Selecting balanced portfolios of R&D projects with interdependencies: A Cross-Entropy based methodology

The intensive growth of technology makes firms rely on research and development (R&D) activities in order to adapt to technology changes in an ever-changing and uncertain environment. Due to R&D budget constraints and limited resources, firms are often forced to select a subset of all candidate projects by means of project portfolio selection techniques mitigating the corresponding risks and enhancing the overall value of portfolio. Projects' interdependencies and types were rarely considered in existing models of R&D portfolio selection that may result in selecting wrong projects. This flaw hinders the projects alignment with corporate objectives and strategy and leads to excessive risk and missing the promised values. In this paper, a balanced set of R&D project evaluation criteria was proposed. Next, to construct R&D project portfolio, a 0–1 nonlinear mathematical programming method for balancing portfolio values and risks was proposed, in which research projects' interdependencies, types and other constraints were all considered. Finally, a Cross-Entropy algorithm was developed to solve the proposed model and results were reported. The algorithm proved to be very effective in terms of solution quality and computational time. The proposed algorithm especially suits large scale instances while exact approaches are doomed to fail.     

Different dimensions of knowledge in cooperative R&D projects of university scientists

An increasing speed of new knowledge generation and a growing specialization of individuals in specific fields make cooperative R&D projects indispensable to stay abreast of the latest technological developments. However, studies targeting this field of research have almost exclusively focused on industrial cooperation projects, neglecting the importance of academic R&D collaboration.We attempt to address this research gap by investigating completed R&D cooperation projects of 376 German professors of the chemical and biological sciences. Based on their evaluation, we can distinguish between successful and less successful projects mainly involving explicit or tacit knowledge. We further characterize these groups by identifying significant group differences regarding trust, the interdependency between partners, the frequency of communication and the closeness of partners. Overall, our study presents new empirical evidence that the codification of knowledge plays an important role for the success of cooperative R&D projects.     

Influence of partner diversity on collaborative public R&D project outcomes: A study of application and commercialization of nanotechnologies in the Netherlands

Several studies have indicated the importance of public R&D in the transfer and commercialization of nanotechnology. So far, few have focused on university–industry interaction and collaboration performance. In this study, we investigate the impact of technological diversity and value chain complementarity of partners on public nanotechnology R&D projects' performance. We enriched a database on the commercial outcomes of technology research projects from the Dutch Technology Foundation STW. To test our hypotheses, we selected 169 nanotechnology research projects from the database, which started in a five-year period from 1998 until 2003. Project performance was measured five years after completion of the project. Technological diversity has a U-shaped effect on the projects' commercial performance. Findings show a strong positive impact of value chain complementarity of partners on both application development and commercial performance of the projects.. The framework introduced in this study allows an evaluation of the effects of technological diversity and value chain complementarity on application development and the commercial performance of public R&D projects.     

A performance-oriented risk management framework for innovative R&D projects

Uncertainty is one of the major inherent difficulties in developing innovative products, due to their highly dynamic markets and technologies. The presence of a large degree of uncertainty leads to high R&D risks, resulting in many R&D failures. Therefore, it is important to manage R&D risks through all R&D stages to improve R&D project success rates. This paper proposes a new risk management framework that aligns project risk management with corporate strategy and a performance measurement system to increase success rates of R&D projects and to accomplish corporate strategic goals. The balanced scorecard is used to identify major performance measures of an R&D organization based on the firm vision and strategy. Quality function deployment is adapted to transform organizational performance measures into project performance measures and a systematic procedure is developed for risk identification, assessment, response planning, and control. The proposed risk management framework enables an R&D project to be focused on achieving the corporate goals and provides a more effective way to identify, assess, analyze, and monitor R&D risks along the project cycle. The proposed methodology is illustrated with a drug development project.     

