10

THE ACQUISITION AND

EXPLOITATION OF
TECHNOLOGY

In the quest
.
to keep up withI the pace of technological change, organizations must be
able to acquire needed technologies and exploit their own technologies. Decisions in
this regard must be included in an organization's strategies and planning effort. This
chapter introduces methods of acquiring and exploiting technology and discusses fac­
tors affecting decisions in these areas. Speciai emphasis is placed on research and de­
velopment as a critical activity in the creation of technology. The role of governments
and large corporations in R&D is discussed, and recent global trends are presented.
National and corporate strategies for R&D have a profound impact on the competitive
posture of industry in any country. These strategies, in tum, influence the level of tech­
nological capability and thus can lead to improvements in the products and services of­
fered and to increased wealth.

ACQUISITION OF TECHNOLOGY
Technology planning encompasses the development of plans for the acquisition of tech­
nologies that will impact a firm's competitiveness. Information about these technologies
is derived from technology audits that detail all technologies and subtechnologies used
in the value chain. The audits also reveal technologies owned by the company and those
owned by outside companies. The assessment of strengths and weaknesses in these
technologies and the company's flexibility for migrating from one technology to an­
other are important. The forecasting of technological changes is also needed, as well as
gaining knowledge of what competitors are doing. The latter can be done by bench­
marking the firm's technologies in relation to the technologies of others in the same
domain or markets.

302
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 303

Managers must then make a choice as to which technology or set of technologies the
firm should immediately acquire or pursue in the future. Deciding when to enter into a
new technology or to migrate from an existing one is also important. Questions to be re­
solved include whether the firm should be a leader or a follower in a particular technol­
ogy and how this is going to impact competitiveness.
The next issue is how the firm intends to acquire the technologies that it needs. For
this decision, a manager should evaluate and examine the pros and cons of each option.

Methods of Acquiring Technology

There are several recognized methods for the acquisition of technology: (1) using inter­
nal R&D, (2) participating in a joint venture, (3) contracting out for R&D, (4) licensing
in of technology, and (5) buying the technology from others. These methodologies are
described briefly here:
1 Using internal R&D: In this method, the company relies on its own human and
technical resources to develop the technology in-house. This requires the presence of a
strong technical workforce and strong financial backing for R&D operations. Some
large companies such as General Electric (GE), General Motors (GM), American Tele­
phone and Telegraph (AT&T), and Du Pont have their own R&D laboratories to support
their efforts to create new technologies.
2 Participating in a joint venture: Two or more firms combine their know-how and
technological resources to develop technologies. An example of this is the joint venture
between International Business Machines, Motorola, and Apple to develop the Power
PC chip, or the joint venture between Motorola and Toshiba, in which Motorola can
use its strength in microprocessor technology and Toshiba can use its strength in
memory chips.
3 Contracting out for R&D: By contracting out, a company can conduct R&D with­
out having to invest heavily in an in-house R&D effort. Many companies are increasing
their use of this approach to cut R&D expenditures. The popularity of this method also
increased after the cold war, when many former defense- and military-oriented R&D
establishments became underutilized. These laboratories have the necessary human and
technical resources and have started making their services available commercially.
Many companies take advantage of this opportunity and contract out their R&D projects
to them.
4 Licensing in of technology: In this method, a company purchases the right to uti­
lize technologies owned by someone else. In the mid-1950s, the Sony Corporation
bought a license for the transistor from AT&T and was able to widely deploy the tech­
nology in its products. Observe the number of transistor-based products that Sony pro­
duces today. In the service industry acquiring a franchise of a well-known corporation
such as Burger King is a common practice. There is a premium to be paid for using the
name of that corporation and for offering its products.
5 Buying the technology: In this method, an outright purchase of technology occurs.
This is the fastest way to obtain a technology, and does not involve any resource
304 MANAGEMENT OF TECHNOLOGY

commitment for technology development on the part of the acquirer. However, there is
no control over the technology, and no real acquisition is considered to have occurred.
Using this method to get access to technology requires building strong bridges with the
supplier of the technology to guarantee the continued_ and timely support of the technol­
ogy to ensure long life cycle. This method of technology acquisition is suitable for ex­
ternal types of technology.
Ford (1988) developed a very useful matrix that shows the applicability of different
acquisition methods under different circumstance�. It considers five factors upon which
a company can make an acquisition decision. These are (1) the company's relative
standing in the technology, (2) the urgency of acquisition, (3) the level of commitment
to the acquisition or the level of investment involved, (4) the technology position cin the
life-cycle curve, and (5) the classification of the technology as distinctive, basic, or ex­
ternal. The matrix is shown in Figure 10-1. Engineers and managers can use such a ma­
trix as a guide during the decision-making process.
The matrix shows the applicability of each method of acquisition according to the
criteria listed at the top of the matrix. For example, if a company's relative standing in a
technology is high, it makes sense to capitalize on this strength and build new technol­
ogy internally. This approach allows the company to consolidate its position in a core
area of strength and helps in promoting its technology. Conversely, if a company's rela­
tive standing in a technology is low, buying the technology is the method preferred.
Likewise, if the urgency of acquisition is high, buying or licensing the technology is the
preferred method. Relying on R&D in this case is likely to be costly and time-consuming
and to lack a guarantee of success. But if the urgency of acquisition is the lowest, the
internal R&D method of acquisition is an option to be considered.

FIGURE 10-1
FACTORS AFFECTING THE TECHNOLOGY ACQUISITION DECISION
Source: David Ford, "Develop Your Technology Strategy." Reprinted from Long Range Planning, Vol. 21,
No. 5, 1988, p. 91, with permission from Elsevier Science.

Company's Commitment/ Technology

Acquis � Relative Urgency of Investment Life Cycle Categories of
:
Methods Standing Acquisition Involved Position Technology

Internal R&D High

I Lowest Highest / Earliest
Most Distinctive

I I
or Critical

Distinctive
Joint Venture Lower Early
or Basic

Contracted-out

I Low
I Early
Distinctive

I
R&D or Basic

/ Lowest Distinctive
License - in High Later

I
or Basic

Non-acquisition
i.e. Buying final No Commitment /
Low High All Stages External
product or part Investment
production
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 305

EXPLOITATION OF TECHNOLOGY
Technology can be thought of as an asset or a commodity to be purchased and sold. A
company that owns certain technology should include technology exploitation as a
component of its technology strategy. The methods of technology exploitation resemble
those used for acquisition. Decisions to exploit often contradict those of acquisition.
If a company is strong in a technology, its success in licensing the technology to
others is high. Otherwise, it has to prove its technology through internal application. It
may have to use it in its own products until the technology proves its worth to the larger
market. Licensing out enhances the opportunity for technology diffusion while requir­
ing low commitment for financial investment. Technologies with a wide range of appli­
cations are more valuable to license out, given that the company does not have to get
into the investment, the support technologies, or the marketing of diversified products.
Technology may need to be exploited as rapidly as possible for a company to have a
chance at getting the market's general acceptance of its technology and at defining the
industry standard. It may also need to be marketed widely to get good market penetra­
tion that increases the technology's market share. This strategy prevents, or at least dis­
courages, competitors from developing a different version of the technology that can
change or capture the market. Meanwhile, distinctive technologies must be protected. A
company should delay the sharing of its distinctive technology but should not delay too
much lest the technology lose its value for exploitation. (See the discussion about diffu­
sion in Chapter 3 and the Apple computer company's case in Chapter 15.)
Ford (1988) developed an exploitation matrix, which includes factors affecting tech­
nology exploitation decisions. The matrix is shown in Figure 10-2 and can be used to
guide managers in developing their exploitation strategy.
The matrix shows the method of technology exploitation to be used according to the
company's position/standing in the technology and six other criteria listed at the top of

FIGURE 10-2
FACTORS AFFECTING THE TECHNOLOGY EXPLOITATION DECISIONS
Source: David Ford, "Develop Your Technology Strategy." Reprinted from Long Range Planning, Vol. 21,
No. 5, 1988, p. 92, with permission from Elsevier Science.

Company Need for Commitment/ Technology Categories

Exploit � Relative Urgency of Support Investment Life Cycle of Potential
� Standing Exploitation Technologies Involved Position Technology Application
Methods
Employ in own Most
Production or Lowest Lowest Lowest Highest/ Earliest distinctivei/ Narrowest

I I
Products or critical

Contracted-out
Manufacture Lower High High Early Narrow

I /2I
or Marketing

Joint Venture High Low High Early Wide

Least
License - out High Highest Low / Lowest Later istinctive or Widest
peripheral
technologies
306 MANAGEMENT OF TECHNOLOGY

the matrix. For example, if the urgency of exploitation (criterion 2) is the dominant
concern and the company standing in the technology is high, exploitation by licensing
out the technology is the best choice for diffusing the technology.

TECHNOLOGY CREATION THROUGH R&D

The creation of technology can result from either an individual or a group effort. In the
past, individual efforts of inventors and trial-and-error approaches were the dominant
modes used to develop technology. In the modem era, these approaches were replaced
by more organized efforts. Complex organizations, involving many employees, have
been established to undertake R&D activities, and the scientific approach to problem
solving has been widely utilized. Contemporary R&D involves coordinating the activi­
ties of many disciplines that are collaborating to make a contribution to technological
progress.
The rise of organized R&D activities can be traced back to Thomas Edison, who in
1876 established a scientific research laboratory at Menlo Park, Pennsylvania. Edison
and his colleagues conducted research and applied their findings to the development of
the electric bulb and other revolutionary products. Alexander Graham Bell, the great in­
ventor, needed scientific help before he was able to develop the telephone in the late
1800s. Later, AT&T established its Bell Laboratories for conducting basic research and
development to advance technology. Other companies, such as Du Pont, Dow Chemi­
cal, and General Motors, created huge R&D laboratories.
The U.S. government also created a number of R&D establishments to support the
defense industry and national security effort. Examples are the research laboratories at
Los Alamos, New Mexico, and at Wright Patterson Air Force Base in Ohio. Preparing
for and participating in World War II created a dramatic rise in the number of scientists
and engineers working on R&D. A major effort was mounted to boost innovations in
aerospace, electronics, nuclear power, and manufacturing. After the war, the U.S. gov­
ernment was instrumental in establishing a number of R&D agencies to advance both
basic and applied research, including the National Science Foundation, the Atomic
Energy Commission, and the Armed Services Scientific Offices, as well as the expan­
sion of the National Institutes of Health.
Private industry and academic institutions also expanded their involvement in re­
search, having appreciated the role of science and technology in increasing knowledge
and creating opportunities for growth. Nonprofit organizations, such as universities,
took advantage of government-funding opportunities to build their laboratories, fund
graduate education, and enlarge their research bases.

