R&D as a Trusted Partner

You would think discovering blockbuster+ products is all that would be needed to be a valued partner to the rest of the corporation, but that is not the case. Blockbusters are discontinuous and yet we manage the partnership daily. R&D needs a sub-blockbuster+ strategy: how do we find products that pay to keep the lights on during our search for that next big blockbuster product? How does an Investible Unit+ feel like it's paying its own way?

Being a Valued Partner to the rest of the corporation is key to our strategic direction. A valued partner is given the benefit of the doubt: is given leeway to pursue discontinuous discovery+. This must be a relationship of trust, one that is constantly earned. What have you done for me lately? This is a two-way trust, but we discuss here the trust the corporation must have for the performance of its R&D organization. In the end, the money most often flows back into the R&D organization.

R&D secures its reputation as a trusted partner by providing a reliable stream of revenue-producing products to the corporation. Corporate partners receive a steady revenue stream, with the understanding that every once in a while, discontinuously, there will be a bolus of revenue from new blockbuster products. We distinguish recurring revenues from exceptional revenues in the minds of our corporate partners. Being valued means all parties understand the game plan. We do not forecast that next blockbuster product, since they are by nature discontinuous. We reliably forecast sub-blockbuster products (e.g., product extensions+, B-movies, and the occasional me-too+ product).

Key to this model, of course, is managing expectations of the corporate partners. They cannot be lulled into believing that discontinuous discovery can somehow be made less discontinuous. There will always be an upstart willing to peddle that narrative. Revenues from the occasional blockbuster can be continuous over the patent life of the product, but this in no way should ‘condition’ corporate partners to expect replacement blockbuster products on schedule for patent expiration. The only expectation should be for a steady stream of sub-blockbuster products to cover the costs of discontinuous discovery.

This truism is soon to be forgotten. A few contiguous years of success in the blockbuster pursuit and managers begin to build corporate mausoleums and expand capacities and staff. The lessons of the past are quickly forgotten and management is pushed into making unrealistic promises. This typically spirals out of control, with less qualified individuals stepping into ‘correct’ deficiencies in management. Cheap heuristics+ and unsubstantiated promises further delay that next blockbuster discovery (worst, less-qualified individuals take credit for a discovery that was already underway before they took charge).

World Class R&D is a branding proposition. R&D management must show it has a handle on an activity that is highly uncertain, even unpredictable. Both the complexity and the management of that complexity must be continuously communicated to the rest of the corporation. R&D consistently produces sub-blockbuster products, and that’s what is reliable. But discontinuous is just that, and we must learn to take blockbusters as the unexpected bonanzas that they are. Managing unrealistic expectations is part and parcel of R&D building and maintaining its brand.

Today finance managers build slack into their forecasts, expecting R&D projects to fail. It’s easier to ask forgiveness for overshooting a forecast than for undershooting one. And you can always delay revenues. This ‘game’ is a consequence of a failed R&D model, and contributes to a lack of trust that feeds even more failure. Blockbuster revenues are too easily conflated into that common unit of measure: the revenue dollar. Forecasting in R&D cannot be allowed to sink into a numbers game: a balancing act across disconnected projects. It will take the full force and fury of the World Class R&D organization to crush this fundamental tendency.

To be clear, this is not management designating certain R&D investments as sub-blockbuster pursuits and others as blockbuster. Each investment must have blockbuster potential, with an additional mandate to find ways to keep the lights on in the meantime. Each team will fully understand the urgency to spin off a few revenue-producing (or income-generating) products during the push for that next blockbuster. The moment any investment is no longer deemed capable of blockbuster potential is the moment funding is stopped, regardless of its success at keeping on the lights. We have a limited supply of management capacity and this will not be dissipated on uninspired R&D pursuits.

Home Page May 2010