How to maximise the impact of R&D spend and ensure it remains on track.
In any sector or industry, some companies move faster than others in embracing change and R&D relies on those quickest to respond. However, it is not always the right approach to develop and refine products specifically for early adopters.
Providers must ensure that what they develop relates to a wider market before committing significant R&D spend and this is particularly true in the fast changing software and technology market.
Analyse return on investment (ROI)
Research can be ‘blue sky’ but all development must have a potential return. A good research department will have a number of projects in their roadmap but these should be prioritised based on their potential ROI.
Business circumstances may dictate that short or medium term profitability outweighs long term profitability, particularly in a large scale redevelopment program where positive cash flow is required early.
Embed financial managers in the process
Too often companies give R&D free reign, reasoning that this will yield the best new products and services. It may do, but at the end of the process the company needs to be in a position to deliver the products and earn a return.
Unless financial managers are part of the process from the start and a strict business plan is followed, milestones can be missed, budgets over-run and the R&D process can end up holding a company back rather than propelling it forward.
Decide on your R&D route
Balance research against development. Too much of the former leaves no room for development, but without sufficient research, development can be directionless. Partly the answer lies in the depth of the project; if it is a step change in a sector such as a new enterprise software package, research is vital. If additional coding or updates for limited clients are required then development should lead.
Build a team that can deliver
Assess your team and decide whether you need external talent with either additional managers to oversee the process or more technical support to fast-track the R&D itself. Never underestimate the complexity of R&D projects and the need for tight controls as well as managers who understand technical issues.
Managers need to be able to identify whether the technical R&D team is capable, requires further professional development or will require additional headcount. One solution to additional skills and resource is outsourcing.
Strictly monitor outsourced projects
It is common for some aspects of R&D projects to be outsourced, in many cases to emerging market economies, with cost consideration being a key driver. Outsourcing costs are often underestimated as higher cost onshore management and lower offshore utilisation rates are often not fully considered.
As providers in growing economies move up the value chain it can lead to rising salaries and high staff turnover, which in turn can upset budgets and disrupt projects. Careful contracting and monitoring is key.
Use a development framework
Developing or using an existing framework incorporating business process management, enhanced connectivity or data feeds can accelerate R&D. Additional costs in the build or in future royalties should be measured against a faster delivery and therefore a shorter term revenue stream.
In the pharmaceutical sector large companies, such as Merck and Pfizer, join together to build a standards-driven platform to help them simplify and speed up drug development.
Don’t cannibalise older products
Avoid overlap of features between legacy and new products by taking a modular approach. Start with a basic functionality that matches market requirements which can be refined in later models. This smooths transition and maintains revenue streams, extending the profitable life of older products.
The recommendations outlined above are not comprehensive and intended as a guide to help businesses secure the most positive impact for their R&D investment.