STAGES OF TECHNOLOGY DEVELOPMENT

Organized technological development follows a hierarchical progression: ( 1) basic
research, (2) applied research, (3) development, and (4) technology enhancement.
1 Basic research: This is research undertaken to gain new scientific knowledge or
understanding; it is not directed toward a specific practical aim or application (Organi-
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 307

zation of Economic Cooperation and Development, 1970). According to the National

Science Foundation (1985), the objective of basic research is to gain a fuller knowledge
or understanding of the subject under study, rather than to develop practical applica­
tions. Basic research is conducted to advance science, which can be thought of as a pro­
cess of generating and accumulating knowledge over a long period of time (Allen,
1977). Basic research can be either "pure" or "oriented," depending on whether it was
performed at the will of the scientist or was steered by another entity toward a field of
particular interest.
While basic research is perceived to be a drain on organizations' resources, and may
not lead to an immediate commercial return on investment, it is essential for new
discoveries and for the growth of knowledge.
2 Applied research: This is research directed toward a specific practical aim or
objective and conducted to develop ideas into operational form (Organization of
Economic Cooperation and Development, 1970). According to the National Science
Foundation (1985), it is directed toward gaining the knowledge or understanding neces­
sary to meet a recognized and specific need. Applied research is a mix of science and
engineering.
3 Development: Development involves the systematic use of the knowledge or
understanding gained from research to produce useful materials, devices, systems, or
methods, including the design and development of new or improved services. Develop­
ment work falls more within the realm of engineering than within the realm of science.
Development effort is a connecting link between research and the commercial use of
ideas.
4 Technology enhancement: This is the continuous effort by scientists and engineers
to support and improve existing or developed technologies. It aims to improve the per­
formance parameter of the technology, lengthen the technology life cycle, and foster
incremental innovations.
Bhalla (1987) makes some pertinent observations related to science and technology
development:
• Science builds on prior science, except for rare random discoveries.
• Technology builds on prior technology.
• Technology development goes through multiple stages, each stage requiring
different skills and talents.
• Key technologies require 8 to 15 years to develop. This observation indicates that
the time horizon of technology planning is significantly longer than that of business
planning. The challenge to managers is to forecast technological change and make nec­
essary provisions for it in their business plans.

THE TECHNOLOGY PORTFOLIO AND INDUSTRIAL R&D

One of the main concerns of managers is what type of research the firm should under­
take and which technologies it should emphasize for development. The answer is not a
simple one. It depends on the objectives of the R&D program, the type and sector of the
business, its technology base, its customers, its financial and technical resources, and
308 MANAGEMENT OF TECHNOLOGY

many other pertinent factors. Schmitt (1985) divided corporate research into generic
research versus targeted research and market-driven research versus technology-driven
research. These are useful classifications for companies because they link research
programs to the objectives of the research. Another classification introduced by Merten
and Ryu (1982) proposed dividing industrial laboratory research activities into five
categories:
1 Basic research.
2 Exploratory research.
3 Development of new commercial activities.
4 Development of existing commercial activities.
5 Technical services.
In general, it is believed that a company should engage in R&D to the extent neces­
sary to create a strong technology portfolio to support its activities. A technology port­
folio is similar to a business portfolio, in which investment is made in a number of
stocks rather than in one stock. This strategy echoes the popular saying: "Don't put all
your eggs in one basket." The solution is to diversify investments across a wide spec­
trum of stocks, bonds, securities, and so on. Similarly, a technology portfolio can be
selected to support all aspects of the company's technology, from pure research to de­
velopment to maintaining and embracing existing business. A generic technology port­
folio model is shown in Figure 10-3.
Jain and Triandis (1990) proposed the following R&D needs, which apply to any
company technology portfolio:
• Normative needs: Here the research is directed toward satisfying the needs of the
user, the user being the primary or follow-on beneficiary of the research product.
• Comparative needs: Here research is driven by the need to stay in the race with
competitors.

Technology Hierarchy FIGURE 10-3

TECHNOLOGY PORTFOLIO
Research CATEGORIZED BY STAGE
OF TECHNOLOGY
Embryonic or Emerging Technology

New Generation of Technology

Growth

Technology Transfer

Mat,ri� [ Maintenance
(Product, Process, Markets)
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 309

EXHIBIT 10-1
R&D EXPENDITURE, BY INDUSTRY SEGMENT

Share of total U.S. Industry R&D*

Industry Segment 1981 1988 1995

Information/electronics R&D 32% 42% 44%

Drug/medicines R&D 7 9 16
Combined share 39 51 60

•Approximate.
Source: Mitchell, 1997.

• Forecast needs: This research is driven by the forecast of future changes in tech­
nology, products, consumer behavior, or new regulations.
Corporations use R&D basically to lead and support innovation. Areas where this is
relevant are:
• Product innovations.
• Material innovations.
• Process innovations.
• Market innovations for new business development.
• Service innovations.
The R&D effort to support innovation varies from one industry sector to another.
Companies working in the sectors of electronics, aircraft, and chemicals invest more in
R&D than they do in equipment and plants (Pavitt and Pattel, 1988). As shown in
Exhibit 10-1, in the United States, R&D [Link] in information, electronics, drugs,
and medicine account for 60 percent of the combined share 8f total R&D. In some sec­
tors, such as steel, automobiles, and segments of the electro�ics industry where the U.S.
competitive edge declined, Japan's industries spend 30 percent more of their output on
R&D than their U.S. counterparts spend.
Corporate-level R&D must devote its energy to highly leveraged opportunities-the
ones that create new business or tum entire businesses around (Schmitt, 1983). Lever­
aging opportunities require up-front R&D investment in a balanced spectrum of pro­
grams. These can include:
1 Focused and targeted short-term projects.
2 Focused and targeted long-term projects.
3 Speculative and exploratory work.
4 Supportive research projects for existing products and services.

JUSTIFICATION OF R&D EXPENDITURES

Conducting R&D requires both human and financial resources. The R&D effort in cor­
porations competes for resources with traditional areas of production, including materi­
als, labor, equipment, facilities, and sales. In corporations with established R&D efforts
310 MANAGEMENT OF TECHNOLOGY

research directors have to justify the R&D programs undertaken by their laboratories.
This is not an easy task since R&D programs by nature are risky endeavors. They re­
quire expenditure without a guarantee of profitable return. Top executives may view
R&D as a cost without immediate revenues. U.S. managers' tendency to focus on a
"short time horizon" (Berman and Khalil, 1992), a practice based largely on a financial
rather than technical perspective, compounds this problem for many companies. Man­
agement's' focus on short-term return for expenditure, which justifies expenditures
solely on the basis of their immediate contribution to the bottom-line profit, does not
bode well for favorable decisions on R&D projects. It is recognized that longer-term
[Link] risky programs may ultimately bring large benefits to the corporation. Histor­
ical and current facts indicate that R&D expenditures are directly linked to innovation,
productivity and quality improvement, increased market share, and many of the factors
that contribute to organizational competitiveness. In all cases, funding decisions for
R&D are dependent on the justification methodology used by R&D managers to get
management approval. Existing methods for funding R&D in corporations are usually
based on one of the following:
1 R&D is supported as an overhead (OH) expense. In this case management con­
siders R&D as a necessary cost of the business. This method of funding indicates that
management is committed to R&D. However, this method has practical limitations in
terms of determining an appropriate level of funding that will not increase the overhead
to a level detrimental to the overall financial performance of the company. Mitchell
(1988) indicated that this method of funding is suitable for projects directed toward
knowledge building, that is, projects in which exploratory or basic research is under­
taken as one end of the continuum in a technology portfolio.
2 R&D is supported as an investment. In this case funds are allocated to R&D on the
basis of the company's traditional financial criteria justifying capital budgeting. One of
the most common criterion used is return on investment (ROI).
The ROI and similar financial justification methodologies are inherently biased
against long-term R&D projects, in which the future is uncertain. Returns on revolu­
tionary technological innovations are often underestimated. If the project is consid­
ered risky, the endeavor is difficult, if not impossible, to justify under this method.
Many promising projects are killed this way. Mitchell (1988) indicates that ROI is
clearly appropriate for technical development and engineering programs whose
market and financial implications' are understood well enough to permit meaningful
quantification of the ROI model parameters. Therefore, ROI is suitable for justifying
R&D projects at the downstream end, where uncertainty of outcome is reduced or
eliminated.
There is an important segment of the technical activity covering applied research,
exploratory development, and feasibility that is difficult to justify usirig either of the
two funding models mentioned above. Projects in this area may require large expendi­
tures, which are difficult to accept as a cost of doing business under the OH funding
scheme. Meanwhile, the potential impact of the projects is still too uncertain to justify
their funding under an ROI investment-funding scheme. These projects are often asso-
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 311

owledge
uilding
R&Das
f Business
H)

Commitment ($)
FIGURE 10-4
STRATEGIC OBJECTIVES OF R&D AND PREFERRED
METHOD OF FUNDING
Source: Mitchell & Hamilton, 1988.

ciated with the strategic positioning of the company (see Figure 10-4). Mitchell and
Hamilton (1988) recommend that justification of such projects be made according to
the American call option of the stock market. The option scheme allows a purchaser to
acquire stock at a specified price (exercise price) at any time prior to an agreed-upon
expiration date. This method reduces the risk of a major expenditure, thereby permit­
ting the company to delay a decision on investment while maintaining a position in the
technology.
The price of the call option is equivalent to the cost of theR&D activities at the time
of the call. If the option is exercised in the future before its expiration date, an additional
price will have to be paid. This is equivalent to the added cost ofR&D that the company
will have to invest to consolidate its R&D effort. The value of the stock at that time,
which is analogous to the value of R&D, may be higher. Thus the company's return on
its initial investment in the price of the call will be rewarded. The risk of losing the cost
of the option, should the company decide not to exercise its option, is not overburden­
ing for the company. Management is more likely to accept strategic positioning projects
justified financially as an option. Mitchell and Hamilton's paper is recommended read­
ing for this chapter.
Many R&D projects with potential opportunities may exist, but they may require ex­
penditures beyond the range acceptable to an organization. For such projects, govern­
ment funding, cost sharing with other organizations, or strategic technological and
financial alliances with other organizations might be needed to bring the projects into
the region of feasibility, as shown in Figure 10-5.
A national technology policy can be formulated to make use of the concepts dis­
cussed above. Technology policy can encourage consortia and other cooperative busi­
ness alliances, provide matching funds to industry, and facilitate wide diffusion of
312 MANAGEMENT OF TECHNOLOGY

Exploratory
Research

• • Potential Opportunities

C:
•
u
Ql

C:
:::::,

Both
Commercialization
ACCEPTABLE R&D PROJECTS

Commitment ($)
FIGURE 10-5
STRATEGIES FOR BRINGING R&D PROJECTS TO A CCEPTABLE LEVEL
These strategies involve changing the cost and risks associated with new technologies.
Source: Mitchell, 1995.

federal R&D. By doing so, the policy seeks to drive investment decisions of industry to
the range of acceptable R&D projects on the curve shown in Figure 10-5. This places
the risks and rewards of particular investments within the bounds of acceptable cost and
uncertainty (Brody, 1996).

