R&D STRUCTURE IN A CHANGING WORLD
A research study shows that ultimately a “good” R&D structure
is one that meets the expectations placed on it, such as supporting
corporate growth and building new technology platforms.
Thomas M. Tirpak, Roger Miller, Larry Schwartz, and David Kashdan
OVERVIEW: The organization of R&D activities has a
large impact on a company’s ability to execute its
business and technology strategy. Thus, managers face
the challenging question, “What’s the best structure for
my company?” Recent studies have shown that R&D
structures reflect companies’ strategies for using tech-
nology to create value, but alignment with strategy is not
enough to design a good R&D structure. There is also the
need to evolve structures and orchestrate transitions that
address the dynamics of a company’s internal and
external environments. A mismatched structure can
defeat attempts to implement a good strategy.
Thomas Tirpak is a software process program manager/
Six Sigma Black Belt in Motorola Networks and Enter-
prise Business in Schaumburg, Illinois, and an adjunct
professor at Northwestern University. Joining Motorola
in 1991, he worked for 14 years in Corporate R&D
leading the development of methods to improve cycle
time, quality and cost of product realization processes. He
is an associate member of Motorola’s Science Advisory
Board and representative to the Industrial Research
Institute. He received a Ph.D. in electrical and computer
engineering from the University of Illinois at Urbana-
Champaign, and master of engineering management
degree from Northwestern. T. Tirpak@motorola.com
Roger Miller holds the Jarislowsky Chair in Technologi-
cal Innovation and International Competitiveness at
École Polytechnique in Montreal, Canada, and has led
several large collaborative research programs. He was a
fellow at the Harvard University Center for International
Affairs and MIT’s International Motor Vehicle Program.
He taught management at INSEAD (France), the Sloan
School of Management (USA) and University of Bogotá
(Colombia). He co-founded Secor, a strategic manage-
ment consulting group in Canada and France, and has
assisted companies in developing business and innova-
tion strategies. He holds a doctorate from Louvain Uni-
versity (Belgium), M.Eng. from Stanford, and M.B.A.
from Columbia University. roger.miller@polymtl.ca
September—October 2006
0895-6308/06/$5.00 © 2006 Industrial Research Institute, Inc.
KEY CONCEPTS: organizational structure,
centralization-decentralization, hybrid structures,
strategic management.
One of the many dimensions of R&D is the management
of organizational structures in which R&D activities are
accomplished. This topic has been addressed in the
general context of organization design. However, tech-
nology, market and organizational uncertainties associ-
ated with R&D projects require a somewhat different
approach. Most of the literature starts by considering
challenges faced by traditional centralized and func-
Larry Schwartz is vice president and principal of
Intellectual Assets, Inc., a Saratoga, California-based
professional services intellectual property com-
pany. Previously, he was vice president of strategic
development for Aurigin Systems, where he established
the company’s European operations. At Raychem, he
worked for 25 years in all phases of technology man-
agement. He has co-chaired IRI subcommittees on
strategic positioning of R&D, R&D structure and
measuring R&D effectiveness. He holds a Ph.D. in
chemistry from the University of Arizona and an M.B.A.
from San Jose State University.
larryschwartz333@aol.com
David Kashdan is director, Eastman Research Division,
at Eastman Chemical Company in Kingsport, Tennessee.
Prior to his current position, he was director of poly-
mers research, and held other positions in technology
and business organizations at Eastman Chemical, where
he has worked since 1979. His interests include the use
of external resources to leverage internal capabilities,
the management of technical core competencies, and
organizational issues that impact the ability to apply
limited resources to multiple business objectives. He
