McKinsey: Building an R&D strategy for modern times

• This past November 2020, strategy consultancy McKinsey & Co. published a report on the current state of R&D capacities across industries and countries.
• Notably, within the high tech industry alone, private-sector R&D investment amounted to $70 billion in 2018; however, McKinsey found that "many enterprises lack an R&D strategy that has the necessary clarity, agility, and conviction to realize the organization’s aspirations."
• McKinsey proceeded to outline four key barriers to developing a successful research and development capacity, that can also serve as a guide to understanding best practices in setting up such a function. Specifically:
• Barrier 1: "Innovation cycles are accelerating." — Although the availability of simulation technologies and software has reduced the cost of R&D and increased throughput, the increasing pace of innovation does not necessarily translate to greater impact. R&D leaders should resist the rising pressure to "quickly show results for their efforts" and focus on developing the most compelling ideas.
• Barrier 2: "R&D lacks connection to the customer." — R&D capacities tend to be isolated from other parts of an organization, and even further distanced from end-users. Enabling research and development teams to directly test products or ideas with end-users can result in outcomes that more directly address what the public wants and needs.
• Barrier 3: "Projects have few accountability metrics." — Many R&D teams "lack effective mechanisms to measure and communicate progress." However, metrics exist to monitor progress and outcomes for research and development. Implementing such schemes can help an organization understand and manage the performance of its R&D efforts.
• Barrier 4: "Incremental projects get priority." — Although incremental projects "account for more than half of an average company’s R&D investment," larger/bolder bets tend to "deliver higher rates of success." To be effective, innovation must move beyond a "mindset that views risk as something to be avoided" and embrace transformational project opportunities.

Harvard Business Review: Real Innovation Requires More Than an R&D Budget

• Just over a year ago (December 2019), top-tier business publication the Harvard Business Review released a discussion piece that highlighted recommendations for transforming a research and development capacity into an innovation engine.
• Specifically, HBR posited that innovation is "much bigger" than the traditional functions performed by research and development teams, and involves three distinct capabilities:
•  Discovery 
•  Incubation 
•  Acceleration.
• In particular, traditional R&D capacities fall short, by serving as a source for invention alone. As a result, "companies end up stockpiling undeveloped inventions in their R&D departments."
• However, a research and development team can be enhanced to perform a larger "strategic innovation function" if it is expanded to include the capabilities to develop supporting "business applications, revenue models and markets" for its most promising ideas.

Summary of First Hour of Research

• The research team used the first hour of research to confirm the availability of information about developing research and development capabilities, as well as to provide a synthesis of initial findings.
• Given that a geographic focus was not provided for this project, the research team presented research with a global scope. If a different geographic focus is desired for future research (e.g., United States), this could be accommodated in response to a follow-up comment.
• Overall, initial research indicates that sufficient information exists in the public domain to satisfy the stated goals of this research; as such, we recommend proceeding with one or more of the following next steps.