General Observations on Industrial R&D

• Large firms undertake the major part of all industrial R&D. In the United States,
300 of the largest companies account for 92 percent of research expenditure. The 40
largest companies account for 70 percent of industrial research expenditure. Large in­
novative firms usually have strong R&D laboratories.
• The larger the company, the more likely it is to have some research activities.
• Although the great bulk of R&D takes place in large firms, significant inventions
have emanated from small firms and from individuals. Examples include xerography
and the Apple II personal computer. These innovations occurred because of the entre­
preneurial spirit of individuals like Chester Carlson and Joseph Wilson, in the case of
Xerox, and Steve Jobs and Steve Wozniak, in the case of Apple.
• Only a small percentage of R&D projects turn out to be a commercial success
(a ratio of 1 to 10 in some industries and sometimes as low as 1 to 3,000).
• Small firms are credited with expanding national employment figures; they are
effective in matching technology with customer needs. However, they are less likely to
hire highly educated scientists and engineers. This is due to either a lack of financial re­
sources or an underestimation of the role of innovation in global competitiveness.
• R&D can be divided into two activities: research and development. Development,
in particular, is a costly endeavor, and it is difficult for individuals and, in some cases,
small firms to raise the necessary resources to bring an idea to the market. Government,
safety, environmental, and legal regulations have increased the cost of the development
effort.
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 313

• In the early stages of the product life cycle, technology is more crucial than devel­
opment and marketing activities. Once the technology passes the stage of scientific ac­
ceptability and proves its value, effort shifts toward development, production, and
marketing.

THE GOVERNMENT AND MILITARY ROLE IN R&D

Most industrialized countries recognize the importance of R&D and its role in
developing technologies to create economic growth and preserve national security.
Exhibit 10-2 presents R&D expenditures by country as a percentage of the GNP of each
country.
The U.S. government has generously supported research and development activities,
particularly in areas connected with the preservation of national security. National
R&D expenditure in defense-related endeavors has been greater than or equal to R&D
expenditure for nondefense-related endeavors as previously shown in Figure 7-12. In
1993 federal funding for military R&D was $41.42 billion and for civilian R&D was
$28.34 billion. Industry funding for the same year was $99.5 billion. The traditional
R&D role played by the Defense Department has contributed significantly to the
growth of technological knowledge in the United States. Many industries have bene­
fited from defense technology programs over the years, whether through direct in­
volvement in the programs or through technology transfer. Yet there remains a
significant amount of defense-related technology that has not found its way into the
commercial sector. This technology may contribute to national security but not to the
creation of wealth.
In contrast to the United States, Japan devotes a great majority of its R&D expendi­
ture to the commercial sector. This is a significant factor in the emergence of Japanese
industry as a fierce competitor in commercial products. It also led to growth in Japan's
economy. Japan's investment in R&D has moved Japanese industries from being imita­
tors of technology to being leaders in innovation. U.S. expenditure in the various sectors
of R&D has changed over the years as shown in Figure 10-6. The variations in R&D
sectors' expenditure depends on many political, social, economic, and environmental
factors.

EXHIBIT 10-2
NATIONAL R&D EXPENDITURES, AS PERCENTAGE OF GNP

Year United States France Germany Japan United Kingdom USSR

1965 2.8 2.0 1.7 1.5 NA 2.9

1970 2.6 1.9 2.1 1.8 NA 3.3

1975 2.2 1.8 2.2 2.0 2.2 3.8

1980 2.3 1.8 2.4 2.2 NA 3.8

1985 2.7 2.3 2.7 2.9 2.2 3.8

Source: Extracted from various sources & Department of Commerce data. (Figures are rounded.)
314 MANAGEMENT OF TECHNOLOGY

Constant Dollars-Budget Outlays 1940-1960,

Budget Authority 1961-1994
60
• All other
D General science
50 c:J Energy ,.. .;........... J-
D Space
- Health
40 D Pre-1961 civilian
• Defense

30
ffi
{h

20

10

0
1940 1950 1960 1970 1980 1990
FIGURE 10-6
FEDERAL R&D FUNDING FOR DEFENSE AND CIVILIAN
FUNCTIONS, 1940-1994
Source: Brody 1996.

GLOBAL MANAGEMENT OF R&D

The complexity of today's technology-based R&D, business dynamics, and markets is
compelling companies to reconsider scale, size, and location, as well as the scope and
direction of their activities. In a review of corporate trends in R&D, Perrino and Tipping
(1989) found the following characteristics:
1 While markets are global, technology will continue to develop locally in pockets
of innovation.
2 Critical mass will be a key factor in successful technology development. Cost has
increased because of the need for interdisciplinary teams.
3 External relationships are becoming more important-survival is no longer a mat­
ter of being a technological island; rather, it depends on being part of a research con­
sortium, joint venture, or the like.
4 Companies can get more out of their research by linking it more closely to market
needs and customer requirements rather than by increasing spending.
5 The global network model is the wave of the future. This implies supporting tech­
nology core groups in each major market (United States, Japan, and Europe). All groups
should be managed in a coordinated way.
Perrino and Tipping found that European, American, and Japanese companies deploy
their R&D resources in different patterns:
• The European pattern is based on acquisition of entire companies.
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 315

• The Japanese pattern is based on home production and centralized R&D plus "lis­
tening posts" for acquiring technology rather than on overseas expansion of R&D.
• The U.S. pattern is based on setting up overseas laboratories staffed by their own
company's U.S. or foreign nationals employees.
The six years between 1987 and 1993 witnessed significant growth in the number of
foreign-owned businesses in the United States, with a dramatic $8.1 billion increase in
their R&D spending (see Figure 10-7 and Exhibit 10-3). U.S. corporations have also

16

14

12
.5
10
.5 .
8

0
1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993
FIGURE 10-7
R&D EXPENDITURES BY U.S. AFFILIATES OF FOREIGN COMPANIES
Source: Dalton and Serapio (1995).

EXHIBIT 10-3
R&D EXPENDITURES AND EMPLOYMENT BY AFFILIATES OF FOREIGN
COMPANIES IN THE UNITED STATES

Expenditures ($, millions)

R&D Employees
Country 1987 1993 (thousands)

All countries 6,521 14,618 105.2

Switzerland 765 2,524 14.7
Germany 1,139 2,321 19.2
United Kingdom 833 2,295 20.0
Japan 307 1,781 11.8
France 366 1,204 9.3
Netherlands 542 691 6.3
Canada* 1,666 2,190 10.3

•canadian affiliates include a major U.S. chemical company with a minority

Canadian investment.
Source: Dalton and Serapio, 1995.
316 MANAGEMENT OF TECHNOLOGY

EXHIBIT 10-4
EXPENDITURES FOR U.S. R&D ABROAD

1989 1993
Country ($, millions) ($, millions)

1. Germany 1,496 2,568

2. UK 1,673 1,639
3. Canada 914 1,030
4. France 545 942
5. Japan* 488 862
6. Ireland 134 669
7. Belgium 317 460
8. Netherlands 360 392
9. Spain 115 321
10. Singapore 25 312
11. Italy 294 304
12. Brazil 90 220
13. Australia 181 176
14. Switzerland 67 109
15. Mexico 37 75t
16. Hong Kong N/A 74
17. Sweden 33 48
Total 7,048 10,954

*Of U.S. R&D facilities in Japan, more than half were established or acquired
during the past seven years.
t1992 R&D data.
Source: Dalton and Serapio, 1995.

made significant commitments to R&D overseas. They almost doubled their R&D
expenditure in Japan and Germany between 1989 and 1993 (Exhibit 10-4).
It is evident from Exhibit 10-3 that establishing facilities within a country contributes
to the employment of many people and thus to the overall improvement of that country's
economy. It is also evident from the continued trend of companies' establishing foreign
affiliates in the United States and all over the world that globalization of R&D, produc­
tion, and marketing is fully under way. Exhibit 10-5 shows the reasons given by foreign
executives for locating their R&D activities in the United States. These reasons vary
from one industry sector to another. The three major reasons are acquiring technology,
being close to the customer, and meeting U.S. environmental regulations.
Most of the countries that are actively seeking to compete in the global arena have in­
creased their levels of support for R&D activities. Figure 10-8 shows the level of na­
tional and government expenditures in science and technology in China from 1988 to
1994, where expenditures more than doubled in the six-year period. The rise in the Ko­
rean government's science and technology (S&T) investments over the five-year period
from 1990 to 1995 is even more impressive (Figure 10-9). The Japanese government
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 317

EXHIBIT 10-5
REASONS FOR FOREIGN R&D INVESTMENT IN THE UNITED STATES*

Electronics Autos Biotechnology

Acquire technology 1 2
Keep abreast of technological developments 2 2
Assist parent company in meeting U.S. customer needs 3
Employ U.S. scientists and engineers 2 3 2
Follow competition 3 3 4
Take advantage of favorable research and development 4 4
Cooperate with other U.S. R&D labs 2 3 2
Assist parent company in meeting U.S. environmental 4 4
regulation
Assist parent company's U.S. manufacturing plants in 4 2 4
procurement
Engage in basic research 3 4 2
1 = Extremely important
2 = Important
3 = Neutral
4 = Unimportant
* Reasons given by senior R&D/technical executives.
Source: Dalton and Serapio, 1995.