received his Ph.D. in organic chemistry from the Univer-
sity of Vermont, and was a postdoctoral fellow at the
University of California-Berkeley.
dkashdan@eastman.com
19
tional R&D structures. In practice, though, there are
three simple yet complex questions that corporate execu-
tives and R&D managers face: 1) Which R&D structure
should our company use? 2) How should we adapt our
structure to respond to changes in the business environ-
ment? 3) How should our structure evolve to support our
future business strategy?
As one expert on strategic R&D management put it, “The
choice of structure is a crucial decision. There may be
multiple strategies in play at once, but what structure
needs to be dominant? What else needs to be hard-wired
in to offset the dominant structure? By analogy, the game
of football has defensive and offensive teams, as well as
specialists for kicking field goals” (1).
This paper is the result of a collaborative effort in 2004–
2005 by several Industrial Research Institute (IRI)
member companies and two universities to combine
research on Innovation Games (2) with the body of
knowledge on R&D organization structure, and identify
trends and actionable guidelines for managing R&D
competencies that support an organization’s market and
technology strategy. Although this paper does not supply
a prescriptive answer for what is the best R&D structure,
it does provide insights into the types of R&D structures
that exist and the environments in which they exist.
Based on the available literature and data from two new
studies, we identify key discussion points and introduce a
simple flowchart to guide decisions about R&D struc-
tures.
What Is an R&D Structure?
A company’s R&D structure is defined by its:
• Organization structure, i.e., “org. chart.”
• Coordination mechanisms, e.g., resource allocation,
project planning.
• Culture for innovation, i.e., behavior norms for value
creation/capture.
• Strategic mission for R&D activities, i.e., reason for
R&D.
One can think of R&D structure as part of a company’s
DNA, creating a natural bias toward specific strengths
(and weaknesses). The structure exists within an
ecosystem, defined by the activities of multiple
companies and industries, the pace of science and engi-
neering advances, and market economics. Moreover, the
process of bringing innovation to market may involve
collaboration between industry, government labs and
academia. As the deputy director of the U.S. National
Institute of Standards and Technology (NIST) noted,
“We’ve been working with industry, but our organiza-
tional structure doesn’t reflect that desire. Past changes
have been along the line of academic skills . . . . We need
20
Strategic decisions
about R&D structure
are multidimensional
and involve multiple
tactical decisions.
a structure that is more effective and agile so it can match
better with industrial organizations” (3).
Strategic decisions about R&D structure are multidimen-
sional and involve multiple tactical decisions. The
dimensions include, among other things, the mission of
the R&D organization, the source of leadership for R&D,
and the division of responsibilities among one or more
higher-level R&D managers. Decisions regarding each
of these dimensions are, in essence, the design variables
for an R&D structure.
Design choices for the dimensions of an R&D structure
reinforce a company’s technology strategy and foster
collaboration among researchers. Different design
choices can be classified as centralized, decentralized or
somewhere inbetween. Decentralized approaches
disperse both technology and technologists across
existing business units. Table 1 presents some options for
the primary dimensions and design choices of an R&D
structure.
The subject of R&D structures and the related tactical
management decisions has received renewed attention as
companies have discovered the need to organize differ-
ently to be successful at radical innovation (4) as well as
for open innovation. A survey of the literature has
revealed a clear focus on companies using the decentral-
ized tactics listed in Table 1. Five major issues are most
