One of the reasons that the world of R&D collides with product worlds is that their agendas don’t quite line up the way you might think they should. There are of course the questions of culture, incentives and time. I will return to these questions in later posts, but today I want point out something more fundamental that I think helps explain why Alice and Edward in “Well, kind of fraud is it?” lived in worlds that were on a collision course from the beginning: many R&D managers are not even in the same business as their counterparts in product management and sales.
The Industrial Research Institute is an association of 200 R&D-intensive companies and is one of the most important forums for sharing data and best practices. Among its members are recognizable brand names in consumer products, manufacturing, electronics and pharmaceuticals. Alcoa, Xerox, and General Motors are members. It is fair to say that the IRI represents traditional, orthodox R&D management thought. Microsoft, Google, and Intel are not members. It is interesting that innovation models based on the Internet, software, nanotechnology and other industries where startups often lead the way and product development cycles are compressed are notably absent from IRI.
The IRI Medal is awarded for impact on R&D in some of the largest corporations in the world, and in 1996 it was awarded to Robert A. Frosch, who for ten years led the General Motors Research and Development Center. He anticipated by a generation the importance of industrial ecological impact. Frosch is a true visionary. His Medalist’s Address to IRI was entitled “The Customer for R&D is Always Wrong!”. It was a fascinating and very influential piece, but, because the IRI membership is not open to individuals, it is hard to find.
I have seldom, if ever, met a customer for an application who correctly stated the problem that was to be solved.
Frosch went on to describe many approaches to establishing and maintaining an effective R&D organization, and that’s what I remembered from the address until GM started its public foundering last year.
I started to wonder, “Did the GM R&D Center fail General Motors?” I don’t think that’s a fair assessment. After all GM had for many years made vast research investments in efficient engine technology, telematics, and safety – many of the component technologies that we now know are important to the automobile industry, I think the fault lies elsewhere: traditional R&D management often does not know who the customer is. R&D managers talk mainly to each other, and senior management enables this behavior. They worry – necessarily so I’m afraid – about sources of funding from the product divisions. According to Frosch:
The R&D people must swim in an ocean of corporate problems, present and future.
To Frosch and many organizations charged with innovation, the customer is the one paying the bills for R&D not the one buying the products. This is a bigger deal than you might imagine, because it shifts your perspective. It helps explain why R&D organizations have been historically ineffective in resolving Clayton Christensen’s Innovators Dilemma, and it helps explain why Alice and Edward had such a hard time aligning their goals.
Frosch says that R&D performance should be measured by:
- Past performance, not promises/predictions
- Summing the value of the successes and comparing with the total cost of the research lab, not individual projects.
- Projecting the value of successes ove their product or process life – the internal rate of return can be surprisingly high
These are internal measures, and there are many examples of R&D organizations that continued to be successful even as their parent companies spiraled into the ground. The IRI membership list is impressive but there are also members who make up a veritable Who’s Who of companies that were stunningly wrong in their assessment of their markets, and had their R&D laboratories been focused on the real customers they might have avoided disaster.
 Robert A. Frosch, “The Customer for R&D is Always Wrong!”, Research Technology Management, November-December 1996: 22-27
 Clayton Christensen, The Innovator’s Dilemma, Harvard Business School Press, 1997