800
National
700 ___ c:::J
- Government
600
500
400
300
200
100

1988 1989 1990 1991 1992 1993 1994

FIGURE 10-8.
CHINESE NATIONAL A ND GOVERNMENT S&T EXPENDITURES
Note: Exch. rate: 8.3 Yuan to US $1.00.
Source: Office of Technology Policy, 1997.

has been steadily increasing its science and technology budget since the early 1970s, as
shown in Figure 10-10. Technology development is a major factor in driving the eco­
nomic growth of nations. Figure 10-11 shows a number of countries' GDP per capita
plotted against their annual expenditure in R&D as a percentage of GDP. There is a
strong correlation between high per capita income and high R&D expenditure. Coun­
tries around the world have come to realize the importance of R&D in creating and
 3500

3000

2500

2000

1500

1000

500

0 IL:=!:;l�l:;:l ��I :-=!::;::

I
:..iJ!�I
�:::;,::'.....:!:::;::;:_;::��!c;:
I
:..::!�I
'....::!:::;l:::l.::!!si;l �k;il ��I il.:!!�I
C·:,z;?'
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
FIGURE 10-9
KOREAN GOVERNMENT'S S&T INVESTMENTS
Source: Office of Technology Policy, 1997.

3,000

2,500
C:
2,000 �
0
1,500 C:
1,000 ai

500

CX) C\J (0 0 v U"l (0 r--

r-- CX) CX) 0)
0)
0) 0) 0) 0)
0) 0) 0) 0) 0) 0) 0)

FIGURE 10-10
JAPANESE GOVERNMENT S&T-RELATED BUDGET
Source: Office of Technology Policy, 1997.

3.5

� 3.0
CJ : : ;
o 2.5 .............,...................•1
t ! J E an1
•FIN i • i
g, 2.0
·
········(...............,;- :
:a H i·e DENMARK!·
a5 1.5 1··················•·················· ··· ················,··················,·················;;;,,�············•,················:.1.···,··,·:·;,;·····• ····•:a:···· • CAN······• ···················•··················,
• • • .
0

&° i IA
I.• CHiLE
R
� 1.0 iNorI·A; :�� '
e HON CE"'···· · t········ ··+···············••:••······· , ........ ..., ..................;
0.5 ················•: PRC ··t···· BRA, .................. ·!e ··•·'·"'"c""·"'·
, .'····"'GREE .............. :
: • INDbN MEX •
! ; • THAil
5,000 10,000 15,000 20,000 25,000 30,000
GDP per Capita (US $)
FIGURE 10-11
RELATIONSHIP BETWEEN NATIONAL R&D SPENDING AND GDP PER CAPITA,
1994
Source: Mitchell, 1997.

318
 CHAP TER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 319

developing technologies and in improving the standard of living. Many countries have
responded with increased levels of expenditure in R&D.

CONCLUDING REMARKS
Technology planning requires the development of plans for the acquisition of technolo­
gies from outside sources and the exploitation of internal technologies that may have
value outside the firm. There are many options available to managers to effect the ac­
quisition and exploitation of strategies. Each one of those options has advantages and
disadvantages. Therefore, technology managers must be able to recommend the optimal
strategy on the basis of their knowledge of the technologies, the competition, and the
markets.
Technology owned by a firm has its value. However, experience has shown that own­
ing the technology often requires strong involvement in R&D. It also requires a special
strategy to protect the technology and exploit it for the firm's overall benefit.
R&D has a hierarchical progression, from basic research to applied research to de­
velopment to technology enhancement. Top management must decide on the company's
appropriate level of involvement in R&D and how and where to pursue it. R&D is often
perceived to be a risky investment. R&D managers have [Link] role in clarifying
to their business counterparts the benefits of R&D and the risks of not pursuing certain
projects. Innovative justification methodologies may be helpful in this regard.
Governments have an important role to play in enhancing the critical technologies
needed to support indigenous industries. A government's expenditure on R&D provides
essential support for basic research and significant support for the overall environment
that permits technological progress in a country. This, in tum, has a positive effect on
the nation's GDP and on its citizens' standard of living.

READING 10.1

Options for the Strategic Management

of Technology
Dr. Graham R. Mitchell*

Abstract: Fast-moving technologies are changing the rules of business for many
U.S. corporations. New management approaches are needed to better couple business
strategy and technology, and to offset the impact of short-term financial perspectives.
The paper discusses the development of these approaches in a major U.S. corporation,
and their application to the corporate research laboratory.

* At the time of writing this article Dr. Mitchell was Director of Planning, GTE Laboratories Incorporated,
40 Sylvan Road, Waltham, Massachusetts 02254, U.S.A.
Source: From T Khalil, B. Bayraktar, and Edosomwan (eds.), Technology Management I. Interscience En­
terprises, Geneva 1988.
320 MANAGEMENT OF TECHNOLOGY

T HE STRATEGIC IMPACT OF TECHNOLOGY

Fast-moving technologies are changing the rules of business for many U.S. industrial
corporations. Advances in electronics are shortening product lifetimes for a wide range
of consumer and industrial products. Flexible manufacturing, factory automation, and
new control systems are changing the "set points" and historic rules of thumb through­
out manufacturing. Advances in software, particularly database systems and artificial
intelligence, are increasing productivity and creating many new products and markets in
the rapidly growing service sector. Even the boundaries 'between hitherto distinct mar­
ket segments are becoming blurred as a result of technological changes. This is occur­
ring between telecommunications and computing. The challenge presented to U.S.
general management by this rapid rate of technological change, even when they were
originally trained as technologists, is daunting. Set against the context of declining in­
ternational competitiveness of U.S. industry, many would argue that it is a challenge
which is often inadequately addressed.

Two Issues for Technology Management

Over the last decade, two broad issues have been frequently raised which go to the heart
of the strategic management problem.
The first is usually described as a concern with the poor coupling between strategic
planning and technology, and arises from the failure of strategic management systems
to give business adequate warning of fundamental shifts in the competitive balance
within an industry and the opportunities for growth brought about by technological in­
novation [Kantrow (1980)).
The second related concern is that even when the potential impact of a new technol­
ogy is recognized at the conceptual or strategic level, overreliance on short-term mea­
surement and justification within U.S. corporations often biases the implementation
process against some of the more strategically important technical programs [Abernathy
and Hayes (1980)).

The Strategic Role of Technology in Industry

These twin problems arise in part because of the largely operational role assigned to
technology in most strategic planning and management approaches. To the general man­
agement and planning community, technology or engineering is perceived to be a sub­
set of business vying for resources with other functions, such as marketing,
manufacturing, operations, etc. From this viewpoint, the appropriate role of the techni­
cal community within industry is largely to manage and to carry out those programs
necessary to implement business strategy-programs which when implemented will
often be justified as p&rt of a business investment, using a capital budgeting framework,
possibly ROI, as a basis for choosing between alternatives.
By contrast, the R&D community within many U.S. corporations may well feel that
technical advances by its peers around the world are a much better guide to the long­
term direction of the corporation than the formally documented strategies of the
planners.
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 321

The strategic importance of technological innovation comes about because it can lead
to sustainable competitive advantage, often by extending and improving the corpora­
tion's family of products or services, by reducing costs, or by improving the operating
systems and the way the corporation does business. However, the process of acquiring the
needed technical insight and capability requires not only resources but, more importantly,
time. Thus, in order to fully capitalize on developing business opportunities, many cor­
porations must have anticipated the technical needs of the business, and strategically po­
sitioned themselves with an understanding of, and access to, the relevant technology.
The choice of the technical areas in which to establish a strong strategic position in
anticipation of downstream business investment opportunities is among the most im­
portant decisions for U.S. corporations. Often it must be made before the range of com­
mercial applications are well understood. Unfortunately, most formal planning systems
provide little guidance on how to make these critical choices, and most accepted finan­
cial approaches provide only limited help on how to allocate resources to them.

KNOWLEDGE BUILDING-
STRATEGIC POSITIONING-BUSINESS INVESTMENT
While it is common to classify technical work by activity, such as basic and applied re­
search, development, and engineering, it is often more useful when addressing the man­
agement of technology to recognize that these activities are aimed at several different
strategic objectives. Most technical work in industry, often development and engineer­
ing, is part of a business investment. At the other end of the spectrum, many corporations
recognize the need to carry out some exploratory research and general awareness activ­
ities directed toward knowledge building. However, in order to bring this exploratory
work to the point where it can be successfully exploited in a business investment, it is
often necessary to increase resources and focus research to develop a strategic position
or capability in the critical technical area.
In industrial R&D organizations, very real limits exist to the rate at which resources
or the mix of technical skills can be changed. With relatively fixed resources, the trade­
off between knowledge building and strategic positioning in industrial research labora­
tories is illustrated in Figure 1. The rapid growth of new scientific and technological
areas of potential interest to the corporation pressures research management up the
curve, to cover more areas at a relatively low level of funding per area. The need for
strategic positioning forces decisions the other way, down the curve, toward increased
focus and higher resource levels for only the highest priority technical areas. In practice
most R&D managements settle for an uneasy balance between the two sets of pressures,
recognizing that at any time unanticipated advances such as the recent breakthrough in
superconductors may replace previous priorities at either the exploratory or focused end
of the spectrum.
The practical problem facing many corporations as they try to strategically manage
technology to respond to and anticipate the needs of their businesses is that there is often:
• No generally accepted language for unambiguously identifying and defining the
most critical technologies in which the corporation should be strategically positioned
for the achievement of its business goals;
322 MANAGEMENT OF TECHNOLOGY

l Knowledge Building

Strategic Positioning

FIGURE 1
STRATEGIC PRESSURES ON
Funding per Area TECHNICAL RESOURCES

• No way to manage these technologies beyond their implementation in specific

business developments;
• No appropriate financial framework for allocating resources to strategic positioning.

