Thursday, April 13, 2017

What is R&D and why should SMEs have one?

In this post I would like to describe what is R&D. This is a continuation of a more general idea of cooperation between industry, academia and government about what I wrote in the previous post. By describing what is R&D I hope also to answer the other part of the post's title, why SMEs should have one. In doing so, I'm not going to give formal definitions for now but only my opinion, while definitions I'll leave for another post. Before continuing, I must stress again that I'm not an expert on this subject nor I represent my employer. As such, this is purely my opinion which might be completely wrong. That said, obviously, I don't believe I'm wrong in general though I accept that some ideas might not be well thought out.

I'll start by enumerating several intuitive properties I expect from R&D, looking from the perspective of a company having or wanting to have one:
  1. It adds some new value which can be monetized in some way.
  2. The new value should not be easy to obtain.
  3. It is a midterm process.
  4. It is a process that should be done methodologically with clearly defined steps and goals.
  5. There is uncertainty as to whether there will be positive results, or any results at all.
  6. It is a continuous process.
  7. R&D process requires investment.
Note that when we discuss whether something is R&D and whether something produced is a product of R&D then we are not requiring that all properties hold, it is enough for a majority to hold! Now, let me discuss each property in a bit more detail.

First, there is a property that it adds some new value which can be monetized in some way. I think that this one is obvious. Everything company does has a goal of improving profits. Now, maybe more correctly would be to say that everything company does serves it to fulfill its mission. This view of helping fulfill mission actually broadens potential topics that can be covered by R&D since some results that don't necessarily produce money can also be covered by R&D. But, more on to the earth, the company is there to make profits and if it doesn't do that, than it ceases to exist. So, R&D should support this. I will refer to the purpose of directly increasing profits as R&D in a narrower sense, while R&D in a broader sense supports company mission. I could theorize further that R&D in a broader sense is more expensive with less direct ROI and thus more suitable for large enterprises, while R&D in a narrower sense is more suitable for SMEs. Nevertheless, in the following text I'll concentrate only on R&D in a narrower sense unless I explicitly say otherwise.

The next property of R&D is that a new value produced should not be easy to obtain. In other words, if the output of some, supposedly R&D, activity is something that anyone can come up immediately, then it's not the product of R&D activity and probably there is no R&D activity at all. This property is desirable for a simple reason that it helps company keep competitive edge. The more a single company has something that others don't have, the more competitive it is and likely the more successful. But, there is a but. Namely, some outputs of R&D are complex and others are deceptively simple. The advantage of having complex products is intuitively easy to understand by anyone, but the simple ones seek some clarification. Namely, they are indeed simple but the process of generating them isn't simple. You can find examples of such output everywhere. How many times you learned something and your first reaction was: How I did not think of that !? Well, that's because the process to reach it is hard, but the output itself is simple. Now, it is obvious that copying simple stuff is easy and to prevent that patent system was invented.

The third property is somewhat related to the previous one, i.e. R&D is a medium term process. The reason is that short term process is less likely to produce something that fulfills the previous property of not easily replicating results, but other properties are also harder to achieve. In other words, if you invest brief time into development of something, in general you can expect some simple results. On the other hand, having a long-term projects allows one to obtain very good, deep, well thought out results, but in a fast paced world it is entirely possible that the results once obtained, are useless. It also might happen that in the meantime, due to not having any results, company doing R&D fails and vanishes from the market. So, the key is to have a process that is long enough to produce useful results, but not too long for these results to be useless. Finding sweet spot is more of an art than a science.

The fourth property, that the R&D process should be done methodologically with clearly defined steps and goals, basically means that certain steps have to be present. For example, goals or requirements must be defined in order to be able to assess whether the result meets goals set at the beginning or not. Then, there has to be exploratory step of studying existing work, i.e. repeating what already has been done is definitely not something that leads to good R&D, or R&D at all. If nothing else, where is the added value required by one of the previous properties? Even worse, it might happen that the results obtained are worse than what the others achieved, and potentially use. After all, the current state of the art was reached through a lot of investments - in terms of time and money. Not to mention that there is a problem with patents and it doesn't matter if you something copied or invented on your own. If it is patented, you cannot use it without the consent of the patent holder! To continue with steps that should be present in R&D activity, we also have to mention evaluation of proposed solutions. It is mandatory. This can be done by experiments, simulations, etc. The evaluation must be done in a rigorous way so that it is beyond reasonable doubt that proposed solutions do indeed lead to better results. I'll stop here because I intent to write more about this topic in a separate post that deals with an issue of how to establish R&D.

The fifth property is uncertainty as to whether there will be positive results, or results at all. There is a reason why it is called research and development. If it were not so, then it would be engineering. Note that sometimes people mistakenly confuse uncertainty in building a new product that could fail on market with the uncertain results of a research. The two are independent and might interplay in several ways. What we are talking about here is that when doing R&D it might happen that the ideas or goals turn out to be non-feasible. But, this has nothing to do with the fact that if the ideas and goals are feasible, will they be successful on the market or not. Take for example an idea about a system that would allow replacement of programmers. This goal isn't achievable and no R&D activity would be able to produce something like that. But, if it were achievable, it would certainly be huge commercial success. So, care should be taken not to confuse uncertainty of research results with uncertainty of market success.

Finally, the sixth property of continuity of R&D process is something that should be satisfied in order for R&D to be useful. This follows from the ever-changing environment and improving competition. If some company does one-shot R&D this could help the company in a short run, but in the long run there will be no benefit from having R&D.  So, just as company has to continuously adapt to state of the environment, so R&D has to be there to support necessary changes. There is also one additional reason for continuous R&D process. Namely, it is rather expensive to establish R&D process so payoffs are better if R&D is established and allowed to continuously function.

The seventh property I added later, after colleague of mine read the post and commented that the R&D process is expensive. After some thought I decided to rephrase it differently, namely R&D process requires investment. I'm still not certain whether this should be separate property or not because I believe it is implied by combination of previous properties. In the end, I decided to put it as a separate property, just in case. I should clarify this property a bit. Namely, everything is expensive when we talk about activities in the company, but it is outweighed by earnings which are immediate, either direct (e.g. selling a product to a customer) or indirect (e.g. bookkeeping activities). R&D is different in two aspects. First, it requires investment with returns coming only later and in a long run - if there is a result from R&D at all (property 5).

In conclusion, I listed six (seven) properties that can be used to determine if some company is doing R&D or it has something it thinks is R&D. Probably those are not the only properties and if you have any to add (or you think that some of the listed above is not important) please comment and provide your arguments. Anyway, probably not all of the listed properties will be present in many cases of R&D in the companies but as I said in the introduction majority would do. Maybe we can also talk about R&D maturity, i.e. the more properties are present, the more mature process is. But I'll leave this for another post.

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scientist, consultant, security specialist, networking guy, system administrator, philosopher ;)

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