Research, Development and Engineering

Effectiveness

May 2012

Research, Development and Engineering Effectiveness | May 2012

TABLE OF CONTENTS
Abstract ............................................................................................. 3
Abbreviations .................................................................................... 4
Challenges ........................................................................................ 5
What is RD&E Effectiveness? ........................................................... 6
Why is RD&E Effectiveness Relevant? ............................................. 7
Conclusion......................................................................................... 9
Reference ........................................................................................ 10
Author Info ....................................................................................... 11

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Research, Development and Engineering Effectiveness | May 2012

Abstract
Research, Development and Engineering is an area where top
dollar is being spent by product companies the world over. At the
same time, it is a fact that only a few companies have been able to
identify their RD&E returns or the levers that impact the returns the
most. Therefore, most of the RD&E investments are blind
investments.
The concept of RD&E effectiveness is about knowing your global
RD&E capabilities and the returns these capabilities can generate. It
is about making informed RD&E decisions and directing
investments toward areas that can make a large positive difference
in the outcome.
The concept is relevant in the global marketplace where RD&E
decision makers find it increasingly difficult to gauge the
effectiveness of:

Globally distributed research and engineering centers

Increasingly complex product portfolios

Research activities and Innovation initiatives

Intangible benefits of RD&E

A structured method that facilitates the estimation of effectiveness

can go a long way toward helping product companies align their
RD&E spending to obtain sustainable extraordinary returns.

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Research, Development and Engineering Effectiveness | May 2012

Abbreviations

Sl.
No.

Acronyms

Full form

RD&E

Research, Development and Engineering

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Research, Development and Engineering Effectiveness | May 2012

Challenges
A couple of questions that have plagued most RD&E managers and
decision makers are:
a) How effective is my RD&E?
b) What are the returns from my RD&E investments?
1

The Booz Global Innovation 1000 Survey points out that the top 20
R&D spenders of the world spent $128 billion in 2009 alone; an
average of 8.3% when expressed as a percent of sales. Apparently
there is no correlation between spending huge amounts of money
and financial success in the marketplace. Apple, considered as one
of the most innovative companies, spent 3.1% of sales on R&D and
churned out phenomenally successful products while Microsoft

spent almost 16% of its sales and wasnt as successful. The point
is that decision makers are essentially blind while navigating their
R&D ship. They are missing out on identifying the true levers within
their RD&E function that are most critical toward achieving their
business objectives. Worse, they are possibly misdirecting available
funds.
A structured method of evaluating the RD&E operations in terms of
investments, returns (both tangible and intangible) and capabilities
will go a long way to enable key business decision makers to make
effective decisions.

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Research, Development and Engineering Effectiveness | May 2012

What is RD&E Effectiveness?

RD&E Effectiveness is the $
value generated by RD&E
over time for every RD&E $
invested

RD&E effectiveness is defined as the ratio of the value generated

by the Research, Development and Engineering function over a
period of time to the investments in RD&E.
Value generated by RD&E ($)
RD&E Effectiveness =
Investments in RD&E ($)

Components of RD&E Value

Intellectual Property
Products
Services
Skills and Competence

RD&E is a large and complex organization in itself, and

encompasses pure research, applied research, experimental
research, etc., product conceptualization, prototype development,
verification and validation and even engineering support.
Depending on the type and complexity of product, expertise from
multiple engineering domains is required. Given all the engineering

INTELLECTUAL
PROPERTY
SKILL &
COMPETENCE
RD&E VALUE

PRODUCTS
SERVICES
diversity and multi-disciplinary interaction, the key elements that can
help organizations improve the value generated for every R&D
dollar spent, aka R&D effectiveness, are:

Clearly stated and communicated objectives

Focused performance measures

Effective RD&E management activities

Output-driven project execution

Correlation of RD&E output with business outcome

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Research, Development and Engineering Effectiveness | May 2012

Why is RD&E Effectiveness Relevant?

The key to maximizing RD&E

Effectiveness is the capability
to channelize diverse inputs
into most relevant projects that
produce outputs which deliver
business results.

