Corporate versus Divisional Laboratories

As we shall now see the decisions about the location of R&D have become more complicated. Recent experience shows that there are in fact two dimensions in the organizational location of a firm’s R&D activities.
Physical location, determined mainly by the importance of the main organizational interface, the corporate laboratory towards the general development of fundamental fields of science and technology and the divisional laboratories towards present day business.
It’s funding is determined by where the potential benefits will be captured by some of the established divisions or by the corporation as a whole.
As the table below shows, this leads to four possible categories of R&D activities in the firm. The two already described are in quadrants 1 and 4: activities funded and performed.
The location and funding of a company’s R&D
Corporate level performance; where important interfaces are with general advances in generic science and technologies
Divisional level performance: Where important interfaces are with production customers and suppliers.
Corporate level funding
Quadrant 1
Scanning external research threats and opportunities
When potential benefits are corporate wide.
Assimilating and assessing radical new technologies
Quadrant 2
Commercializing radical new technologies
Exploiting interdivisional synergies (e.g. production and materials technologies)
Divisional level funding
Quadrant 3
Exploratory development of radical new technologies
Contract research specific problem solving for established divisions
Quadrant 4
Mainstream product and process development
Incremental improvements
By corporate level laboratories (quadrant 1) and those funded and performed by divisional level laboratories (quadrant 4). The growth of interest in those in quadrants 2 and 3 reflects major problems that has emerged in the last 20 years, namely the gap within large firms between the corporate level and division level laboratories at a time when competitive success often depends on rapid product development
Activities in quadrant 3 reflect the attempt to ensure stronger linkages between the central and divisional; laboratories by strengthening the financial contribution of the divisions to the corporate laboratory thereby encouraging the interest of the former in the latter and the sensitivity of the latter to the former. Activities in quadrant 2 recognize that the full scale commercial exploitation of radically new technologies, where initiative may be necessary.
The dynamic capabilities approach has placed most emphasis on capability building at the business unit level and has somewhat neglected the potential contribution of the corporate centre to the development of new capabilities. The potential roles of the corporate centre can be grouped into four areas: leveraging, integration, reconfiguration and learning. The centre may leverage existing capabilities by identifying resources within business units, recognizing where these might be exploited by other business units and implementing the necessary organizational changes to execute the transfer. For example the drug Viagra was originally developed for cardiac markets, but trials revealed side effects which could be beneficial in the treatment of erectile dysfunction. The centre may also co-ordinate and integrate resources across business units, by supporting cross business development groups. For example the development of products and services for home automation demands the integration of capabilities in electronics software, telecommunications and the manufacture of both brown and its goods. The most successful firms in this emerging market have been those that have successfully integrated these capabilities which reside in different business units. In extreme cases a potential innovation may not have an obvious home in any existing business unit or where the business model is fundamentally different. This is a common problem with more radical innovation. In these cases the centre may need to create a new business unit to develop and exploit the innovation. This has been the strategy opted successfully by 3M. The reconfiguration of resources is different to integration and consists of the recombination of capabilities to produce economies of scale and scope. The centre is best placed to identify the potential for consolidation.