The Globalization of R&D

By

There are several forces driving globalization of R&D. The first is to better target the R&D needs and markets of other nations. A second is to spread the costs of large projects between two partners or more to reduce the risks and costs incurred by each partner. A third is to promote the sale of the R&D results to the countries in which the R&D took place, which is often the case for very large projects such as codevelopment of commercial and military aircraft. A fourth is to reduce R&D costs by largely taking advantage of lower wage scales in some countries. The discussion in this article will focus on all but this last rationale.

Another factor that has promoted globalization of R&D is the development of communications and computer technology. This has contributed greatly to the development of effective virtual work teams whose members are scattered across the globe. Effectively supervising virtual work teams can be a major challenge for lab managers.

New product codevelopment, in which each partner supplies expertise and capabilities the other partner (or partners) lack, can lower product development costs, reduce product development time, and promote identification of new uses and markets for the new product. Buyers of the new product may wish to participate in the codevelopment effort to influence the performance properties of the new product and gain access to new technology ahead of their competitors. Suppliers may wish to participate in codevelopment projects to gain preferential consideration for their products and services to be used in developing the new product.

The decision to codevelop a new product or process with one or more partners is customarily made in the early stages of product or process R&D. Occasionally, however, very difficult problems are encountered in midproject. The most cost-effective way to solve such problems may be to bring in a project partner at that time.

Contractors may be brought in during later stages of product development to address environmental, regulatory, patent and marketing issues. For example, contract manufacturers may be brought in to develop improved manufacturing processes for new drugs and drug intermediates or to conduct clinical trials. This is done globally and has become particularly important in India.

Effective cooperation in codevelopment projects and their often-complex nature makes the use of R&D metrics (Using Research Metrics Helps Get More Bang for Your R&D Buck) particularly important in ensuring that project milestones are met while controlling project costs.

Nontechnical risks

Any new product development project has both technical and nontechnical risks. Project success depends on both technical and nontechnical risk management. Nontechnical risk depends on social, environmental, cultural and political factors. These nontechnical risk factors can determine whether a project is completed on time and within budget or is delayed, over budget or even cancelled. The decisions of R&D and other managers regarding nontechnical risk factors can enable faster approval of project and construction permits, capital savings, reduced project costs and increased or earlier commercial production.

Virtual project teams

Whether research is conducted by a single company in research centers located in two or more countries or by multiple companies, effective and timely communications among team members is essential. In addition, R&D managers must understand what team members expect and want from their managers. This is essential to effectively lead members of globally dispersed R&D teams.

Often there is not a single R&D manager but rather managers for each phase of the project or for each country. This adds to the complexity of communications and decision-making processes. For example, this author coordinated a multinational R&D project in which early research was conducted in the U.S. and Europe. Later, research building on those early results was conducted in India. While most of this research was conducted by a single global firm at three different research centers in three different countries, some was also contracted out to firms with specialized expertise needed for the project. A large-scale field test of the project technology was conducted in Australia with the participation of Australian companies and Australian government financial support. Environmental concerns were a major factor in the design of this field test. The work of the various project participants proceeded in parallel to save time and reduce project costs.

Managers, often separated by great distances themselves, need to anticipate problems and to provide clear direction and goals to prevent misunderstandings between team members. They need to be continually aware of the diversity among team members and should strive to create an inclusive working environment. These considerations are especially important when managing virtual teams because the level of personal interactions among team members is lower.

Clarity of written communications is essential. This is a major challenge when team members have different native languages and cultures or they are from different disciplines with different technical terms and outlooks. Generational differences add to the communications challenge. It is easier to forget these differences when working with and leading virtual teams. In the project I mentioned two paragraphs above, a three-day meeting was held to transfer information and responsibilities from one company’s team members in the U.S. to India. There were substantial communications challenges in doing this. These were not due to language differences but to different R&D cultures as well as generational differences between the young, often newly hired out of graduate school, Indian team members and the older, more experienced U.S. team members.

To add to the challenge, cultural, generational and learning style differences have an impact on team members’ preferences for the level of virtual interaction compared with face-to-face interaction. Virtual communications have become more than just the exchange of e-mails. Team meetings can be conducted over the Internet using meeting software. Webinars can substitute to some extent for conventional text-heavy written reports. Because of the ease of electronic communications, managers need to recognize that they may no longer be the main channels of communication. Uneven distribution of information can interfere with successful task completion. There needs to be an appropriate balance between a sufficient flow of relevant information to the people who need it and information overload.

Relationship-oriented leadership is essential in R&D management, and it remains so in virtual teams. Managers need to build and maintain relationships with team members and make people working thousands of miles apart feel they are part of the same team. It is important for managers to articulate shared goals and values despite the challenges of different native languages and different cultures. Managers still need to practice their traditional roles of taking an active interest in their team members’ concerns and providing feedback through effective coaching.

