The R&D department: From Innovation Engine to Part of the OI Machine?

By: Innovation Management

The success of Open Innovation hinges on many organizational aspects as we have discussed extensively on the MOOI forum in the past months and will continue to do so as of September 2014 onwards. To summarize, we have discussed corporate strategy, top management, organizational structures, HR, culture, and IP in light of Open Innovation.

Throughout the month June our focus was on the role of the R&D department in Open Innovation and how to actively involve this department in effective Open Innovation strategies and activities. As with all themes we have witnessed interesting discussion threads on the MOOI forum and the MOOI team would like to take the opportunity to thank the 143 MOOI forum members/OI experts for their valuable contributions. Before we address the major topics touched upon by the MOOI forum members we first examine a number of articles that have arisen on the role of the R&D department in OI in the academic and professional literatures and the lessons we can draw from these existing sources.

The R&D department and OI: The most important lessons from the literature

“If I were to give you a mental model I would say instead of being at the center of Unilever looking out and being surrounded by Unilever so it’s tough to see the outside world, we want to put people on the periphery of Unilever so they can always see the outside world but can also always look in to see Unilever and they can therefore be the bridge in both directions.”
Graham Cross (Collaborative Innovation Director at Unilever)

In his important works Henry Chesbrough has extensively outlined the advantages of engaging in Open Innovation for large corporate R&D departments.

First, Open Innovation enables companies and their R&D departments to commercialize technologies/IPR that are lying on the shelf and are not being employed by any of the business units. Open Innovation through technology out-licensing can for example generate extra funds for the corporation that can be fed back into the OI funnel.

Second, Open Innovation initiatives provide the R&D department with a broader set of external networking possibilities and thus wider access to dispersed knowledge bases.

Third, Open Innovation entails a set of new methods that R&D departments can use to find technological solutions beyond their organizational boundaries.

Innomediaries such as Ninesigma and Innocentive for example use their large-scale platforms and networks of solution providers to help companies find solutions to technical problems they are facing. With these benefits in mind we will now examine the literature on two subthemes related to the R&D department and its role in OI: What challenges does the R&D department face and how can these challenges be overcome to effectively align the R&D department with OI efforts?

The challenges related to involving the R&D department in OI

Mortara et al (2009) describe the typical cultural traits characterizing R&D departments that conduct “blue sky” research (without immediate applications) versus those that are involved in applied research (with direct market implications). They point out that whereas “blue sky” research units have a history of openness and are generally used to collaborating on research with universities, research institutes, etc., applied R&D units generally are more prone to experience reluctance to OI approaches: unwanted knowledge spillover effects for these types of units may have more direct, detrimental financial consequences.

A second challenge for the R&D department in embracing Open Innovation as identified by the literature is the so-called “Paradox of disclosure”. Salter et al (2014) conducted interviews with 35 R&D technical staff members (as well as their managers) in the R&D unit of a large multinational that was actively engaged in an Open Innovation Strategy. They found that R&D scientists in large companies are often reluctant to share knowledge as they are quite aware of the fact that this shared information may end up in the wrong hands and place the competitive position of their employer (and their jobs) at risk. Some quotes from the interviews:

“It’s really difficult, you know, I mean, my legal people understandably would get really [upset] if I kind of just went off willy-nilly on my own. So, it’s always finding this balance point between saying enough so that you actually get something out of it, but you don’t say too much that you don’t destroy your IP position later on.”

“Often, setting up all the confidentiality agreements, determining the ownership of any IP, can be fairly lengthy, time consuming, and, you know, often can lead to us going down to a point where we don’t actually then move forward because we’ve found sufficient reasons why we wouldn’t want to or the vendor wouldn’t want to.”

These quotes illustrate that R&D scientists and engineers often find it very challenging to overcome the paradox of disclosure when they are engaging in interactions with potential partners. They may even decide not to enter into these conversations/build new partnerships because of the complexity and long time frames associated with setting up non-disclosure agreements. As such, companies may lose out on valuable external knowledge exchanges.

The third challenge identified in the literature is the not-invented-here syndrome where R&D scientists often experience reluctance in accepting a solution found outside the boundaries of the R&D department as they feel they should be the ones that come up with solutions themselves. The fourth challenge is related to this phenomenon as Nakagaki et al (2012) point out that R&D employees in many cases see themselves as “problem solvers” (i.e. creating solutions from scratch) rather than as “solution providers” (i.e. finding solutions that resolve problems no matter what the source is). In the next section we will describe some of the ways in which to deal with these challenges as identified in the literature.

Overcoming the challenges related to involving the R&D department in OI

The academic and practical literatures identify several ways in which companies can deal with some of the challenges related to involving the R&D department in OI activities. First, Mortara et al (2009) point out that different subcultures found in different types of R&D departments should be handled in different ways. “Blue sky” or basic R&D departments should be provided with enabling services aimed at creating a space where R&D scientists feel safe to interact freely with other experts. With respect to more applied R&D units OI enabling services should be targeted at creating conditions that help scientists achieve market-driven targets; providing links with other functional departments; providing internal knowledge sharing platforms; providing the right pool of skills.

Second, with respect to the “Paradox of disclosure” Salter et al (2014) mention that companies should provide more clarity to their staff about what can and cannot be disclosed by adopting modular IP systems with labeling methods. A traffic light system might be an effective way to differentiate between “top-secret” (red), “ok to talk about” (green) and anything in between (amber).

Furthermore, the authors point out that when engaging with new and unfamiliar partners, some companies first work with them on a smaller, exploratory project that is not of critical strategic importance. That engagement takes away the need for complex agreements, but still allows the parties to work together and get to know and trust each other. Deeper exchanges may then follow suit. HP is a company that has formalized this logic in the form of its Innovation Research Programme (see Salter et al, 2014).