frequently addressed and may explain the high level of
interest in decentralization as well as the tradeoffs asso-
ciated with searching for the “best” structure.
One is the challenge of dispersion and integration. Par-
ticular attention has been paid to the internationalization
and dispersion of R&D within multiple parts of a
company, and to the mechanisms that supply necessary
coordination and integration. Criteria for the location of
R&D units include proximity to markets, proximity to
corporate headquarters, access to scientific and engineer-
ing knowledge, surveillance of the competition, and
proximity of styling/design centers (5).
A related issue is the search for ideal structures for global
R&D, market-driven R&D, technology-driven R&D,
Research 䡠 Technology Management
etc. In general, integration (centralization) promotes the
creation of new technology, and decentralization facili-
tates the capture of value from such inventions.
Decentralization of R&D leads to hybrid structures, such
as functional, lightweight matrix organizations, heavy-
weight matrix organizations, or project structures. All of
these have been implemented and studied. Coordination
occurs through operating rules, procedures and shared
practices among the R&D employees in multiple units.
For example, product development that needs a high
level of specialized knowledge requires a functionally
organized structure (6). Ambidextrous R&D structures
have been proposed as a way to enable both radical and
incremental innovation (7).
The alignment of R&D strategy and structure is another
important issue. Better alignment leads to better perfor-
mance (8). Correspondingly, R&D structure should
follow from R&D strategy, e.g., in the transition from a
functional to a multidivisional form.
Still another issue is the dynamic nature of R&D struc-
tures in response to business growth, downsizing, out-
sourcing, etc. For example, following the drop in optical
fiber demand in 2002, Corning re-centralized R&D for
two primary core capabilities and competencies that had
been distributed in the business units, and consolidated
R&D global infrastructure from six to two sites (9).
Which Companies Use Which Structures?
The wide variety of existing R&D structures is usually
described succinctly as centralized, decentralized or
hybrid. A company utilizing primarily centralized
approaches for the dimensions of an R&D structure, as
listed in Table 1, is considered to have a centralized R&D
structure. A company implementing primarily decentral-
ized approaches would have a decentralized structure. A
mixture of approaches would reflect a hybrid structure.
The primary strength of centralized R&D is that it
encourages risk-taking and long-term thinking; decen-
Centralized R&D
encourages risk-
taking and long-term
thinking.
tralized R&D first and foremost encourages alignment of
projects and business needs, thereby shortening time to
market. Table 2 summarizes strengths and weaknesses of
the two basic structures.
Hybrid structures reflect strengths and weaknesses of
both centralized and decentralized structures. A hybrid
structure increases the potential for achieving break-
throughs that are not possible if all R&D is decentralized.
Hybrid structures give business units the capacity to
handle incremental innovation for current products,
which may exceed the resources of central R&D, but
hybrids may be less economically efficient than other
structures.
Efficiency is an important concern; as one research
analyst explained, “The investment community views
central R&D as inefficient. It’s difficult to assign respon-
sibilities, and the benefits of shared resources are
minimal. The Distributed Model is more efficient and
accountable; however, it is difficult to cross-pollinate
ideas, and R&D is driven to become a simple cost center”
(10).
In 2004, the Center for Innovation Management Studies
(CIMS) at North Carolina State University conducted
interviews with 66 companies in nine different indus-
tries, and found that 27 percent had R&D centralized at
the corporate level, 23 percent had decentralized R&D