Learning from R&D outsourcing vs. learning by R&D outsourcing

We analyze how research and development (R&D) outsourcing influences product innovation. We propose a separation between learning from R&D outsourcing, whereby the firm improves its ability to innovate by using outsourced R&D directly in new products, from learning by R&D outsourcing, whereby the firm indirectly uses outsourced R&D by integrating it with internal R&D to create new products. Building on the knowledge-based view, we argue that learning from R&D outsourcing is likely to have an inverse U-shaped relationship with product innovation, because the initial benefits of using outsourced component R&D knowledge to innovate products is eventually outweighed by the hollowing out of the firm's ability to innovate. In contrast, we propose that learning by R&D outsourcing is likely to have a U-shaped relationship with product innovation, because the initial challenges of integrating internal and external R&D are eventually overcome, resulting in more innovations. Finally, we distinguish between domestic and foreign R&D outsourcing and propose a liability of foreignness in R&D outsourcing as it has a lower impact on new products than domestic R&D outsourcing. The empirical analysis shows that outsourced R&D has an inverted U-shaped relationship with the number of new products, while the interaction between outsourced R&D and internal R&D has a U-shaped relationship with the number of new products. It also shows that domestic outsourced R&D has a higher positive impact on the number of new products than foreign outsourced R&D.     

Can supplier innovations substitute for internal R&D? A multiple case study from an absorptive capacity perspective

Prior literature suggests that significant internal R&D resources are needed to leverage suppliers for innovation and that external knowledge sources can be used to complement the internal knowledge base. Based on the analysis of four inbound open innovation projects at Fortum, a multinational energy utility company, we argue that companies with low R&D intensity may adopt an alternative approach which aims at substituting – not merely complementing – internal R&D with external innovations. We adopt the absorptive capacity perspective while investigating the cases and focus on four distinct capabilities: acquisition, assimilation, transformation, and exploitation. We find that the substitution approach consists of short-term research on new technological areas in order to gain the ability to identify and evaluate alternative technologies, as well as joint business models and operations based on complementary capabilities between the parties. The cases also suggest that the innovation process requires significant collaboration and the buying company's supplier management capabilities may improve the success of inbound open innovation projects of this type.     

Coordination in global R&D organizations: An examination of the role of subsidiary mandate and modular product architectures in dispersed R&D organizations

International research and development (R&D) operations require a significant amount of coordination between the headquarters and the subsidiaries in order to integrate the dispersed activities in one final product. This article explores what mechanisms multinational companies (MNCs) use to coordinate their overseas R&D units. Based on a multiple case study involving nine MNCs with overseas R&D subsidiaries of varying mandates, we find that R&D sites with high technology and/or market orientation tend to be coordinated by informal mechanisms while sites with little technology and/or market orientation tend to be coordinated by formal mechanisms. Furthermore, it appears that this relationship is strongly affected by the product’s architecture: while rather complex R&D activities are conducted at the systems level and at sites with high technology orientation, less complex R&D activities are conducted at the component level at sites with low technology and market orientation. Finally, the findings suggest that modular product architectures have a coordinating effect in global R&D activities which have the power to lower firms’ overall coordination effort. The findings bear important implications for the effective coordination of MNCs’ international R&D subsidiaries.     

Mining external R&D

Open Innovation presses the case for timely and thorough intelligence concerning research and development activities conducted outside one’s organization. To take advantage of this wealth of R&D, one needs to establish a systematic “tech mining” process. We propose a 5-stage framework that extends literature review into research profiling and pattern recognition to answer posed technology management questions. Ultimately one can even discover new knowledge by screening research databases.Once one determines the value in mining external R&D, tough issues remain to be overcome. Technology management has developed a culture that relies more on intuition than on evidence. Changing that culture and implementing effective technical intelligence capabilities is worth the effort. P&G's reported gains in innovation call attention to the huge payoff potential.     

Exploring the impact of innovation strategy on R&D employees’ job satisfaction: A mathematical model and empirical research

This study develops a mathematical model to examine the effect of innovation strategy on R&D employee’s job satisfaction and to identify the optimal guidelines of innovation strategy, with conflict and organization performance being treated as the intermediary variables. The study further conducts an empirical survey to illustrate the contributions of this mathematical model. The results indicate that the product innovation has a greater influence on organizational performance, while the process innovation has a greater influence on conflict resolution among R&D employees. The mathematical and empirical results have provided an optimal guideline for determining the allocation of resources, which suggests that firms must focus on product innovation to gain the optimal R&D employee’s job satisfaction. In addition, the types of innovation policies along with rivals’ attitudes influence the advantages to be taken from a firm innovation strategy.     

