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Industrial research has come under pressure. Will recent budget cuts reduce competitiveness? Based on interviews in Japanese and European high-tech firms it is shown that research supports important potentials. These can be used for project funding, location decisions, and an analysis of sufficient conditions for research success. Careful management of the potentials should improve future competitiveness, and it should help to understand why industrial firms benefit from research and how.

Inhaltsverzeichnis

Frontmatter

1. The crucial question: to invest or not to invest in research?

Abstract
Should firms allocate a portion of their funds to research, seeking new technological knowledge that may not find immediate application in products or processes? Recently, more managers have been answering ‘no’ to this crucial question, because they feel that
  • results are not observable after relatively short planning horizons have been adopted
  • results cannot be fully appropriated by the firm that spent to obtain them
  • research proves to be risky
  • public institutions engage in research that is of potential value to the firm anyway.
Klaus Brockhoff

2. Characteristics of research

Abstract
An answer to the questions of whether and how much companies should invest to support research is much more difficult than is indicated by the few arguments mentioned above. In defense of in-house research, management may point to the relatively low cost of these activities. In fact, on average only a small share of the total research and development expenditure is devoted to research (see Figure 1). It is interesting to observe that this share has developed very differently in advanced industrial nations. It is stable and low in the U.S. until 1985, but after this year when data are collected differently it starts to reach higher levels and fluctuates considerably.
Klaus Brockhoff

3. Reasons for research

Abstract
It is clear from the memorandum by Stine that research serves more than one function. In another early study on basic research in industry, Berthold (1968, pp. 175 et seq.) collects quotations from U.S. and German research managers who stress the importance of keeping pace with their scientific environment and to make good use of its results, on top of developing innovative ideas.
Klaus Brockhoff

4. Research as a source of potentials

Abstract
It is clear from the foregoing data that research managers agree that research performs not just one, but many functions within the company, and that most of these functions need to be strengthened. This is particularly true for the so-called service-related functions.
Klaus Brockhoff

5. Research potentials and project funding decisions

Abstract
At first, we shall restrict ourselves to the project level of research. Research projects should not be selected arbitrarily. Companies have to find out which projects are more important for their future development and which are of less importance. Takeda, who is responsible for Hitachi’s R&D activities, calls research that is performed in this sense ‘north star research’, contrary to ‘blue sky research’. The north star and the blue sky are both far away from the earth, but only the former offers a definite direction. The blue sky would only signal that research goals are far different from where we stand now, but provides itself no specific direction. The same views were expressed by German research managers. One of them says: “We don’t do things that live in cloud-cuckoo-land” (Berthold, 1968, pp.- 198, 200). Here again, the idea of choosing a direction for company research is clearly voiced: research needs to be targeted.
Klaus Brockhoff

6. On property rights and project potentials

Abstract
As mentioned with reference to the Finmeccanica organization, projects that build more than one potential could be funded by more than one source. This inevitably leads to the question: who ‘owns’ the project? A convincing response to this question is that each funding source owns a share of the project equaling its relative contribution to the total project budget, as agreed upon between the laboratory and the sponsors, unless some other sharing rule has been negotiated. Budget overruns or budget savings may be experienced due to the uncertainty that is inherent in research work. In our view, benefits and costs of the uncertainty should be enjoyed or borne by the laboratory.
Klaus Brockhoff

7. Research potentials and relative share of research

Abstract
The identification potential, the absorptive potential, and the creative potential can all be made immediately relevant for entrepreneurial use. They aid in generating new business. In this section we concentrate solely on these potentials. The question arises of what share of the total research and development expenditures should be earmarked for these potentials. In this sense an optimal minimum share of research is sought, assuming that the other functions play no role in this respect.
Klaus Brockhoff

8. On sufficient conditions for research success

Abstract
Sufficient conditions for research success result from securing effectiveness of research. This should be assured by effective project selection, provided a link can be established between research and the future applications of its results in new products or new processes. As can be seen in Table 5, not all fields of research are of identical relevance to industry. While we have already dealt with literature indicating a relationship between basic industrial research and productivity increases, we shall here use a different line of approach.
Klaus Brockhoff

9. Primary research potentials as a necessary condition for research success

Abstract
Having identified primary research potentials it is important to ask which of these are necessary conditions for securing company success, and in what combination they should appear. Discussion of necessary conditions for research success does not make much sense if a company only occasionally engages in research: it would then be unlikely that technology managers are cognizant of the need to develop a special research management approach. Supporting this assumption is an observation by Eggers (1997, p. 9). He was unable to discover relationships among variables that explain research functions, communication activities, research success, etc. for a sample including firms with relatively low and relatively high research expenditures. Once he concentrated on those firms having relatively high research expenditures, he was able to support a large number of plausible hypotheses. Although the high spenders had not all adopted identical behaviors, certain common traits could be established. This was not observed for the 40% low spenders in the sample.
Klaus Brockhoff

10. On locating research

Abstract
After the identification of various research functions has been achieved, two related questions need to be answered: Should all functions be performed at the same location or not, and where should this happen? When industrial research was first started, the answers were relatively simple. All research activities were concentrated at one location, the choice of which depended very heavily on the mission of the research department. When the primary mission was to support technological decisions of top management, research was made a headquarters unit. When the function also included supporting development, which was typically located close to the main manufacturing operations, research was in turn located close to development. As the headquarters was very often located where major manufacturing occurred, research was here again close to the headquarters. If the mission stressed heavily the absorption of general scientific developments or ‘freewheeling’ creativity, research was located close to major universities or in other possibly creativity-enhancing areas. This could result in a belt of similar institutions around a core institution. The times when location decisions appeared that simple are long gone. Apart from a national location decision, in which the aspects of distance discussed above come into play, international research-location decisions are gaining in importance at present.
Klaus Brockhoff

11. Conclusions

Abstract
Business has become increasingly technology-dependent. The generation of new technological knowledge as a source of competitive advantage has become a bottleneck in many firms. This could reflect a long term trend (Brockhoff, 1996a). A natural response to this trend might be to strengthen research and development activities both inside and outside the firms. With respect to its long term potentials, research could be expected to take a prominent position in a program for growth and better future competitiveness. But on the contrary, as often before, recent reactions to environmental and competitive pressures as well as the rediscovery of shareholders’ claims, particularly in the U.S., have cast industrial research and development into disfavor. Research, in particular, has come under severe pressure, now having been substantially reduced in many firms and entirely eliminated in others. While research directors have been fighting against this development, they have found few weapons with enough power to convince seasoned managers of other functional areas, controllers, outside directors or CEO’s. Until now, management science has had little to offer that would help support the views of either side in these battles for scarce resources. The specific characteristics of research cause this activity to be pushed out of the annual planning rounds: these favor more regular business activities having promising results in shorter time, a higher probability of success, and much better chances almost fully appropriating the results that follow from the input of various factors of production.
Klaus Brockhoff

Backmatter

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