World War II was developed to create the most devastating weapon ever made by a collaborative
effort of scientists and engineers. A similar collaboration led to the discovery of the gene and other
scientific breakthroughs.
Toyota, a successful innovator is considered the founder of lean innovation as it continues to
show progressive improvement. This concept focuses on performing one task better, taking things that
work well and improving on them in unexpected ways thus anticipating the needs of the customer.
Successful innovators often use a stage gate approach to work new products from early idea
phase to the expanding markets. Volvo CE was built on the back of the Hauler. A pioneer in the field it
expanded into other machinery and road products. Its innovative outlook identified emerging markets
and flooded the Chinese market with equipment during the Chinese boom. Despite this there are
failures on their way to success. Lockheed Martin is a success story riddled with failures. They have
utilized the stage gate approach of innovation throughout their R&D cycles in efforts to contain any
failures before they experience large bottom line impacts. Some of their greatest challenges have
included failures like the Challenger explosion; however, their willingness to continue growth in avenues
beyond initial conception has allowed for them to remain the largest contractor to the US government.
It is important to remember that it is okay to fail as long as you learn from your mistakes and
correct your mistakes quickly. Xerox stumbled on this accidental failure and success story by continuing
to work on their failures until proven successful. With no translation into the market, they were slow to
move and only reaped minor profits in comparison to the larger impacts they could’ve made if
implemented earlier. The taxi industry is another example that has served its customers using the same
model for decades and was turned upside down virtually overnight by Uber. The disruption of the taxi

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industry has coined the term “Uberize;” often used when one company drastically changes the face of
an industry. Keeping up with the evolutionary innovation of an industry can be the difference between
failure and success.
Many new business ventures fail because of the corporate structure‘s inability to understand
that innovation is a continuous process and a necessity. More surprising is critical errors by management
in established companies. They often fail to find the next S curve, and miss the innovation window.
Motorola failed to anticipate the transition to digital technology and the GSM standard to pursue
innovations that led to a fundamental change in its key market. Michelin tires failed to find the market
that allowed the innovation to succeed. They believed so strongly in their own success that they were
unable to translate it to external users and receive any environmental by-in leading to the failure of their
self-inflatable tire line.
A similar story saw the demise of Kodak. Kodak, founded in 1880 was known for its pioneering
technology and innovative marketing. It transformed photography dominated by professionals into an
integral part of people’s lives. George Eastman goal had been “to make the camera as convenient as the
pencil”. Kodak embodied the idea of being able to capture special memories easily and inexpensively in
“the Kodak Moment”. Under Eastman’s leadership Kodak moved from dry plate photography to film
photography. In 1975, Steve Sasson invented digital photography. Despite results from research done in
1981 showing digital photography having the potential capability to replace Kodak, with the transition
taking 10 years, the newer management grasped how the world around was changing with a new
generation of users. The root cause of their failure was they forgot where they came from, their
customers, and their goal “Easy to Use Cameras”.
Losing sight of the customer seems to be a common cause of failure. The Amazon Fire Phone
was developed as a competition to the Apple iPhone; but, innovation based solely on competitive
pressures is not an effective strategy and often doomed. Companies such as Yahoo and AOL all seem to
have fallen victim to similar stories. Innovation based solely on competitive pressures is not an effective
strategy and often doomed.
Research & Correlation

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Highest correlation exists between the following theories and links to Success:
1) Stage Gate; projects move through formal gates and phases. Fail early (Lean, Rapid and
Profitable NPD)
2) Lean; synchronized and simultaneous (Lean, Rapid and Profitable NPD)
3) Disciplined Decision Making; systematic decision processes are used routinely (The Smart
Organization)
4) Full Spectrum Engagement (Edison)
5) Entrepreneurial Judo; take Opponent’s strengths and turn them into weakness (Innovation
Entrepreneurship)
6) Linking emerging technologies with emerging markets (4th Gen R&D)
7) The Doorbell effect; learning to be good at being uncomfortable (The Wide Lens)
8) Translating Research into profits; have the guts to implement (Architecture of Innovation)
9) Changing the game to work for you (The Wide Lens)
Our research showed that an innovative company was successful at utilizing the major theories
of innovation and most followed a pattern. The company had a culture which fostered innovation with
new products built on the foundation of older ones, creating a cycle of perpetual innovation or further
modifying an innovation for added benefits. Their corporate position was further strengthened by a
disciplined decision making process and use of external collaboration. Many companies used a stage
gate approach to enter a product into the market. This strategy though beneficial was found to increase
the time from inception to market. Most importantly, a successful company never lost sight of the
customer. It maintained its focus on customer satisfaction by its solution center mindset.
Companies which failed did so because they could not step back and take a closer look at their
products and corporate culture. To be successful innovators their products had to be “telling the right
story at the right time”, but also had to be something that was better than what was present. A
corporate culture which was not transparent, open to new ideas and to technological advances failed.
Recommendations
Elijah Ray stated in an interview with the trade magazine, DC Velocity, that “in its most basic
form, success in business is all about the people.” (MacDonald) Even as our world becomes more

