Five Questions for R&D Leaders

Research & Development - known more commonly by the shorthand R&D - involves coming up with new technologies or improving existing ones. It is vital input into the innovations that improve our lives and power corporate growth. It leads to planes that fly faster and safer, mobile phones that astonish with their simplicity and power, and medicines that improve quality of life.

Corporations can't maintain competitive advantage without R&D. The pace of technological development and the speed at which new ideas spread in today's highly connected world mean that competitive advantage often disappears in the blink of an eye. For example, research by Innosight board member Richard Foster suggests that 75 percent of S&P 500 companies will disappear from the index over the next 15 years.

The answer is not just pouring money into R&D, but doing it right. Companies should consider five important questions:

1. How do we continue to focus on R&D given the reality of hyper-competition and constant cost pressures? Some companies have turned to creative mechanisms to keep their innovation engine humming, such as collaborations with universities, "open innovation" programs where they work with individual scientists around the world, or posting challenges for individual researchers on online marketplaces like InnoCentive.
   
   
2. How do we make sure that we balance "blue sky" research with important development work to optimize current solutions? Both are critical for long-term success. Without the right control mechanisms it is very easy for a company's R&D portfolio to get out of balance, with predictably negative consequences.
   
   
3. How can we "reverse engineer" R&D to maximize its productivity? In other words, how can we identify market opportunities that can be addressed by the creation of an enabling technology? Sometimes "technology push" efforts succeed, but a "market-back" approach can help make sure companies maximize the return on their R&D investment.
   
   
4. How do we make sure that R&D isn't an academic activity but one that drives to commercial impact? Xerox knows the painful consequences of getting this wrong. In the late 1970s its legendary Palo Alto Research Center developed just about all of the underpinnings of the personal computer age. Unfortunately, Xerox barely benefited from these inventions, ceding the computing to new companies such as Apple. Recent efforts to drive R&D to commercial impact are part of Xerox's recent revival.
   
   
5. How do we view R&D expansively? Competitive advantage often comes from developing business models with innovative ways of creating, capturing, and delivering value. Technology is necessary but insufficient. An overly narrow focus on pure technology limits R&D's impact.

Leaders of U.S. companies need to consider these questions carefully. Rapidly growing companies in countries such as India, China, Brazil, and South Korea are ramping-up their spending on R&D to enhance their competitive positioning in current markets like automobiles and nascent markets like clean tech. Either U.S. companies will find out how to master R&D, or they will have to deal with the consequences.

Scott Anthony - Scott Anthony leads Innosight's Asian operations. His fourth book on innovation, The Little Black Book of Innovation, is now available (HBR Press, January 2012). Follow him on Twitter at @ScottDAnthony.