DEFINITION OF TECHNOLOGY
In order to start to address these issues and discuss the strategic impact of technology, it
is necessary to define technology in a way in which it can be understood by the techni­
cal community within the corporation, and in a way which addresses the priorities as
seen by the business management within the operating groups [Mitchell (1985)]. Scien­
tists or engineers tend to define technologies in terms of skills or disciplines, such as cir­
cuit design, solid-state physics, or heat transfer. The general business community is
more likely to speak in terms of classes of products, such as integrated circuits, central
office switches, or even communications systems. The different approaches to the defi­
nition are not simply semantic, but reflect alternative viewpoints as to what is most im­
portant. The engineer tends to stress the input to the process; management, and for that
matter the general public, are more likely to think of the output of the technology.
It is difficult to overestimate the importance of this classificatory language, and the
care with which it needs to be developed [Steele (1975)]. In GTE, as in other corporations,
we have been able to combine the skills and their application in a common definition. This
unit of analysis, the "strategic technical area" (STA), is composed of four elements:
1. Skills or discipline ➔ 2. which are applied to a ➔ 3. particular product, service
➔ 4. which addresses a specific market need.
An example of an STA definition that covers Integrated Circuit Processing is:
1. The principal skills include lithographic techniques (photo, x-ray, electron beam) for
defining fine geometries on semiconductors, as well as high-temperature solid-state
chemistry and thin-film processing. 2. These are applied to the fabrication of semicon­
ductor integrated circuits, 3. which are used in a wide range of switching and transmis­
sion products, 4. throughout the telecommunications industry.
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 323

Identifying STAs-Building the Network

The simplest way to develop a clear picture of which areas of technical expertise are
most important to the corporation as it presently exists is to define the STAs at the oper­
ating unit level. For each of the product lines or services produced by the business unit,
engineers or scientists are challenged to identify the critical skills necessary to maintain
strong or leadership positions and to place particular emphasis on those areas where in­
creased technical capability will produce increased benefits for the business. The num­
ber of STAs developed for a product line or service depends on the complexity of the
product or service. Usually three or four areas are enough to identify the most critical
skills.
As the exercise is repeated for adjacent products or services, it often becomes clear
that many of the same underlying strengths or skills are utilized in several different busi­
ness areas. Thus, definitions can be broadened, and an STA/product line (or service) ma­
trix can be developed, as shown in Figure 2. This illustrates that technical skill, for
example, in the design of high-density integrated circuits or software engineering may
be recognized as critical in several adjacent product lines. As the process is extended to
all business units across the corporation, numerous instances of parallel technical ex­
pertise will usually emerge. STAs originally developed for each product or service line
may be broadened, and business unit, divisional, group, and eventually corporate-level
STAs may be defined. Somewhere in the region of 15 to 20 STAs seems optimum for
analysis of technical strategy at each organizational level.
The STAs have been defined to include those technical skills most critical to the
survival and growth of the corporation. These are also the target of the corporation's dis­
cretionary technical expenditures, the R&D program. It is thus a relatively straightfor­
ward process to arrive at the present and planned resource allocation for the entire
corporation by STA (Bitondo, 1986).

FIGURE2
STNPRODUCT LINE MATRIX FOR A TELECOMMUNICATIONS PRODUCTS
BUSINESS UNIT

Strategic
Technical Product Line Product Line Product Line Etc.
Area (STA) 1 2 3

Integrated
Circuit X
Fabrication

Integrated
X X X
Circuit Design

System
X
Architecture

Software
Engineering X X X
324 MANAGEMENT OF TECHNOLOGY

MANAGING BY STRATEGIC TECHNICAL AREA

Organizational Perspective
The aggregation of technical activities into a limited number of STAs automatically fo­
cuses attention on strategic issues and longer-term trends for the underlying technology.
In addition, the perspective addressed by STAs automatically broadens as the STAs are
aggregated to a higher organizational level. At the lowest level of aggregation, e.g., at
the individual business unit, the time horizon is shortest, the critical technical issues
most immediate, and the coupling to business goals most direct. At the division and
higher levels, this view lengthens to the three-to-five-year medium-term perspective,
and the discussion of technical strategy often deals with the opportunity to capitalize on
the synergies between similar pools of technical expertise revealed by the STAs. In the
highest aggregation at the corporate level, appropriate broad strategic issues, such as the
provision of long-term technical strength and technical human resource requirements
for the corporation for the next five years or longer, as well as the creation of radically
new options, emerge directly from the identification of overall corporate technical needs
by means of the STA analysis.

Evaluation of Competitive Technical Strength

One example of the way in which STAs are used to guide resource allocation to tech­
nology and influence strategic thinking is to use them to answer the question, "How
good are we technically, compared to our major competitors?"
The STAs have been defined as the most important technical areas for the future of
the corporation, and are thus the natural unit against which to make this comparison. A
simple profile that indicates the number of STAs in which the business unit is behind,
equal, or leading these competitors communicates very graphically to general manage­
ment the technical health of the business. For example, groups with profiles shown in
Figure 3a are reasonably healthy insofar as their competitive position is at least equal to
the major competitors in over 70 percent of the technical areas most critical to the suc­
cess of the business. The key issue is future trends; if projections show a deterioration
in position, significant additional funding or alternative sources of technology may be
required.

FIGURE3
COMPETITIVE TECHNICAL POSITION

- Behind (B)
c:::J
Equal to (E)
0 Leading (L)

a b C
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 325

Those businesses which are technically very strong will have a profile such as the
one shown in Figure 3b, and here the strategic question most frequently asked is, "Are
the businesses effectively using this technical capability to expand position and exploit
their full technical potential in the market?"
Businesses with the characteristic shown in Figure 3c clearly face questions of via­
bility over the long haul. This profile may be either symptomatic of a business in poor
health or a principal cause of its future decline. In either case, this profile is a good
indicator of the need for fairly drastic managerial action.

DEVELOPMENT OF STRATEGIC POSITIONING TARGETS

A review of the STAs at the corporate level indicates those areas which are most impor­
tant to the current business profile. In addition, some of the new and emerging areas of
science and technology are also critical for future growth and survival and these must be
focused to build new strategic capabilities. Within GTE, these combined corporate
inputs are used to set the strategic priorities of the central research laboratories. The
strategic direction for an R&D program of over 100 individual projects, in telecommu­
nications, software, photonics, electronics, and materials, is developed and focused
within approximately 15 STAs.
An illustration of the way work moves from exploratory knowledge building through
strategic positioning to eventual business investment is illustrated in Figure 4. Within
the general topic of software, artificial intelligence is one of the fast moving areas. There
are a number of artificial intelligence topics relevant to telecommunications, such as pat­
tern recognition, speech recognition, speech synthesis, expert systems, self-improving

FIGURE4
EVOLUTION OF TECHNICAL PROGRAMS

Area of Knowledge Building Strategic Positioning Business Investment

Technology (Exploratory Topics) (Research Focus) (Potential Applications)

Software Operating System

' Pattern Recognition Expert Systems Improvements
Speech Recognition
Speech Synthesis Knowledge-Based Telecommunications
Artificial I◄ Expert Systems Systems Switching Maintenance
Intelligence ◄
Self-Improving Systems Local Languages-
Robotics Lisp/Prolog Electronic System Design
User Modeling User-Friendly
Interfaces New Services
Pho tonics Long-Haul Point-to-Point
Coherent Systems Low-CostComponenra Fiber-Optic Transmission
Optoelectronic/Quantum Systems
Well Device High Performance
Fiber Optics Advanced Components -- Sources High-Density Fiber-Optic
Low-Loss Glasses -- Detectors Transmission Systems
Nonlinear Optical Gallium Arsenide on
Components Silicon Fiber-Optic-Based
Services
326 MANAGEMENT OF TECHNOLOGY

systems, robotics, and user modeling, which are addressed at a modest level of ex­
ploratory effort. However, significantly higher levels of effort must be devoted to any
one topic if it is ever to be developed to the stage where it may have commercial payoff.
In the example, expert qr knowledge-based systems have been chosen; potential appli­
cations include several near-term opportunities in operations, design, and marketing,
with the promise of many more, but as yet poorly defined, commercial possibilities. The
decision to build a strong strategic position in this area of technology by setting up an
STA in Expert Systems must be taken before commercial returns can be demonstrated
with certainty. In addition, with limited available resources, the decision to build a
strong strategic position by focusing resources in any one area causes significant soul
searching, as it necessarily precludes a similar focus on some other promising ex­
ploratory research area.
A similar situation is illustrated for photonics, where rapid technical advances in
fiber optics are revolutionizing both the design of equipment and networks for telecom­
munication services. Success in the provision of future networks and in the delivery of
new high-bandwidth communications services will be strongly influenced by the rate of
technical advance and deployment of this technology. A number of exploratory topics,
including the study of coherent systems, low-loss glasses, and nonlinear optical compo­
nents, are evolving fast and all are potentially very relevant to the future of fiber-optic
systems. The decision to focus on (in this example) low-cost, high-performance com­
ponents arises because a critical element facing the deployment of this new transmission
is the performance and cost of the electro-optic equipment at the ends of the fiber. Po­
tential business applications include new transmission products and improved operation
of telecommunication systems.

OVERCOMING SHORT-TERM FINANCIAL BIAS

The practical problem facing most U.S. corporations in the allocation of resources for
technology programs is that decisions are made on the basis of one of two funding
models:
• R&D as a business investment, using some form of capital budgeting framework, or
• R&D as an overhead.
Most technical work in industry is directed toward implementation and will be funded
as a business investment. By contrast, since the determination of returns is often impos­
sible for knowledge building or exploratory research, it is usually treated as an overhead.
The problem is that with only two financial approaches, once the level of funding ex­
ceeds that with which management is comfortable in allocating as an overhead, the only
alternative is to force fit the technical program to ROI or similar criteria [Mitchell and
Hamilton (1988)]. This is particularly damaging to strategic positioning programs.
An important first step in dealing with R&D expenditures for strategic positioning is to
recognize that they are not so much directed toward an investment as they are toward the
creation of an option. By this it is meant that the corporation is committing relatively mod­
est R&D expenditures now in the expectation that it will provide the opportunity to make
a profitable investment at some later date (Kester, 1984). There are several implications
of treating this situation financially as an option, which are counterintuitive from a capital
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 327

budgeting perspective (Jarrow and Rudd, 1983). For example, because the downside risk
is limited to the cost of the R&D program, other factors being equal (e.g., mean value of
the expected returns), the option having greatest uncertainty is to be preferred. This is
equivalent in the analysis of stock options to the value of a call option increasing with the
volatility of the stock. A second implication is that longer term options are preferred over
shorter ones. These relationships are very much in alignment with the intuitive position of
the U.S. R&D community, which over the years has continually, often unsuccessfully,
tried to make the case for the strategic value of longer range programs having high upside
potential, even though the potential commercial impact may be uncertain.
Classifying R&D into these three broad strategic objectives helps clarify not only
funding approaches, but the difficult issues of technical versus business decision-making
responsibility, and the appropriate perspective on markets (Mitchell and Hamilton,
1988). In general, the R&D community assumes the prime responsibility for choosing
technical priorities for knowledge-building programs, the business community for busi­
ness investment programs. Both perspectives need to be combined in defining areas for
strategic positioning, and because of the importance of the "bet" to the future direction
of the company, the decision should be approved at the highest levels of management
within the corporation.
The treatment of markets is also different for the three sets of objectives. In choosing
targets in the early stages of most knowledge-building research, the technical opportu­
nity and rate of technical advance are principal determinants; market potential is usually
very unclear and consequently of little significance. At the other extreme, the analysis
of specific sales or cost reductions is almost certainly needed before committing to
technical programs which are incorporated in business investments. The appropriate
market perspective for strategic positioning falls between the two extremes and requires
a broad view of potential markets, which includes potential market options beyond
present commitments for the businesses.