R&D and aggregate fluctuations

Empirical observations raise interesting questions regarding the sources of the excessive volatility in the R&D sector as well as the nature of the relation between the sector and aggregate fluctuations. Using US data for the period 1959–2007, we identify sectoral technology and capital investment-specific shocks by employing a Vector Autoregression. The identifying assumptions are motivated by a two-sector dynamic general equilibrium model. Controlling for real and nominal factors, we find that capital investment-specific shocks explain 70 percent of fluctuations of R&D investment, while R&D technology shocks explain 30 percent of the variation of aggregate output, net of R&D investment. Technology shocks jointly explain almost all the variation of output in the R&D sector and 78 percent of the variation of output in the rest of the economy. They also constitute the main factor of the procyclicality of R&D investment.     

A new intellectual property metric for standardization activities

This study formulates a method to measure the effects of standardization to assist in evaluating innovation and R&D policies. Its main purpose is to examine standardization activities within R&D organizations. This allows for a more appropriate policy evaluation framework than examining such activities within standard development organizations does. The study also redefines the conventional notion of intellectual property (IP) normatively and introduces the term “integrated IP” to reflect our new concept of joining IP and standardization activities. Our new concept captures the “fuzzy” impact of standardization on R&D to improve innovation management. The study presents a vector equation expressing the new IP definition and uses it to model revenues arising from a standard-essential patent for strategic IP management with standardization. The model indicates the importance of patents commercially required for product differentiation for the purpose of innovation with standards.     

Political market failure? The effect of government unity on energy technology policy in industrialized democracies

When do governments implement technology policies that allow society to solve social problems at a lower cost? Focusing on the case of energy, we argue that in industrialized democracies, severe social problems provoke an effective technology policy response when the government is unified. A unified government can easily strike the bargains required to secure political support for new technology programs. We test this theory against data on public energy research and development (R&D) in 22 OECD countries, 1980–2006. We find that as government fractionalization increases in a country, the sensitivity of public energy R&D to wasteful energy use, which presents economic and environmental difficulties to the society, declines. The analysis reveals a new reason for ineffective technology policies and contributes to the broad literature on political market failure.     

Determinants of industrial innovation in China: Evidence from its recent economic census

This study examines the sources of technological innovation in Chinese industries using the 2004 economic census data. On the one hand, it analyzes the relationships between patent grants and new product sales. On the other hand, it analyzes the relationships among in-house R&D, technology transfer from foreign and Chinese domestic technology markets, spillover effects of foreign investment, as well as export. The study reveals that in-house R&D has become the most important source for industrial innovation in China. In-house technological efforts are critical for developing original innovations as well as for absorbing the technologies transferred from external agencies. However, neither technologies transferred from foreign countries nor those from the domestic technology market are playing significant roles in China’s industrial innovation. The spillover effect of foreign investment on patent grants is strong and significant, though its impact on new product sales is insignificant. Export shows negative, though insignificant, impact on patent grants, but positive, strong, and significant effects on new product development. Overall, the results of this study demonstrate the critical role of in-house R&D in China’s industrial innovation.     

What motivates R&D professionals? Evidence from decentralized laboratories in Greece

The challenge for research and development (R&D) professionals management is to meet the corporate objectives for effectiveness, productivity and profitability with the needs of technical employees for motivation, reward and satisfaction. Despite the continuous upgrading of the strategic importance of knowledge and technology, human resource management paid little attention to the distinctive characteristics of those highly educated knowledge workers, especially in an international perspective. Based on a large-scale survey of multinational enterprises' (MNEs') decentralized R&D laboratories in Greece, this paper offers insights on the perceived impact of intrinsic and extrinsic compensation on performance. Focused on three distinctive types of research implemented by MNEs, results record the existence of a multifaceted context of researchers' needs and satisfaction determinants, which is differentiated among the different roles of R&D laboratories. Our findings witness that in an EU peripheral economy, R&D professionals are motivated by extrinsic rewards and mainly by economic compensation.     

Is technology integration the solution to biotechnology's low research and development productivity?

The demand for innovative and cost-effective products has had considerable impact on the Research and Development (R&D) portfolio of pharmaceutical companies. With the advent of the new enabling technologies, the biotechnology revolution has created a need for a new and more appropriate paradigm for drug development. The progress in the biological understanding of disease processes and related technological developments have been a major step forward for drug discovery. However, the great majority of the biotechnology companies are confronted with the same issues as major pharmaceutical companies in terms of R&D productivity. This article intends to unfold the challenges faced by biotechnology companies involved in drug discovery by managing the complexity, uncertainty and urgency of technology integration through organic, acquisition and partnering strategies have become priorities for biotechnology companies in helping them achieving more efficiency in their pharmaceutical R&D efforts. Such strategies help biotechnology companies apply their technologies across a broad range of applications within the drug discovery value chain to maximize opportunities for product development. Competitive advantage in the marketplace ultimately derives from providing better speed, cost, quality and direction.     