Contract management

Codevelopment projects require contracts to define the responsibilities of each project partner. While R&D outsourcing contracts will be drawn up by lawyers, R&D managers must participate in designing these contracts. Codevelopment contracts define the responsibilities of each project partner in developing the new product. Project designs, milestones and their completion dates, and other factors are often written into contracts. So are incentive payments to be made by one partner to another upon satisfactory achievement of milestones by deadlines often specified in the contract. R&D managers have the best knowledge of technical factors that need to be written into the contract. They often have the best understanding of new product performance requirements. These also may be written into outsourcing contracts. Such contracts may be made with vendors and product development partners. If your firm is the one that will be doing outsourced work, contracts could be signed with your customer and suppliers. Codevelopment contracts often define the communications requirements between the project partners— how results are communicated, to whom and with what frequency.

R&D managers are the primary people responsible for managing codevelopment contracts. To do so, they may interact with customers, vendors, partners or employees. Often cash payments contingent on achieving project milestones by specified deadlines are written into contracts. R&D managers from the firm commissioning the work are usually the ones who determine if a project milestone has been met in terms of completion of the specified work to the specified standards by the specified milestone date.

Some firms and the federal government have scientists and engineers designated as project managers whose primary responsibility is to administer product development contracts. These individuals usually remain scientists or engineers in their outlook, and are often found at scientific and trade association meetings. There are also many contract management firms available for consulting assignments. Specialized software for managing contracts has also been developed.

New drug development

Large pharmaceutical companies are increasingly outsourcing drug development R&D to other firms, particularly biotechnology firms. The results of these codevelopment projects can replenish depleted drug development pipelines of some big pharmaceutical firms. Companies such as Merck, which previously had seldom pursued codevelopment projects with other firms, are now eagerly seeking qualified codevelopment partners. Other large pharmaceutical firms have long engaged in new drug codevelopment projects. India, in particular, has developed a contract drug R&D and contract manufacturing industry to participate in new drug development, contract manufacturing of drug intermediates and finished drugs, and to perform clinical trials.

Not all of these partners are outside North America. While “big pharma” currently is hiring relatively few chemists, lab technicians and engineers and has closed some large research centers, U.S. biotechnology companies and contract drug manufacturers are hiring. Many of these new employees are being hired to work on codevelopment projects. Some of the large R&D laboratories closed by major pharmaceutical laboratories have reopened as labs for multiple firms including small companies and start-ups (Recycling Closed Laboratories). Many of these professionals are former big pharma companies whose professional careers have received a new lease on life.

Large companies often sign codevelopment agreements to commercialize advanced technology developed by small firms, often with government funding. For example, with the assistance of government funds, Eltron Research & Development, Inc. has developed an advanced membrane system for hydrogen separation and carbon dioxide capture. Eltron is working with Eastman Chemical to scale up the process and use it at Eastman’s coal gasification plant in Knoxville, Tennessee. This membrane technology offers the potential to considerably reduce the capital and operating costs of producing industrial hydrogen in conjunction with carbon dioxide capture and storage.

Wrap-up

Globalization and codevelopment are not a panacea for R&D managers. As the case of the Boeing 787 Dreamliner indicates (see sidebar), highly complex codevelopment projects can fall substantially behind schedule and costs rise substantially above those budgeted. This is particularly true for ambitious projects requiring the development and implementation of a lot of new technology. For example, much of the new technology incorporated into the Dreamliner is advanced materials and instrumentation. To prevent or solve problems in globalized projects, R&D managers must work closely with their peers in other countries.

Dr. John K. Borchardt is a consultant and technical writer. He is the author of Career Management for Scientists and Engineers and often writes on career-related subjects. He can be reached at jkborchardt@hotmail.com.

A Product Codevelopment
Cautionary Tale

In many ways, the development of the Boeing 787 Dreamliner jet plane serves
as an object lesson about the hazards of globalization of new product codevelopment
and manufacturing. Over many years, Boeing had built its own aircraft
design facilities, aircraft manufacturing plants and suppliers in Everett, Washington,
near Seattle. Suppliers such as precision machine shops gradually built
facilities nearby and new companies...Click here to read more.
Categories: Business Management

Published In

Go, Go Gadgets Magazine Issue Cover
Go, Go Gadgets

Published: July 5, 2011

Cover Story

Go, Go Gadgets

Continuous advances in mobile technology have been changing the way the modern world works. Make last-minute changes to a presentation on your way to a meeting, send reports back to the office while you’re at a conference or trade show, or even input data from an experiment into the LIMS directly at the bench.