CONCLUSIONS
There have been two persistent issues which have plagued industrial R&D and business
in the United States for over a decade. The first concerns a failure to recognize the strate­
gic implications of technical innovation on business strategy and translate these techni­
cal advances into business advantage. The [Link] the adverse effect on the U.S.
competitive position which has resulted from the dominance of short-range financial
perspectives. It is suggested that they are both ·linked to a failure to explicitly focus on
and strategically manage the underlying technologie� necessary for survival and growth
of the business. In the present highly competitive environment, many business opportu­
nities in leading industries are open for less time-than it takes to fully develop or acquire
the technical capability needed to capitalize on them. For success, therefore, it is neces­
sary to be technically positioned with deep insights into some of the critical technical
areas before the market or other business opportunities fully emerge. This paper dis­
cusses the process by which some of these critical technical areas have been identified
in a major U.S. corporation and used to guide the strategy· of a corporate laboratory.
As the decision to focus resources in a particular area must be taken before the ben­
efits to the corporation can be clearly determined, this paper suggests that the traditional
328 MANAGEMENT OF TECHNOLOGY

use of capital budgeting and particularly ROI frameworks is inappropriate for selecting
strategic positioning targets. The overuse of capital budgeting approaches leads to a
conservative short-term overall bias in the selection process. Strategic positioning pro­
grams are more accurately described as options rather than investments. Using a finan­
cial options framework produces selection criteria which more closely fit the intuitive
position of the R&D community in that longer-term programs, and programs with high
upside potential, receive higher priority than when treated with ROI approaches.

Reading 10.1 References

Abernathy, W. J. andHayes, R.H. (July-August 1980). "Managing Our Way to Economic
Decline," Harvard Business Review, vol. 58, no. 4, pp. 62-77.
Bitondo, D.S. (1986). "Technology Planning in Industry: The Classical Approach," Chapter 4,
Interdisciplinary Planning: A Perspective for the Future, Dluhy, M. J. and Chen, K., eds.,
New Brunswick, Center for Urban Policy Research, Rutgers University.
farrow, R. A. and Rudd A. (1983). Option Pricing, Homewood, Illinois, Dow Jones­
Irwin.
Kantrow, A. (July-August 1980). "The Strategy-Technology Connection," Harvard Busi­
ness Review, vol. 58, no. 4, pp. 6-21.
Kester, W. C. (March-April 19&4). "Today's Options for Tomorrow's Growth," Harvard
Business Review, vol. 62, no. 2, pp. 153-160.
Mitchell, G. R. (1985). "New Approaches to the Strategic Management of Technology,"
Tech�ology in Society, VQJ. 7,, no. 2/3, pp. 132-144.
Mitchell, G. R. and Hamilton, ·w.
F. (May-June 1988). "Managing R&D as a Strategic
Option," Research Technology Management, pp. 15-22.
Steele, L. W. (1975). Innovation in Big Business, New York, American Elsevier Publishing
Company, Inc.

READING 10.2

Changing Environmeqt for R&D Leaders:

New Challenges, NeW, Responses
Deb Chatterji
Managing Director-Technology, The BOC Group

Apstract: In recent years, many companies have witnessed dramatic changes in their
business environment. Emergence of global markets and competitors coupled with new
competitive strategies based on quality, speed and/or alliances have forced business
managers-especially in the United States-to adopt new management strategies,

Source: This is an updated version of Chatterji, Deb, 1993, "Emerging Challenges for R&D Executives:
An American Perspective," R&D Management, July. Reprinted with permission from R&D Management 23
(I 993), pp. 239-248, copyright by Blackwell Publishers Ltd.
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 329

structures and systems. These, in tum, have caused many R&D executives to progress
from their traditional agenda of managing R&D activities in domestic laboratories to a
new agenda of coordinating and integrating technology development and exploitation
on a worldwide basis. This paper discusses this evolution of R&D management agenda
in the United States and its implications. It also reviews the approaches being used and
the experiences being gained by the industrial R&D management community to address
the emerging challenges.

I. INTRODUCTION
Nothing, it is said, is certain except death and taxes. In recent years, business leaders in
general-and R&D executives in particular-have come to face yet another inescapable
certainty: change.
While one might argue that change is not a recent phenomenon, the forces and events
of the last few years have given new meaning to the word for the R&D executive. Today
he is confronting a much broader and stronger spectrum of change and challenge than
he has experienced before. The changes are particularly unsettling for many American
R&D executives as they may not have looked beyond the United States for expansion
or may not have faced intense foreign competitors in the past.
What are the most important changes seen by these R&D executives in recent years
and why are they significant? The paper begins on this note and then addresses the
related questions: How should an R&D executive respond? What are the constraints
he may have to face? And it ends with a brief review of the approaches being used and
the insights being gained by the R&D management community in the United States in
dealing with the emerging challenges.

II. RECENT CHANGES AND THEIR SIGNIFICANCE

Globalization. Decentralization. Quality management. Concurrent engineering. Mergers
and acquisitions. Leveraged buy-outs. Strategic alliances. Core competencies. Bench­
marking. Workforce diversity. Environmental imperative. Information and communica­
tion revolution. The list is by no means complete but it gives some idea of the many issues
that have entered and altered the management agenda of many business executives.

Changing Business Agenda

What is the "new" business agenda and how does it differ from the "old" agenda? Rec­
ognizing the fact that there is no universal agenda and accepting the risk of generaliza­
tion, one can make the following observations:
• For most businesses, global market and competition have become harsh realities.
The comforts of home market and predictable industry structure and competition have
all but disappeared.
• "Think globally-act locally" has become a fundamental management tenet for
companies that aspire to succeed as well-integrated worldwide businesses. For most
companies, decentralization has become the logical imperative.
330 MANAGEMENT OF TECHNOLOGY

• Success now requires strong competitive advantage in the form of innovation,

quality, agility and/or productivity (in both labor and knowledge). Cost-leadership alone
is not sufficient; it must be combined with other winning ingredients.
• Strategic alliances and partnerships have become popular. Many forms of alliances
have emerged ranging from preferred vendor arrangements to technology-based part­
nerships.
• Information and communication technologies are impacting management systems
and practices in numerous ways, creating new threats and opportunities.
• Measurement of performance is being emphasized for every business activity. Or­
ganizations are expected to be lean and agile, and individuals are required to add value
at every level. "Overhead" is under constant attack.
• Financial success alone can no longer satisfy all the stakeholders, namely, the
shareholders, the employees, the customers, the suppliers, the public, and the authori­
ties. For example, good environmental citizenship has become a key issue for many in­
dustries and companies.
• Demographic shifts in customer and employee base are directly and indirectly in­
fluencing the way managers think and act. For example, companies are learning to adapt
to more women and minorities in the professional workforce.
These are some of the most common and significant realities facing today's corporate
leaders. Their individual management agenda is, of course, determined by their strate­
gic aspirations-in the context of their own business realities.

Implications for R&D Executives

To appreciate fully the implications of the new business agenda for the R&D executives,
one should first reflect briefly on the evolution of the R&D management value system
over the past several decades. Mitchell 1 has suggested that R&D management in the
U.S. has evolved through two phases, the first spanning the period 1950-1970 and the
second spanning the period 1970-1990. (See Figures 1 and 2.) To quote liberally from
Mitchell: 1
Much of today's management practice and operating culture in large industrial research
laboratories was firmly established prior to 1970. This covers many familiar topics, in­
cluding organization, management, and selection of projects; technology transfer; as well

FIGURE 1
EVOLUTION OF R&D MANAGEMENT, PRE-1970 PHASE
Source: From Mitchell. 1

OVERALL BUSINESS OBJECTIVES 1950 ➔ 1970

Managing the Research Function
KEY ISSUES Environment to promote individual creativity,
innovation in groups
FOCUS AND ACCOMPLISHMENTS Management guidelines for organizing, financing,
technology transfer, project management, human
resources, administration
 CHAPTER 1 O: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 331

OVERALL BUSINESS OBJECTIVES 1970 ➔ 1990

Strategic Business Management
KEY ISSUES Coupling of research laboratories to business
operations
Integrated planning process to transform business
objectives into technical properties
FOCUS AND ACCOMPLISHMENTS Support and extension of business strategy
Increased credibility of research management
FIGURE2
EVOLUTION OF R&D MANAGEMENT, 1970-1990 ERA
Source: From Mitchell.'

as human resource management, financing, and external relations.A principal manager­

ial objective throughout is (has been) the establishment of an environment in industrial
laboratories that nurtures both individual creativity and innovation by groups, and result­
ing organizational structures frequently reflect underlying academic [Link] of
these assumptions and shared values were acquired in a period when [Link]
dominated the world markets.
During the 1970s, increasing national and international competition put pressure on
corporations in the United States to better integrate operations and focus business goals.
One major result was that many companies introduced formal strategic planning and
management systems to business [Link] a direct consequence, many research di­
rectors have been repeatedly challenged to "Get the laboratories coupled to the strategies
and goals of the business and work within the mainstream management and planning
processes in the corporations." In order to achieve this coupling, research management
has not only had to become intimately familiar with the goals and objectives of business
operations, but also had to understand the process of strategy development in detail
throughout the [Link], many corporate laboratories have had to establish
complementary planning activities which are parallel to, and integrated with, those of
business operations.
A direct and important outcome of this change in attitude and approach has been the
strong focus on the concept of managing the innovation pipeline2 (Figure 3).It clearly
recognizes that (1) the driver is the business strategy and (2) the cross-organizational
and cross-functional interfaces hold the keys to success.
Mitchell I concludes that "some of the intuitions and instincts developed in these ear­
lier periods are at odds with current realities, and ...it is time to re-examine and aug­
ment many of our traditional assumptions and managing the research function."
Steele3 has taken similar views on the subject. He has described and examined the
classic paradigm for industrial R&D and concluded that "it is time to go back to our
roots, re-examine the fundamental premises that have underlain industrial R&D and
consider possible changes in those premises." Specifically, Steele has challenged the
following premises that implied that R&D was a rather special activity, beyond the
conventional and mundane business justifications and arguments:
• The primary mission ofR&D organizations is one of discovering and inventing the
big new ideas.
332 MANAGEMENT OF TECHNOLOGY