The marketplace mandates that organizations come out with

innovative products at an affordable price for a global consumer, on
a continuous basis. To be able to do this, organizations set up
globally distributed Research, Development and Engineering
centers to leverage global resources and drive costs down. At the
same time, the organizational structure becomes increasingly
complex, global R&D resource management becomes challenging
and so does R&D project/program management.
RD&E effectiveness becomes a useful concept for decision makers
to not only benchmark their R&D returns against other players, but
also to benchmark the effectiveness of their distributed centers. The
concept is also applicable to identify key RD&E levers that influence
RD&E returns the most. Organizations can adopt different strategies
that guide their R&D operations, but the key to effectiveness is the
strength of the correlation between all the R&D input (strategy,
market intelligence and organizational capabilities), R&D projects
that are executed, and the R&D output that is delivered. When a
clear picture of the correlation emerges, the organizations clearly
know where and how much they want to invest and what benefits
they are likely to receive.

An

example

to

consider

is

Stanley

Black

and

Decker,

2,4

Inc.s DeWalt division , which is a maker of power tools for

professional

contractors.

They

customers in action (carpenters).

focused

on

observing

their

The result was a 12-inch miter

saw a best seller after researchers saw carpenters struggle to

cut large pieces of molding on the industry-standard 10-inch saw.

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Research, Development and Engineering Effectiveness | May 2012

Dewalt focused on identification of customers needs, and

successfully converted that input into a product that added value to
3,4

the customer. Google adopted a 70-20-10

rule of effort distribution

for its engineers: 70% of the time for core business tasks, 20% on
related projects, and 10% on their own ideas. Google has effectively
leveraged its engineering capabilities to create successful products
and services. Siemens AG spends 5%

4,5

of its overall R&D budget

on long-term planning: developing detailed technology roadmaps

within business units and technology trends at the corporate level.
This process helped Siemens expand its large health technologies
business into new areas such as personalized healthcare.
These examples illustrate that the key to maximizing RD&E
effectiveness is the capability to channelize diverse input into the
most relevant projects that produce output which delivers business
results.
Effective RD&E is a function of the following capabilities:

Capability to translate strategic goals and targets into

executable projects and governance mechanisms

Capability of RD&E projects to deliver desired output

Capability to commercially leverage RD&E output to help

achieve desired business outcome

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Research, Development and Engineering Effectiveness | May 2012

Conclusion
RD&E investments are similar to investments in the stock market:
without reasonable analysis, it is a purely speculative play. The
probability of success (high returns) is greatly increased if the
investment is backed by reasonable data analysis and remains
focused on the areas that can lead to higher gains.
Gauging RD&E effectiveness allows RD&E managers and decision
makers to adopt a structured approach to understand how the
investments are flowing into their RD&E operations and what they
can do to maximize RD&E returns.
To be able to derive sustainable extraordinary returns from their
RD&E investments, organizations should make an effort to establish
the correlation between their strategy, projects, output and business
targets, and focus their investments on the high impact areas.

2011, HCL Technologies, Ltd. Reproduction prohibited. This document is protected under copyright by the author. All rights reserved.

Research, Development and Engineering Effectiveness | May 2012

Reference
1. Booz Global Innovation 1000 Survey
http://www.booz.com/global/home/what_we_think/featured_c
ontent/innovation_1000_2010

2. Convergence: The Key to successful Innovation

http://www.baselinemag.com/c/a/BusinessIntelligence/Convergence-The-Key-to-Successful-Innovation/

3. The 70 Percent Solution

(Google CEO Eric Schmidt gives us his golden rules for
managing innovation.)
http://money.cnn.com/magazines/business2/business2_archive/
2005/12/01/8364616/index.htm

4. How the top innovators keep winning

Whitepaper from Booz : Issue 61 Winter 2010
http://www.booz.com/media/file/sb61_10408-R.pdf

5. Diagnostics Aiming for higher performance

Presentation by Michael Reitermann, CEO Healthcare
Diagnostics, Feb 2012
http://www.siemens.com/investor/pool/en/investor_relations/fi
nancial_publications/speeches_and_presentations/cmd_healthc
are_2012/cmd_healthcare_michael_reitermann.pdf

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10

Research, Development and Engineering Effectiveness | May 2012

Author Info

Chinmay M. Kale (Chinmay.Kale@hcl.com)

is a Business Specialist, ERS - Strategic
Services Group at HCL Technologies,
Bangalore. He is an alumnus of XLRI
Jamshedpur with eleven years of experience
in RD&E.

2011, HCL Technologies, Ltd. Reproduction prohibited. This document is protected under copyright by the author. All rights reserved.

11

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