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technologically advanced and dependent, this statement has been proved time and time again. That’s
not to say that success in business is not about customer satisfaction and market share (which are two
guiding principles in business and are ultimately increased through quality); but, that organizations
improve these benchmarks through the implementation of management techniques and innovation.
These tools not only lead you to a solution but they emphasize continuous improvement and the value
of leadership.
Over the course of the semester, we studied the natural evolution of R&D. Through this
discovery process we studied many theories which ultimately centered on innovation and leadership.
Our recommendation is to have a structured and sequential solutions process that has the ability to
remain flexible. This ultimately means that any organization (manufacturing, service oriented,
technology, etc.) can solve a process improvement problem or discover new goods or knowledge,
through this systemic process. The overarching theme and continuous step, however, is if an
organization wants to succeed in these metrics, they need to foster a corporate culture of collaboration.
Solutions are only possible when the organizational culture is committed and is willing to make finding
the solution a priority characteristic or a metric throughout the entire organization.
Step One: State the Mission
The first step is to state the mission and ensure its dissemination. The audience depends on the
problem and scope of work. Depending on the environment, ensure all mission statements are posted
in a public area to encourage cross collaboration.
Step Two: Choose the Team
The second step is to choose the team. This is the most important step because this is where
you get buy in which ultimately leads to passion and pride. Both of which are motivators and goal
setters.
Step Three: Set Goals/Establish a Timeline
The third step is to set goals. These goals should be in sequential order. As a manager of this
process, flex the ability to make some unattainable in the time proposed and some that are not.
Evaluating your team’s ability to critically think in those situations will help the team gain traction and
encourage out of the box thinking.
Step Four: Course of Action Development
Step four is to develop multiple courses of action (COA) within the prescribed timeline. Each
COA considered must meet, at a minimum, the criteria of suitability, feasibility, acceptability, and
distinguishability, and completeness. A good COA positions the organization for future problem sets and
provides flexibility to meet unforeseen events during the final step, implementation. It also provides the
maximum latitude for initiative by the team to showcase strengths and weaknesses. This step is also
important as it determines the amount of risk the team is willing to take.

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Step Five: Course of Action Analysis
Step five is the COA analysis. This step is a disciplined process (mini think tank) that attempts to
visualize the flow of implementation. Its process is to focus the team’s attention on each phase of
implementation in a logical sequence. The process considers the dispositions, strengths, and
weaknesses of competitors and, if applicable, the organizations current products/services to ensure
there is no overlap. It is an iterative process of action, reaction, and counteraction. This process is
meant to stimulate ideas and provides insights that might not otherwise be discovered. It highlights
critical tasks and provides familiarity with possibilities otherwise difficult to achieve. This is one of the
most valuable step and should be allocated appropriate time during step three.
Step Six: Implementation
Step six is to implement the proposed process.
In addition to these steps, it’s important for the organization to ensure certain leadership
elements are implemented throughout the process. These points center on innovation. Thomas Edison
is arguably history’s greatest practical innovator. He had a systematic process which made every
experiment, failed or not, a success. “Every experimental outcome represented knowledge.” His vision
of viewing an experiment that failed, not as a failure but as a successful option that won’t work is
innovative and brilliant. This type of thinking was reflected in his laboratory, which was deemed the
world’s first Industrial Research and Development laboratory.
These elements include collaboration of thoughts and people to stimulate creativity. This
means that when choosing your team in Step Two; choose people from multiple disciplines for the
problem or idea to be created. Additionally, structure your team to be a flat organization where anyone
can suggest an idea.
Understand that commerce demands creativity and to be open to change for a new generation
of users which ultimately leads to the next big thing. Create what is missing by talking to the end user
and customer. A solution centered mindset is an approach to be used in every situation and problem
with the attitude that success is inevitable and remain positive. Idea generation comes in many shapes
and forms, by remaining positive and visualizing the problem from multiple angels, solutions are found.
Elijah Ray’s interview ended with a question about what is biggest challenge was, where he
stated “one of the struggles is getting people at all levels to buy into and embrace quality strategies like
Six Sigma and other continuous improvement tools, convincing them that these initiatives do work if we
as a group are committed to applying them in our logistics and supply chain operations every day You as
an executive can be committed to the idea, but that counts for nothing if you aren’t able to cascade
your vision, your thoughts, and your leadership ideas throughout the company and convince others to
implement them with the same level of conviction that you have as one of the key stake holders in your
organization.”