Business
Needs
�<$?.

i)
�
Business Business
Research -inventions -innovations - Use - R
Strategy esults

✓,,�
'¼-0 �
_,
""0
Scientific
& Technical
Knowledge

Strategic Idea Problem Implementation Diffusion/ Capture

Planning Generation Solving Market Market
Introduction Penetration
FIGURE3
PIPELINE MODEL OF INNOVATION MANAGEMENT PROCESS
Source: From reference 2,

• R&D laboratories should be managed by career R&D professionals for reasons of

credibility and creativity.
• R&D workforce must be highly stable, and researchers should develop expertise in
their chosen fields through work continuity over many years.
• Funding level for R&D is inadequate. More people and money are needed for
R&D to fulfill its mission.
• R&D's contributions are difficult, if not impossible, to measure.
• For R&D organizations to be objective and productive, they should be virtually au­
tonomous within the corporation.
Admittedly, few R&D executives today publicly or even privately embrace these
management beliefs. The era of "strategic coupling to business" succeeded in increas­
ing their sensitivity to real business issues 1 and readying them for the challenges to be
faced in the 1990s.
The R&D executive must now transform his time-evolved agenda of managing the
research function and supporting the business strategies to an agenda of providing
meaningful and measurable competitive advantage to a global, decentralized, culturally
diverse, but interactive, business enterprise. The Chief Technical Officer must now rise
above the role of laboratory director and become a credible and key member of the cor­
porate management team. He must become the spokesman for not just R&D but all the
technology/business intersections of interest to the corporate management team: infor­
mation technology, strategic alliances, technology licensing, manufacturing technology,
quality management, and so on. He can no longer just translate the business strategies
for his R&D organizations but must participate fully in the development of the strate­
gies. Further discussion on the implications of these changing roles and responsibilities
follows.
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 333

Ill. EXPECTED RESPONSES AND CONSTRAINTS

New realities require new responses. But, is there a basic, structured approach available
to the R&D executive to address the long list of issues in a systematic manner, or must
he confront the issues as they arise? The author's experience would suggest the follow­
ing approach for senior R&D executives such as the Chief Technical Officer and the di­
rector of the Corporate R&D laboratory:
• Change mind-set and redefine role.
• Treat the world as the new sandbox.
• Develop and implement new processes, systems and tools.
• Add value and insist on value addition.

Change Mind-Set and Redefine Role

The mind-set that characterized the classic paradigm of industrial R&D laboratories
must be abandoned together with the associated intellectual baggage. It must be re­
placed with a mind-set that places the corporate vision, objectives and values over the
"loyalty to science and engineering" culture. The Chief Technical Officer must fully
embrace the agenda being pursued by the CEO and his inner sanctum of senior man­
agers and, in time, enrich that agenda through participation and contribution.
One of the first steps the CTO must talce is to redefine carefully his role within the
CEO's inner sanctum. In most cases, the CTO would be expected to perform the dual role
of a generalist and a specialist, i.e., a businessman and a technologist. Frequently he
would be expected to be a businessman first, technologist second. He must be comfortable
with this duality, and the management team must see some evidence of that. In time, he
must emerge as a trusted team member whose assessments of the technological health
of the company, convictions about the competitive advantage achievable through tech­
nology, and strategies for global management of technology are accepted and valued.
Note that the word "technology" was used in this context, not R&D-and that the word
"laboratory" was not mentioned at all. Technology is clearly a broader term than R&D
and encompasses all the technical capability that an enterprise can and should possess
and apply to gain competitive advantage. Technology is not just found in R&D labora­
tories; it is developed and used at many places in a corporation. Manufacturing plants,
distribution facilities, engineering departments, design centers, IT departments are all
important to the technological health of the company. The CTO must fully recognize the
role of all technology-related functions and organizations and achieve their constructive
interplay, not just champion the cause of R&D.
For the CTO to become a key member of the CEO's team, he must successfully deal
with several additional dualities: corporate vs. divisional, global vs. local, and internal
vs. external.

Treat the World As the New Sandbox

The dualities of corporate vs. divisional, global vs. local, and internal vs. external
require an integrated, world-scale approach to issues, priorities and resources. How
should the responsibilities and resources be shared and coordinated between the
334 MANAGEMENT OF TECHNOLOGY

corporate R&D laboratory and the divisional technology organizations---especially

when they are spread around the world? When should the corporation seek external
technology alliances, and when should it push ahead with internal development? When
should it assign expatriates, and when should it recruit locally?
These are important questions for today's global companies, and they can create con­
fu�ion and frustration unless resolved with the help of a driving vision of a global, in­
teractive, and organic enterprise. Such a vision in tum requires-and fosters-new
systems and tools for technology management.

Develop and Implement New Processes, Systems and Tools

Many of the management systems and tools developed over the past 30 years by R&D
organizations need to be re-tuned, if not totally overhauled, to respond to the new reali­
[Link] CTO must be the first to recognize the specific change needs for his R&D or­
ganizations and undertake the necessary [Link] greatest change needs are likely to
be in the following areas:
• Establishing a customer management process: Most R&D organizations iri the past
did not have a comprehensive and creative process in place to clearly define internal and
external customer needs and develop mutually agreed specifications.A well-developed
customer management process should not only help project selection and, ultimately,
technology transfer but also help the R&D organization in establishing its true criteria
for success.
• Creating a new R&D planning platform: The new planning platform must give the
R&D organization the capability to (a) "transform the objectives and strategies of the
business into core technologies and program priorities ...so that changes in business
direction will be automatically reflected in the laboratory plans"; 1 (b) integrate the com­
pany's worldwide R&D efforts into a coherent game plan; and (c) systematically ad­
dress collaboration opportunities with external sources of technology.
• Improving the transparency of R&D decision-making and performance: The
AAAS report "Research and Development: FY 1992" quite correctly points out4 that
"R&D organizations are increasingly required to manage their activities against quan­
tifiable business goals and objectives; against productivity and quality measures com­
mon to all company operations." Additionally, R&D executives must accept the fact that
their decision-making process must be transparent to both their "customers" and their
own employees.,.5 Toward that objective, the CTO must energize the management com­
munication system so that everyone knows what is being achieved when and against
what goals.
• Establishing a system to encourage continuous improvement: While one might
argue that not all quality management concepts are directly applicable to R&D organi­
zations, the basic idea of continuous improvement through employee empowerment and
teamwork is clearly relevant to all business activities, including R&[Link] fact, signifi­
cant successes are being achieved towards reducing concept-to-market cycle times6• 7

through parallel engineering and otlier systemic approaches such as "stage-gate" man­
agement of projects.
 CHAPTER 1 O: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 335

• Reforming the human resource management system: Many facets of our HR man­
agement system ranging from performance evaluation to internal recruiting of R&D
managers should be examined [Link] example, Steele3 has suggested that "a to­
tally homegrown (R&D Management) team may be too homogeneous to demonstrate
the heads-up awareness of external events, system constraints, and resources available
outside the enterprise ...." A reform of the HR system is very important but difficult to
achieve. The system-and all the practices it spawns-is deeply rooted in our culture
from the past and is stubbornly resistant to change. Without a reform, however,the HR
system can seriously undercut all progressive moves by the senior R&D executives.
The HR needs to change to respond to the changing demographics as [Link] of
women, minority members, and foreign-borns into the R&D workforce requires the
management to be sensitive to new issues. It also gives the R&D management the op­
portunity to be proactive and creative in terms of new initiatives.

Add Value and Insist on Value Addition

The quest for global competitiveness has inescapably led to the need for organizational
agility and [Link] result has been management de-layering in every function in­
cluding R&D. Today, R&D executives must constantly ask themselves the questions:
What is the value I am personally adding to the management process within the
company? What is the value being added by my organization as a whole? How are they
separate yet interdependent? How can I and my organization add more value? We must
face these questions within the privacy of our mind and soul with a high degree of ob­
[Link] we must constantly find ways of contributing more through imagination
and initiative.
The HR system of the corporation at large-and the R&D organization in particular­
should explicitly address the value-addition questions during the annual goal formula­
tion and performance evaluation [Link] process should not end there,however.
The management must constantly raise the issues and search for new ways to replace
less-than-essential tasks and steps with meaningful challenges that stretch people in
sensible ways.

Constraints on R&D Executives

Life is not fair,of [Link] CTO and his R&D management team must meet the many
requirements arising from the rapidly changing business realities,yet accept a number
of [Link] most obvious is the resource constraint: R&D must learn to do m9re
with less. As Steele3 put it, "There appears to be a virtually universal assumption that
doing more with less has become a permanent requirement for survival," and "R&D is
not being spared this pressure." Another constraint is our limited skill in speaking for­
eign languages and experience in dealing with non-Western cultures and value systems.
Finally,the governmental regulations place numerous direct and indirect constraints on
us,ranging from requirements for chemical hygiene plans for laboratories to limitations
on R&D collaborations.
336 MANAGEMENT OF TECHNOLOGY

IV. RESEARCH INITIATIVES AND INSIGHTS

The R&D management community is clearly interested in developing a good under­
standing of the various challenges arising from the changing business agenda and in
gaining insights into successful management principles and practices. Towards these
objectives, it has enlisted the help of academics and consultants, fostered peer group ex­
changes through the Industrial Research Institute (IRI), and supported several industry­
university-govemment initiatives.
It would be clearly impractical for the author to attempt a comprehensive review of
the body of knowledge resulting from these research initiatives. Yet it is important to
give the reader an idea of the breadth and depth of the emerging knowledge base.
Figure 4 illustrates the basic hierarchical relationships and strategic responsibilities
of the CTO. It also provides a logical framework for the author to selectively highlight
four major research initiatives by the R&D management community.

