The development of production and marketing of new and better products, processes and services involves relatively large scale expenditures evaluated with conventional financial tools such as net present value.
In such projects the appropriate question is: what are the potential costs and benefits in continuing with the project? Decisions should be taken at the level of the divisions bearing the costs and expecting the benefits. Success depends on meeting the precise requirements of specific groups of users, and therefore depends on careful and targeted marketing. Financial commitments are high, so that volatility in technological and market conditions is unwelcome since it increases risk. Long-time horizons are also financial burdens, given the size and complexity of development and commercialization. External linkages need to be tightly controlled through majority ownership or joint ventures. Given the scale of resources involved careful and close monitoring of progress against expectations is essential. For such projects most firms rely on financial methods to evaluate their project portfolio, around 77% of firms according to a recent survey. However, the same survey revealed that only 36% of the best performing firms rely on financial methods, compared to 39% which use strategic methods. An explanation for the relatively poor performance of financial methods is that the sophistication of the models often far exceeds the quality of the data, inputs, particularly at the early stages of a project’s life.
Technology and Corporate strategy:
In linking technology to corporate strategy, it must be remembered that the links run both ways. Not only corporate strategy defines objectives for technology. Technology defines opportunities and constraints for corporate strategy. We shall discuss each of these links in turn.
How technology contributes to corporate strategy?
According to a report prepared by practising managers in large European firms the R&D function should play a central role in the formulation of an innovation strategy, as part of overall corporate strategy.
It is essential that the R&D function is totally integrated with the company’s activities and strategic thinking. This is the most effective way of judging the relevance of technology past, present and future, to the company’s fortunes – it strengths, weaknesses, opportunities and threats. R&D management needs to take the initiative in playing a proactive part in strategy formulation and in executing the plan.
For R&D to participate fully, a person with an overall awareness of the company’s activities such as the Technical Director, management level is essential. His / her primary functions are:
1) To provide a technical awareness within the company and a window on the external world of technology.
2) To ensure the appropriate level of technology for maintaining or regenerating the company’s existing business.
3) To provide a technical input into reviews of new business opportunities.
4) To determine the overall technical strategy consistent with corporate requirements.
The relevance of this recommendation is supported by systematic statistical studies in the USA and the UK showing that company’s commitment to and performance in innovation depends in part on the share of top management with training in science and engineering. The EIRMA report also showed that the technical director had influence over corporate strategy in about 60% of the firms.
R&D strategies defining the contribution of technology to corporate objectives are developed formally in most European large firms at the level of the division and the corporation. Table shows that formula R&D strategies had their greatest impact in the areas of direct responsibility of the R & D director (namely, the volume, composition and balance of R&D activities). They had less influence on the organizational location and methods of funding R&D organization, new venture areas, balance between divisions, methods of funding and on positioning role in the market, technological position, patent and licensing policies.
Source: Managing Innovation