World Class R&D, Take II

World Class R&D is a behavioral-financial view of R&D. What does it take to keep the two players, the funder and the researcher, engaged? The funder puts skin in the game up front and is naturally anxious. Researchers are committing to a blockbuster+ pursuit that can take a decade or more, and are nervous about having the (financial) rug pulled out from underneath them along the way. The funder risks immediate loss. The researcher risks opportunity costs – what else they could have been working on.

We bridge this gap in how we set up the research contract. The funding agent+ has the fear that researchers will either end up doing research for the sake of research (i.e., academic research) or will end up spinning their wheels. The researchers fear the funding agent will not understand the nature of discontinuous discovery+ or have the patience to allow it to happen. Our bridge is for the researcher to send unambiguous signals+ to the funding agent in the form of interim commercial results. In exchange the funding agent binds the firm to long-term contracts that protect researchers from precipitous funding actions. The research contact formalizes these signals.

The funding agent needs assurances the researcher understands the commercial urgency of their work. We provide this assurance by requiring a steady stream of interim sub-blockbuster results (products that give $200-300 million per year revenue). Researchers must show they can reach into the research box, lift out a prototype+, and successfully move that prototype into the commercial box. Blockbusters are discontinuous: sub-blockbusters do not have to be. R&D can reliably produce sub-blockbusters by merely aiming for them (i.e., as opposed to a common practice of sub blockbusters being a fall back position for failed blockbuster attempts). This reassures the funding agent that R&D can indeed produce commercial results, which makes it more palatable to wait for discontinuous blockbuster results.

But requiring a steady stream of sub-blockbusters will distract us from the blockbuster pursuit, and further delay it’s arrival! Not true, and so what. We contend that a sub-blockbuster mandate makes the blockbuster pursuit more likely and maybe even faster. It hones the commercial instincts of the researchers. They get a better sense for what it takes to move items from the research box into the commercial box. They also keep the commercialization+ and commercial operations+ alert and active for when the blockbuster finally arrives. Sub blockbuster pursuits are not a distraction; they’re an integral part of how we measure the progress of our R&D investments.

The research contract trades the patience needed for discontinuous discovery of blockbusters, in exchange for an interim stream of sub-blockbuster products. Researchers learn that their ability to work creatively over the long term is earned by delivery of commercial results during the interim. Importantly, researchers begin to understand that delivery of commercial results increases their creativity: they become better researchers.

Further Reading