Building R&D Leadership and Credibility

A collaborative project between IRI and [Link] & Co. has focused on the CTO-CEO
relationship. Based on in-depth interviews of24 CEOs and CTOs (or CTO-equivalents)
of major U.S. corporations, the study5 concluded that the CTOs in these companies
played a wide variety of leadership roles. However, not all CTOs had high credibility
with their CEOs, resulting in a leadership gap for their organizations. The study found
the following three leadership roles to be most common:
• Functional leadership consisting of traditional, effective management of an R&D
organization (such as a central laboratory) in terms of projects, cost, etc.

FIGURE4
CTO'S RELATIONS AND CONTRACTS WITHIN THE CORPORATION

CEO

Understanding and
Influencing
Corporate Agenda

Developing
Current Serving Current New Options Future
CTO
Businesses Needs of Business Through Technology Businesses

Managing People and

Resources to
Achieve Goals

R&D
Organization(s)
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 337

• Strategic leadership focusing on strong understanding of corporate strategies and

contributions to corporate success through technology.
• Supra-functional leadership encompassing roles and responsibilities above and
beyond the R&D function. This relatively rare leadership style "drives to build the
sustainable advantage of the corporation by melding the technology function with the
business. " 5
The study revealed that each of these types of R&D leadership is based on an explicit or
implicit CEO-CTO contract (Figure 5). The CTO should have a clear understanding of
his current role, and he must work hard to bridge any credibility gap he may have if he
aspires to perform a different (i.e., broader and higher) role.

FIGURES
SUCCESSFUL CTO-CEO CONTRACTS
Source: From reference 5.

Functional behaviors

CTO CEO

• Consistently meets budgets and schedules • Rewards performance to commitments

• Generates ideas and options for products • Visits labs routinely to debrief researchers
and processes
• Interfaces smoothly with other functions • Encourages close contact among functional
managers
• Responds to business unit emergencies • Recognizes R&D for contributions to the
business

Strategic behaviors

CTO CEO

• Makes substantive contributions to • Invites CTO to participate in strategy

corporate strategy discussions discussions
• Aligns R&D strategy with corporate strategy • Makes R&D planning part of routine
corporate planning system
• Builds and maintains core technical • Invests in technical competencies that are
competencies shown to be core

Suprafunctional behaviors

CTO CEO

• Leads efforts to improve corporate • Grants a broad operational charter

operations through technology
• Advises on mergers, acquisitions, and • Involves CTO in restructuring activities
divestitures from the beginning
• Drives commercialization efforts across • Creates and empowers a commercialization
functions function
• Scouts for technological threats and • Acts on scouting reports
opportunities
338 MANAGEMENT OF TECHNOLOGY

Precommer-
Decision on Post- cialization Postimple-
Initial Second Business development Business mentation
Screen Screen Case Review Analysis Review

Gate
3

Ideation Preliminary Detailed Development Testing & Full Production

Investigation Investigation Validation & Market Launch
(Build Business
Case)
FIGURE6
STAGE-GATE APPROACH TO NEW PRODUCT DEVELOPMEN T
Source: From Cooper.•

Reducing Cycle T ime from Concept to Market

One of the primary responsibilities of the CTO and his R&D management team is to
serve the current businesses through development and demonstration of new or im­
proved products and processes. Reducing product development cycle time through
cross-functional teamwork has, therefore, become an imperative for R&D management.
Several recent publications6-8 have addressed this subject in some detail. In particular,
the "stage-gate" method of project management (Figure 6), introduced by Cooper, 8 has
emerged as an effective approach to new product development and has generated a wide
following in the industrial R&D community.

Technology Sourcing though Partnerships and Alliances

The CTO and his R&D management team has an "invisible contract" to develop new
business options through technology. That contract requires technology sourcing
through alliances and partnerships as an essential complement to in-house R&D. A re­
cent study by Hull and Slowinski9 of 37 large company/small company partnerships has
investigated many aspects of technology-based alliances: benefit expectations, resource
skill contributions, structural considerations, communication patterns, etc. This research
has provided valuable insights into key success factors-and identified the following
common barriers to success in partnering with technology entrepreneurs.
In a paper based on IRI workshops involving over 20 member company representa­
tives, Chatterji 10 has concluded that most companies do not address "technology sourc­
ing" as a properly planned business process, and as a result, run into many difficulties
and frustrations. He has proposed a model of the technology sourcing process (Figure 7)
consisting of a series/parallel combination of eight discrete steps. Cross-functional,
even cross-organizational, teamwork throughout the process is a fundamental ingredi­
ent for success. The paper also presents several concepts and tools for finding, evaluat­
ing, acquiring and internalizing useful technical knowledge and innovation from
external sources.
 CHAPTER 1 O: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 339

I. Defining Business Needs and Benefits

II.

Developing
a Game Plan

VIII. Ensuring Organizational Leaming and Improvement

FIGURE 7
CONCEPTUAL MODEL OF THE TECHNOLOGY SOURCING PROCESS
Source: From Chatte�i.10

Managing Workforce Diversity in R&D Organizations

Managing the R&D staff and resources to achieve established program goals is the clear­
est and strongest contract the CTO has. Historically, that contract has involved a white,
male-dominated R&D staff. With rapid changes in male/female ratio and ethnic mix
in American R&D laboratories, new management issues are beginning to emerge.
DiTomaso and Farris11-13 have completed the first phase of a major study in this area. This
study involving approximately 3,000 industrial scientists and engineers in the U.S. has
focused on several key questions: How does this increasing diversity impact on the per­
formance and satisfaction levels of the various subgroups within the R&D laboratory?
What are the key cultural, behavioral and environmental factors responsible for the per­
formance differences? What can the R&D management do to maximize the contributions
of women and minorities, yet not homogenize the workforce? The results are already be­
ginning to influence our ways of thinking about and managing the R&D workforce.
The above examples of recent research initiatives represent an important but small
fraction of the work sponsored by the industrial R&D management community in the
U.S. The resulting body of knowledge is already significant in scope and value. The R&D
executive can look to the future with some confidence that he will be able to draw from a
rich pool of peer experience and insight to address effectively the changing environment.

Acknowledgment
This paper is based on an earlier publication.14 The author is grateful to Blackwell Pub­
lishers, the owner of the copyright, for permission to reprint significant parts of that paper.
340 MANAGEMENT OF TECHNOLOGY

Reading 10.2 References

1 Mitchell, Graham R. "The Changing Agenda of Research Management." Research­
Technology Management, September-October 1992, pp. 13-21.
2 Technology Management: A Research Perspective. Center for Innovation Management
Studies, Lehigh University, 1988.
3 Steele, Lowell W. "Needed: New Paradigms for R&D." Research-Technology Manage­
ment, July-August 1991, pp. 13-21.
4 Research and Development: FY 1992. AAAS Report XVI, 1991.
5 Uttal, Bro; Kantrow, Alan; Linden, Lawrence H.; and Stock, Susan B. "Building R&D
Leadership and Credibility." Research-Technology Management, May-June 1992,
pp. 15-24.
6 Stalk, Jr., George and Hout, Thomas M. "Competing Against Time." Research-Technology
Management, March-April 1990, pp. 19-24.
7 Smith, Preston and Reinertsen, Donald. Developing Products in Half the Time. Van Nos­
trand Publishing Co., 1991.
8 Cooper, Robert. "Winning at New Products." Addison Wesley Publishing Co., 2nd Ed.,
1993.
9 Hull, Frank and Slowinski, Eugene. "Partnering with Technology Entrepreneurs."
Research-Technology Management, November-December 1990, pp. 16-20.
10 Chatterji, Deb. "Accessing External Sources of Technology." Research-Technology
Management, March-April 1996, pp. 48-56.
11 Gordon, G. G.; DiTomaso, N.; and Farris, G. F. "Managing Diversity in R&D Groups."
Research-Technology Management, January-February 1991, pp. 18-23.
12 DiTomaso, Nancy and Farris, George F. "Work and Career Issues for Women Scientists
in Industrial Research and Development in the U.S." Berlin Journal of Sociology, Vol. 1,
1992, pp. 91-102.
13 DiTomaso, Nancy and Farris, George F. "Diversity and Performance in R&D." IEEE
Spectrum, June 1992, pp. 21-24.
14 Chatterji, Deb. "Emerging Challenges for R&D Executives: An American Perspec­
tive." R&D Management, July 1993, pp. 239-247.

DISCUSSION QUESTIONS
1 In the second half of the 1990s Microsoft has combined both internal research and com­
pulsive buyout. Why is that? Find out about some of the buyouts of another company and
comment on their strategic importance.
2 Read about a partnership between companies. What were the benefits each partner
obtained?

ADDITIONAL READINGS
Steven C. Wheelwright & Kirn B. Clark. "Creating Project Plans to Focus Product Develop­
ment." Harvard Business Review, March-April 1992.
The authors suggest mapping as a tool to define and manage an effective R&D
portfolio. The map classifies a portfolio in five categories: research, break-
 CHAPTER 10: THE ACQUISITION AND EXPLOITATION OF TECHNOLOGY 341

through, platform, derivative, and alliance projects. Following HBR style, the
paper presents corporate examples of each type.
John Seely Brown. "Research That Reinvents the Corporation." Harvard Business Review,
January-February 1991.
Since R&D is a very expensive process, companies are inter:ested in obtaining
returns on that investment. The author presents the experience of Xerox's PARC
as a contributor to the business. R&D is seen not as a sepatate entity dedicated
to research but as an integral part of Xerox's strategy.
Regis Larue de Toumemine. "Strategic Alliances between Big and Small Firms in the De­
velopment Dynamics of Science Based Industries." In T. Khalil & B. Bayraktar (eds.),
Management of Technology Ill: Proceedings of the Third International Conference on
Management of Technology, Vol. I, pp. 145-154. Industrial Engineering and Management
Press, Norcross, GA.
Collaboration among firms is gaining importance as development periods ought
to be reduced. The author suggests a dynamic model in which different kinds of
small- and large-firm collaborations have to be distinguished depending on the
stage of technical evolution.
Graham R. Mitchell & William F. Hamilton. "Managing R&D as a Strategic Option."
Research-Technology Management, May-June 1988, pp. 15-22.
Brody, Richard J. Effective Partnering: A Report to Congress on Federal Technology Part­
nerships. U.S. Department of Commerce, Office of Technology Policy, Washington, DC,
February 1996.

SUGGESTED CASES
• "Sony Corp.: Car Navigation Systems." Harvard Business School, Case 9-597-032.
• "Du Pont Kevlar Ararnid Industrial Fiber." Harvard Business School, Case 9-391-146.
• "Seaman Corp." Harvard Business School, Case 9-396-268.

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