Table 1.—Dimensions and Design Choices

Dimension of R&D Structure Centralized Approach Decentralized Approach
Organizational mission Strategic Tactical
Leadership Corporate Business Unit
Division of management responsibilities Chief Technology Officer Multiple R&D leaders
Scientific goal Obtain fundamental knowledge Obtain application knowledge
Knowledge acquisition Generate internally Acquire externally
Alignment Capabilities Businesses
Responsibility Technology Product/market
Communication Intentionally orchestrated Serendipitous connections
Skill concentration Centers of excellence Full-service centers
Geography Co-located teams Distributed teams
Management formality Focused teams Virtual teams/Matrix organization
Partnerships Single company Multi-company/multi-institute
Time scale Rapid technology advances Well-established technology base

September—October 2006 21
 Table 2.—Strengths and Weaknesses of Centralized and companies choose certain structures, how successful
Decentralized Structures they are, and what the related success factors are. The
Centralized Decentralized research team has interviewed 200 chief technology
officers and vice presidents of R&D.
Strengths
The team has also prepared a comprehensive survey
• Encourages risk taking • Encourages alignment of
and long-term thinking. projects and business (www.minesurvey.polymtl.ca) and, as of November
• Increases likelihood of needs; shortens time to 2005, obtained responses from 470 companies in various
fundamental technology market. industries and countries. The survey addresses the com-
advances. • Emphasizes incremental petitive context, value creation through R&D, competi-
• Emphasizes importance development. tive and collaborative strategies, organization, practices,
of research. • Increases accountability for
• Helps attract top talent. budget. and performance. Analysis of the MINE survey has
• Leverages efficiencies in indicated that a company’s Innovation Game (2) is the
business units’ processes. primary influencer of its R&D structure. This is followed
Weaknesses by other transient influences.
• May cause a disconnect • Short-term goals may Enabling a Value Creation Strategy
between R&D and the compromise long-term
company’s needs. successes.
a.k.a. “Innovation Game”
• Product development • Incremental improvements An Innovation Game, by which a company creates value
cycles can be slow. may overshadow top-line
• Accounting for benefits growth.
for its customers and captures some of that value for
of the R&D program is • Efforts may be itself, is characterized by the dominant approach to inno-
hard. unintentionally duplicated. vation, level of investment and effort in innovation,
• “Valley of Death” can • Narrow focus of research is R&D capabilities, strategies and organization, as well as
stop technology common. the company’s competitive advantages and position in an
deployment. • Difficult to adequately fund
core competencies through
innovation network/ value chain. Each of the seven Inno-
the business cycle. vation Games exhibits a characteristic approach to struc-
turing its R&D activities (Table 3).
Interestingly, six of the seven games utilize a centralized
R&D structure. This is not surprising, though, because
located in their strategic business units, and 50 percent the games identified in the MINE study represent recog-
had hybrid structures. Based on the sample of nizably different implementations of strategies for using
companies, the majority of which were IRI members, a innovation to create value for a company’s stakeholders.
few high-level factors appear to correlate with the Furthermore, a company with multiple business units
variation in R&D structures. Figure 1 depicts the may play different games simultaneously, each with its
observed trend of R&D structure in terms of number of own centralized R&D, resulting in a hybrid structure for
employees and revenue. The survey also found that the enterprise as a whole.
companies with large market diversification—i.e., many Looking at the “Science-Based Safe Journey” in more
business units—are typically decentralized, while detail, one sees that the dominant approach to value
single-market companies are typically centralized. creation is utilizing intellectual property to productize
The stated role of R&D appears to correlate with the type and deliver engineered products within a highly
of R&D structure used. Companies in which the goals of regulated environment. Priorities are to develop effective
R&D include developing emerging markets and building scientific solutions, engineer reliable and safe products,
knowledge for technology breakthroughs tend to have and obtain regulatory approval. Large investments are
centralized structures. Decentralized structures are more made in obtaining new knowledge.
common in companies whose focus is incremental According to the MINE study, companies in this In-
product innovations. Hybrid structures are common for novation Game typically fund R&D with an average of
companies that are market leaders, a scenario that 16.5 percent of sales, focusing on both breakthrough
requires a balance between breakthrough innovation and (25 percent) and incremental (75 percent) innovation.
product development. Although a large part of the R&D is centralized, there
are multiple structures, including partnerships, alli-
What Factors Drive How Companies ances and contract R&D. Idea sources include internal
Select Structures? sources (54 percent), universities (17 percent), partners
(15 percent), and customers (8 percent).
A multi-year study titled “Managing Innovation in the
New Economy (MINE)” at École Polytechnique, in Note that individual companies or entire sectors may
Montreal, is probing deeper questions about why migrate to different games depending on their strategy