With respect to successfully tackling the NIH syndrome Whelan et al (2011) have pointed out that companies should not only formally appoint “Idea Scouts” but also “Idea Connectors” to support the adoption of external ideas within their boundaries. Idea Connectors are influential employees that are well-accepted by R&D scientists and know the organization well enough to clearly point out the value of certain externally acquired knowledge elements to the company. They form the bridge between the ones that found the knowledge outside the company and the internal R&D department that needs to start working with these ideas.

Fourth, the literature points out that it is crucial to make R&D employees aware of company-wide business problems by creating interaction among R&D employees throughout the R&D function and between R&D and other functions (see Bigliardi et al, 2010; Palensky, 2011; Interview with G. Cross, 2006). At 3M, for example, each business unit worldwide conducts its own research, but it also maintains connections with all other R&D operations within the company. Each technical employee is furthermore part of both a particular business and the 3M global technical community.

Nakagaki et al (2012) point out that in order to stimulate their R&D employees to actively take part in OI activities companies should reformulate what constitutes success in R&D. In many R&D departments seeking solutions outside the company, even outside the lab, is seen as an admission of failure. It will however not be an easy exercise as the mindset change needed for OI seems to run against the very fabric of the fundamental make-up of most scientists (i.e. to create solutions from scratch).

In conclusion: The role of the R&D department in OI

In conclusion and coming back to the quote by Graham Cross at Unilever we can thus say that the R&D department needs to be reshaped/repositioned in order to effectively play a role in Open Innovation strategies and approaches. This reshaping may come with several challenges that were identified in the above. The R&D department has for long been the innovation engine in most large organizations whereas it seems to more and more become a part of the larger OI machine. There is an active discussion going on concerning what should be the effective role of the R&D department in a successful OI machine. Several questions have arisen in this respect:

• Should the R&D department specialize in applied research where basic research is conducted by technological partners?
• Should companies make the R&D competencies of their R&D employees accessible to third parties?
• Should the R&D department play a similar role as most large Corporate Venturing departments in multinational organizations?

The R&D department and OI: Take-aways from the MOOI-forum discussions

As R&D and OI is a challenging theme that is of interest to many managers, the topic has generated several interesting discussion threads on the forum. We will describe some general lessons from these discussions below.

Bringing the R&D department closer to the customer

Forum members tend to agree that re-training R&D scientists to be more customer-oriented would help in building an R&D department that is more focused on Open Innovation initiatives. Several customer goods companies have R&D employees interacting directly with customers, attend customer focus groups, do home visits, attend market research debriefings, etc. This approach would also entail framing R&D project objectives more in terms of customer needs rather than technical specifications/performance requirements. As such, R&D employees will be closer to the customer and this helps them to think more in terms of the business rather than in terms of basic research. It does, however, require adequate formulations of customer needs and effective translations of these needs into a language that technical staff can understand.

What is the role of the corporate R&D department in an OI era?

Forum members mention that many corporate R&D groups have been severely downsized over the past years as a result of sweeping cost savings. One example given on the forum entails a decrease in R&D employees from over 100 to about 10. This does in some cases make the corporate R&D department an ideal structure to effectively explore Open Innovation strategies, as some of the challenges identified in the above are no longer present.

One example given on the forum entails a decrease in R&D employees from over 100 to about 10.

Others on the forum point out that one of the key roles of the R&D department may be the creation of options as well as the initiation/assimilation/absorption of external knowledge sourcing endeavors. Some members do express their concern about severely cutting the numbers of R&D personnel as they point out that having a strong R&D core that is capable at creating, managing, selecting, and absorbing knowledge and technologies is a prerequisite for OI success. So rather than cutting down on R&D staff companies should focus on reorienting the R&D department to fulfill necessary OI roles as lacking substantial capabilities in R&D will not be resulting in OI success.

Forum members do point out that the balance between internal and external R&D may vary from industry to industry: for FMCG companies the focus may be more on internal R&D whereas for pharma companies the emphasis may be more on internal R&D. In general, forum members argue that the most effective role of the R&D department in OI may be industry-specific.

These are just a few thoughts that have been developed by forum members in an interactive way. There were other interesting threads of thought but it would drift us too far away from the current theme of the month. The discussions developed in the forum show that high quality discussions can be generated online between knowledgeable people that share the same passion.

By the MOOI-team
Prof. Wim Vanhaverbeke, Hasselt University, ESADE & National University of Singapore,
Prof. Henry Chesbrough, University of California, Berkeley & ESADE, and
Dr. Nadine Roijakkers, Hasselt University.

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References

 

• Mortara, L., et al (2009) How to implement open innovation: Lessons from studying large multinational companies, Centre for Technology Management, Institute for Manufacturing, Cambridge
• Salter, A., Criscuolo, P., Ter Wal, A., 2014, Coping with OI: Responding to the challenges of external engagement in R&D, California Management Review, 56, pp. 77-94
• Nakagaki, P., Aber, J., and Fetterhoff, T., 2012, The challenges in implementing OI in a global innovation-driven corporation, Research-Technology Management, July-August
• Bigliardi, B., Galati, F., and Petroni, G., 2011, Collaborative models of R&D: The new challenges for personnel management, International journal of Business Management and Services, 2, pp. 66-74
• Whelan, E., Parise, S., De Valk, J., and Aalbers, R., 2011, Creating employee networks that deliver open innovation, MIT Sloan Management Review, 53, pp. 37-44

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