Having reviewed the high level selection criteria for determining whether internal or external R&D is best for a particular project or program, specific selection criteria are now provided. There are three classes of selection criteria the project team can use in picking the right partner. The first requires segmentation of alternatives by business need. The second is to segment the alternatives by the technology’s readiness. And lastly is to remember the constant need to evaluate potential providers.
The first selection criteria for selecting alternatives by business need has three components. The three business needs to choose from are incremental upgrades, next generation products or services, and lastly breakthrough new products or services. Incremental upgrades to a product can happen at any point in the product life cycle and are generally minor changes to the products’ color, design, or feature set. They may or may not be noticed by the end consumer. Next generation upgrades to a product or service require new and improved features. This can be a new feature set or more productive manufacturing, packaging, or delivery. Consumers will definitely notice these changes. The last category of breakthrough new products or services comprises a completely new feature set or business model. These may be obtained by a completely different or redesign manufacturing, packaging or delivery system.
How to segment project needs to determine which type of external R&D is most efficient and effective is shown in the figure “External R&D Based on Business Needs”. This graphic is provided because the best external R&D is done when based on business need. Note that the appropriate external R&D source depends on the specific product or service line. The source of external R&D is different when the needed technology already exists in the world versus when it needs be developed from scratch. For next generation products and services, finding technology that can be licensed is best done using contacts at professional societies such as the Licensing Executives Society and the Association of University Technology Managers. There also technology exchanges available on the Internet that are hosted by a variety of for-profit and not-for-profit organizations.
When the technology needs to be developed from scratch, contract R&D can often be done through government affiliated labs such as Battelle and Stanford Research Institute, or with a variety of for-profit research organizations. When the technology needs to be developed to upgrade an existing commercial product, government labs such as Sandia etc. can be helpful especially when modeling complicated processes. For breakthrough new products and concepts where the technology needs to be developed, independent labs such as IDEO and university associated labs such as MIT’s Media Lab are often excellent resources to use.
The second selection criteria used to select external resources for R&D projects is based on technology maturity curves. The generalized curve is shown in the “Business and Technology Maturity Curve” figure. This generalized figure shows that revenue profits and market capitalization grow over time in an S-curve fashion as products move from their introduction through to their maturity. To help understand how this looks for a company’s products and technologies portfolio, overlaid on this figure are the major Procter & Gamble products available in the early 2000’s. This figure shows how Next-generation new and improved products typically are needed at the beginning of the business and technology maturity curve. Breakthrough new product concepts are needed as the business starts to mature.
To help visualize the use of technology maturity to select the type of external R&D source to be used, the Procter & Gamble products available in the 2000’s that were early on the technology and business maturity curve were divided into those which could utilize existing technology and those that needed technology yet to be developed. For the projects that required existing technology, the technology was obtained externally from licensing, acquisition, and intellectual property exchanges. For the work that needed to be done from scratch, the project teams utilized contract R&D, joint ventures, and Consortium inputs as shown in the “Next Generation Products Use of External Technology Sources” figure.
The Procter & Gamble products available nearly 2000’s that were more mature and needed breakthrough innovation are shown in the “Breakthrough Products Use of External Technology Sources” figure. To really change these products, and switch them from ones that were maturing to ones that were growing, the technologies needed (that were deemed already in existence) were obtained from licenses, joint ventures, and acquisitions. Where the R&D teams needed more help creating breakthrough new product concepts, the external R&D was often obtained by contracting out concept and business model development work.