22 Research 䡠 Technology Management

 Figure 1.—Smaller companies typically have centralized R&D; larger companies
typically have a hybrid of centralized and decentralized R&D.
and/or position on the “maturity curve.” In the MINE
study, three major migration paths have been observed:
• Science-Based Safe Journey → Innovating in Packs.
• Battles of RD&E Systems → Battles of Architectures.
• Battles of Architectures → Learning, Marketing and
Mass Manufacturing.
Transient Influences in the Business Environment
Although the Innovation Game is the primary, ongoing
driver of an R&D structure, there are several transient,
yet important, factors that influence it. The characteristic
R&D structure for a game evolves in response to the
dynamics of the internal and external business environ-
ment, as illustrated by the following five trends.
1. Globalization is extensive among companies in the
MINE survey, with an average of 53 percent of sales
outside of their home country. Furthermore, 41 percent
of innovation activities are conducted internationally.
Globalization fosters decentralization, which leads to
multiple centers of excellence, transnational R&D, and
using global R&D to adapt to local markets. As one study
contributor explained, “Air Products and Chemicals is
developing a strategy for technology in Asia . . . and we
need to build appropriate capability around the world
without simply recreating every capability of central
R&D in each corner of the world” (11).
September—October 2006
2. Another major influence is diversification, which
drives organizations toward multiple business units and
hybrid R&D structures. In the MINE survey, which
included a diverse group of companies in many countries
and representing all seven games, single-business firms
are the majority (57 percent).
3. Cycles of centralization and decentralization have
been observed in multiple companies. Whereas decen-
tralization can be used to grow markets, centralization is
necessary for internally focused systems to create (or
renew) markets with breakthrough innovations. From a
personnel perspective, centralized R&D enables scien-
tists to form networks with other scientists, and business-
unit-organized R&D fosters networks with marketing
and business people. After reorganizations, such rela-
tionships persist for a while and people benefit from both
types of networks. Additionally, the adoption of a
different structure may allow a company to release
untapped capabilities that are suppressed because of its
current structure.
From 1960 until 1980, research activities at large
companies were more centralized than today. Many have
shifted over the last 20 years toward decentralization as
they were increasingly driven to improve the next
quarter’s financial report. Today the pendulum appears
to be swinging back toward centralization, not because
there is less short-term pressure for financial results but
23
because companies have largely used up their “seed
corn,” i.e., new ideas and technologies enabling them to
grow the enterprise.
Recent changes at some high-profile companies
showcase this trend. In 2002, GE announced it was
investing $100 million in its central R&D facility near
Albany, New York, saying that it needed new ideas to
generate new products, after having done an excellent
job mining what it had through its aligned Business
Organization structure. Other examples include the inte-
gration of corporate and business-unit based research
into Motorola Labs (2000), and the new $300 million
Philip Morris R&D Center in the Biotechnology
Research Park in Richmond, Virginia (2005).
4. Outsourcing is done to achieve cost efficiencies and
allow companies to focus on their core competencies.
Data from the MINE survey, however, indicate that out-
sourcing is not currently a significant factor. R&D is
almost always done in-house (97 percent), and strategic
R&D is done centrally. Outsourcing is most common for
regulatory approval and industrial design activities. Part-
nerships are a more common approach and account for
13 percent of R&D efforts. As a study participant
remarked, “Pizza Hut has a small R&D organization but
can leverage the R&D of our food suppliers . . . . How
should we structure roles and accountabilities to
integrate their R&D resources with ours?” (12)
5. Information Technology makes it possible to bridge
time and space. Database and search technologies allow
accessing vast accumulations of information, and offer
the potential for reusing knowledge across multiple
R&D programs. Shared workspaces facilitate multi-site
operations. Thanks to modern telecommunications, a
global R&D organization can be managed centrally or
decentrally as desired. There is the opportunity for time-
zone-based structures that enable “round the clock”
projects.
Which Structure Is Best?
This paper has provided different perspectives on R&D
structure, and thus it is natural to ask what the “best”
R&D structure is for a given company at a particular
time. Based on the interviews conducted for the MINE
study, a good R&D structure fits both a company’s Inno-
vation Game and the relevant macro-trends for the
company/industry.
Figure 2 is a flowchart for guiding discussions about
R&D structures. The first step is to consider the

