This is the second part of a multi-part post. In part one (found here) we spent some time going over some prime examples of corporations that generated outsize success from their R&D activities, highlighting AT&T with Bell Labs, IBM with IBM Research, and Apple.
I see two viable models for outsized organic R&D success:
- One is based on a visionary organizational structure which creates an independent R&D lab. IBM has IBM Research, AT&T had Bell Labs, other major companies have their research entities. These typically have independent funding not tied to business projects, broadly defined research objectives, and little to no direct business accountability. Such organizations can pursue basic research and/or advanced technology wherever it may lead.
- The other is based on visionary leadership, where a corporation identifies a future need, turns completely to focus on the new market, devotes whatever resources it needs and does a complete forced march towards getting a product out the door. While these projects sometimes have stage gates, more often than not, they just tell the project what needs to be done next, and where resources are coming from.
The funny thing is that both approaches have changed the world. Visionary leadership typically generates more profit in a short time period. But visionary organizations often outlast any one person and in the long run may generate significant corporate profits.
The challenges of Visionary Leadership
Visionary leadership balances broad technological insight with design aesthetic that includes a deep understanding of what’s possible within a corporate environment. Combine all that with an understanding of what’s needed in some market and you have a combination reconstructs industries.
Visionary leadership is hard to find. Leaders like Bill Hewlett, Akio Morita and Bill Gates seem to come out of nowhere, dramatically transform multiple industries and then fade away. Their corporations don’t ever do as well after such leaders are gone.
Often visionary leaders come up out of the technical ranks. This gives them the broad technical knowledge needed to identify product opportunities when they occur. But, this technological ability also helps them to push development teams beyond what they thought feasible. Also, the broad technical underpinnings gives them an understanding of how different pieces of technology can come together into a system needed by new markets.
Design aesthetic is harder to nail down. In my view, it’s intrinsic to understanding what a market needs and where a market is going. Perhaps this should be better understood as marketing foresight. Maybe it’s just the ability to foresee how a potential product fits into a market. At some deep level, this is essence of design excellence in my mind.
The other aspect of visionary leaders is that they can do it all, from development to marketing to sales to finance. But what sets them apart is that they integrate all these disciplines into a single or perhaps pair of individuals. Equally important, they can recognize excellence in others. As such, when failures occur, visionary leader’s can decipher the difference between bad luck and poor performance and act accordingly.
Finally, most visionary leaders are deeply immersed in the markets they serve or are about to transform. They understand what’s happening, what’s needed and where it could potentially go if it just apply the right technologies to it.
When you combine all these characteristics in one or a pair of individuals, with corporate resources behind them, they move markets.
The challenges of Visionary Organizations
On the other hand, visionary organizations that create independent research labs can live forever. As long as they continue to produce viable IP. Corporate research labs must balance an ongoing commitment to advance basic research against a need to move a corporation’s technology forward.
That’s not to say that the technology they work on doesn’t have business applications. In some cases, they create entire new lines of businesses, such as Watson from IBM Research. However, probably most research may never reach corporate products, Nonetheless research labs always generate copious IP which can often be licensed and may represent a significant revenue stream in its own right.
The trick for any independent research organization is to balance the pursuit of basic science within broad corporate interests, recognizing research with potential product applications, and guiding that research into technology development. IBM seems to have turned their research arm around by rotating some of their young scientists out into the field to see what business is trying to accomplish. When they return to their labs, often their research takes on some of the problems they noticed during their field experience.
How much to fund such endeavors is another critical factor. There seems to be a size effect. I have noticed small research arms, less than 20 people that seem to flounder going after the trend of the moment which fail to generate any useful IP.
In comparison, IBM research is well funded (~6% of 2010 corporate revenue) with over 3000 researchers (out of total employee population of 400K) in 8 labs. The one lab highlighted in the article above (Zurich) had 350 researchers, covering 5 focus areas, or ~70 researchers per area.
Most research labs augment their activities by performing joint research projects with university researchers and other collaborators. This can have the effect of multiplying research endeavors but often it will take some funding to accomplish and get off the ground.
Research labs often lose their way and seem to spend significant funds on less rewarding activities. But by balancing basic science with corporate interests, they can become very valuable to corporations.
In part 3 of this series we discuss the advantages and disadvantages of startup acquisitions and how they can help and hinder a company’s R&D effectiveness.