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Conclusion
Steve Jobs said "Innovation has nothing to do with how many R&D dollars you have. When
Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It's not about money.
It's about the people you have, how you're led, and how much you get it." Throughout our
understanding of the strategic impact of R&D and Innovation on corporate bottom line, we have found
that people are the backbone to most successes or failures. There are many “theories” that indicate the
right path to follow and many roadmaps to choose from when determining a blueprint. Our research has
shown us that R&D practices can not only be applied in a professional atmosphere; but, also an
academic atmosphere, as solution centered thinking is not just about quality, customer satisfaction, and
market share. It’s about people and the management of the systems and processes established.
“From the critical tasks of driving a vision and inspiring innovation via collaboration to creating a
culture that fosters talent and investing heavily in its workforce, tomorrow's business leaders will need
skills and approaches that meet the expectations of a new workforce.” (James O'Brien, 2014) The
resilience test of innovation will be in being able to reinvent the market, industry, and organization in
order to transform the future vision of a company or industry. A variety of skills will be necessary to find
new solutions and implement them effortlessly. Managing uncertain risks and embracing the impossible
tasks ahead of the organizational will generate value.
“Determined to get closer to their customers and become more agile and innovative, global
organizations like IBM and GE are embracing the matrix organizational model. In matrix organizations,
leaders suddenly find themselves having to master the challenges of managing cross-divisional,
international teams over whom they have little formal authority. Not surprisingly, the skills required to
effectively navigate the matrix are different than those needed to succeed in the old, hierarchical
organizational model.” (Malloy, 2012) Empathy, conflict management, influence, and self-awareness are
competencies needed by leaders in a matrix leadership team to increase overall innovation. Over 90% of
the FTSE 50 and Fortune 50 companies are now operating in a matrix structure; putting the
understanding and implementation of innovation in high demand. Overall, teamwork and leadership are
key to any job and seen as the top qualities required in order to achieve innovation in the workplace.
Establishing a culture of continuous improvement or innovation is rarely an easy task. Significant
changes pose as constant detractors to innovation. Continuous improvement needs to be more than just
an exercise to run through; but, rather a process outlined to exhibit the most growth. “A major — if not
the biggest — factor affecting the deployment of long-term continuous improvement initiatives today is
the fundamental change taking place in the way companies manage and execute work.” (Deloitte
Development LLC., 2014)
A modern example of the success of continuous improvement and
innovation on a team lies when “the 1980 U.S. Olympic men’s hockey team built
a culture of continuous improvement, helping them beat long-time rival Soviet
Union and eventually capture the gold against Finland. Coach Herb Brooks
applied many of the key principles of continuous improvement such as persistent

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leadership over multiple years, real change management to get the team to think
and act differently, and finally, he helped them focus on doing fewer things but
doing those fewer things better. This approach fostered a new and powerful team
culture that helped make Brooks’ - and the team’s - vision a reality.” (Deloitte
Development LLC., 2014)
A company that takes the time to invest within innovation and R&D will gain a huge influx in
their knowledge. Useful knowledge is the underlying backbone behind the development behind product
lines. This knowledge application shapes the success or failure generated and the strategic impact on
the overall health of the business.

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