Optimal R&D investment for a risk-averse entrepreneur

Entrepreneurs investing in R&D projects face technical uncertainty associated with the cost to completion of the project, which is idiosyncratic and inherently unhedgeable. We extend existing real options models of R&D investment to incorporate the cost of bearing this unhedgeable risk and find it decreases risk-averse entrepreneurs’ valuations of R&D projects and increases the minimum NPVs required for continued investment in R&D (threshold NPVs) relative to ‘unpriced risk’ values and threshold NPVs. As in the ‘unpriced risk’ case, for less risk-averse entrepreneurs with small R&D projects, threshold NPVs remain negative and decrease with technical uncertainty. However, for sufficiently risk-averse entrepreneurs with sufficiently large R&D projects, threshold NPVs can become positive and increase with technical uncertainty.     

R&D,Interindustry and International Technology Spillovers and the Total Factor Productivity Growth of Manufacturing Industries in Canada, 1974-1989

The paper presents new econometric evidence on the relationship between total factor productivity growth and the R&D expenditures of Canadian manufacturing industries in the presence of interindustry and international spillovers of technology. In contrast to studies that presume that international spillovers are incorporated in imports of intermediate and/or capital equipment goods, the present paper assumes that the principal channel of transmission of new technology is foreign direct investment. Three original proxies for international spillovers use information on patenting, the size and the origin of foreign ownership in the host country and the R&D expenditures in the country of origin. The results suggest that the nexus between industry's own R&D expenditures and the TFP growth is significant and positive, especially for the process-related R&D. Domestic interindustry spillovers of new technology have a larger effect on TFP than industry's own R&D expenditures. All three proxies for international technology spillovers are associated positively and significantly with TFP growth. However, international spillovers contribute to TFP growth less than domestic interindustry spillovers and less than own process-related R&D.     

Adoption,diffusion, and public R&D

This paper studies the impact of public RD&D (Research, Development, and Demonstrations) on the market penetration of a new government-sponsored technology. First, the technology adoption behavior of a firm under uncertainty is reviewed. Secondly, the diffusion of the new technology in a competitive industry that benefits from learning-by-doing is analyzed. Numerical simulations are conducted to determine the effect that variations in government R&D policies have on the rate and level of market penetration. Productive R&D investments affect thelevel of diffusion and R&D demonstrations therate of diffusion.     

Project evaluation and organizational form

In situations of imperfect testing and communication, as suggested by Sah and Stiglitz (AER, 1986), organizational forms can be identified with different rules of aggregating evaluations of individual screening units. In this paper, we discuss the relative merits of polyarchical organizations versus hierarchical organizations in evaluating cost-reducing R&D projects when individual units' decision thresholds are fully endogenous. Contrary to the results of Sah and Stiglitz, we find that the relative merit of an organizational form depends on the curvature of the screening functions of the individual evaluation units. We find that for certain parameters organizations would want to implement asymmetric decision rules across screening units. This allows us to derive sufficient conditions for a polyarchy to dominate a hierarchy. We also find conditions for which the cost curves associated with the two organizational forms cross each other. In this case the optimal organizational form will depend on product market conditions and on the “lumpiness” of cost-reducing R&D.     

Exploring the operating efficiency of Technology Development Programs by an intellectual capital perspective—A case study of Taiwan

Government supported technological research and development can help the private sector to compete globally. A more accurate evaluation system considering multi-factor performance is highly desired. This study offers an alternative perspective and characterization of the performance of Technology Development Programs (TDPs) via a two-stage process that emphasizes research and development (R&D) and technology diffusion. This study shall employ a sequential data envelopment analysis (DEA) with a non-parametric statistical analysis to analyze differences in intellectual capital variables among various TDPs. The results reveal that R&D performance is better than technology diffusion performance for the TDPs. In addition, the “Mechanical, Mechatronic, and Transportation field” is more efficient than the other fields in both R&D and technology diffusion performance models. The findings of this study point to the importance of intellectual capital in achieving high levels of TDP efficiency. The potential applications and strengths of DEA and intellectual capital in assessing the performance of TDP are also highlighted.