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In the current era of consumer-driven markets,
companies must improve their ability to innovate. Yet, an
analysis of R&D spending data from 48 Fortune 500 companies
shown on the figure below, suggests that the research and
development capacity of corporations is declining.
1 Therefore, manufacturers are
challenged with improving the efficiency of R&D without negatively
impacting their ability to innovate.
The bars on the figure suggest that the cost
of R&D has been rapidly accelerating from 1998 through 2000.
Yet, research and development investment remains constant
at an average of six percent of total revenues for these 48
manufacturers. Since these corporations will probably maintain
the six percent level of R&D spending while the cost of R&D
will continue to increase, the net R&D capacity of manufacturers
will decline with increased pressure on revenues in these
difficult economic times.
Businesses can increase their R&D capacity
through adoption of broad-based business imperatives that
eliminate waste and simultaneously take steps to improve R&D
performance. Elimination of waste can add financial and human
resources that can be applied to high priority R&D initiatives.
R&D capacity improves when businesses apply the increased
resources to an R&D organization that can perform better.
Broad-based business imperatives that cut waste include customer
retention, elimination of unnecessary IT expense, and Product
Portfolio Management.
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Gartner estimates that it can cost up to 40 times more
to attract a new customer than to keep a current one. So retaining
just five percent more customers can translate into savings of 25
percent to 55 percent in profitability. Also, companies that prioritize
customer-service processes, people, and technology will be better
positioned for the economic rebound with more loyal customers.
When appropriate, companies should seek opportunities
to make IT operations more efficient. Opportunities include reducing
the diversity of desktop operating systems and office applications,
reducing the number of levels of IT services to the minimum needed,
eliminating unnecessary physical moves by personnel, seeking ways
to reduce support costs for geographically disperse users, and eliminating
unnecessary rollouts of software updates. Gartner research indicates
that large enterprises with 10,000 users or more can save in excess
of $300 per user per year, or $3 million.
Product Portfolio Management (PPM) can improve time
to completion of R&D efforts by 40 percent according to early adopters
by establishing objective and systematic methods to prioritize new
product and program initiatives. PPM incorporates financial tracking,
human resources management, technical risk assessment, and market
opportunity to reach consensus on how to work smarter and which
tools to invest in to attain that goal. Most companies do not have
this discipline. Consequently, they rarely understand how R&D dollars
and time are being spent. Successful companies focus their efforts
on the programs that matter without compromising on the quality
of R&D conducted.
Further, Product Portfolio Management should be
supported with project and program management applications that
assist in the management of development efforts involving multiple
nested projects. Adopters of project management tools with design
collaboration functionality report 20 percent to 30 percent improvement
in the time and cost to complete individual projects. Program management
software helps realize the time and cost savings by enabling managers
to detect and resolve resource bottlenecks.
Companies must invest to achieve Product Portfolio
Management benefits. Adopters report costs ranging from $250,000
to $1 million over two to 12 months to deploy a Product Portfolio
Management environment, depending on the scope of the implementation.
Adopters must also have the support of senior management to establish
and enforce the new business processes and to dedicate a team to
execute the deployment.
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