Table 3.—Characteristic R&D Structures of the Seven Innovation Games

Innovation Game
Science-Based Safe Journey
Technology Races
Battles of Architectures
Battles of Research, Development,
and Engineering Systems
Learning, Marketing, and Mass
Manufacturing
Systems Engineering and Consulting
Optimizing and Innovating in Packs
Example
Industries/Companies
Pharmaceutical, e.g., Aventis, Merck
Biotechnology, e.g., Altarex.
Fuel cell technology, e.g., Global
Thermoelectric.
Telecom (Bluetooth standard), e.g., SR
Telecom, Motorola, with its third-party
suppliers, e.g., Avaya, Freescale.
Chip design, e.g., Synopsys.
Rational drug design, e.g. Arqule.
Product lifecycle management, e.g.,
Dessault.
Automotive, e.g., Ford, GM, Toyota,
Daimler-Chrysler.
Aerospace, e.g., Boeing, Airbus.
Information systems, e.g., Cambridge
Technology Partners.
Industrial gases, e.g., Air Liquide, Air
Products and Chemicals.
R&D Approach and
Structure
Centralized R&D with partnerships/
alliances and contract R&D.
R&D is the primary focus and typically
centralized.
R&D is centralized but within an
ecosystem of interdependent partners
sharing the same goal.
Highly centralized R&D with minor
contractual outsourcing. These
companies are typically in emerging
markets.
Centralized R&D with some
decentralization to manufacturing
plants.
Centralization is necessary so that
developments fit with diverse
subassemblies and manufacturing
processes.
Centralized R&D is embedded in the
company.
R&D is performed as part of professional
services and not as a separate R&D
effort.
Hybrid structures allow R&D to be done in
partnership with customers.
The decentralized part of R&D is done
close to clients.

24 Research 䡠 Technology Management

company’s current R&D structure in light of its scope.
The graph’s horizontal axis represents the company size,
e.g., in terms of employees, revenue and/or R&D budget.
The vertical axis represents the degree of market interac-
tion, e.g., the number of direct customers, product lines
and/or business units. In the CIMS survey, centralized,
decentralized and hybrid structures were equally popular
when there were relatively few customer interactions and
5,000–10,000 employees.
The second step is to identify which of the seven Inno-
vation Games the company is playing. As shown in Table
3, each game has a characteristic approach to R&D.
Thus, it is necessary to determine which parts of the
R&D structure fit (or do not fit) the game a particular
company is playing. One might also consider features of
the R&D structure associated with a secondary game.
The third step is to anticipate migration to a different
Game. Several “natural migration” paths have been iden-
tified, e.g., from Science-Based Safe Journey to Innovat-
ing in Packs. Thus, a company should identify where it is
on the maturity curve for its current game, and assess
how soon it may need to migrate to a different game.
Likewise, a company may make a decision to change its
game to support a new strategy.
The final step is to superimpose trends that affect the
realization of an R&D structure. Using the four steps in
Companies playing
the same Innovation
Game tend to
use similar
R&D structures.
Figure 2 to design (or re-design) an R&D structure facili-
tates the analysis of key issues regarding a company’s
current structure, pros/cons of centralized/decentralized/
hybrid structures, as well as business- and market-
specific issues. A good R&D structure balances both
long-term dynamics (Innovation Games) and short-term
dynamics.
R&D strategy, which defines the approach to implement-
ing an Innovation Game, should also guide the selection
of an R&D structure, because it greatly influences the
frequency and nature of interactions among R&D
employees. Organizational structure likewise influences

Figure 2.—Decisions about R&D structures need to consider four key elements: company scope, strategies for value
creation, changes in value creation, and internal/external trends.

September—October 2006 25
reward systems and, therefore, employee behavior. It is
important to remember that a mismatched structure can
defeat attempts to implement a good strategy.
The two surveys discussed in this paper echo the findings
of prior studies of information technology governance in
that there are no optimal structures or universally best
solutions (13). Regulatory issues, core technologies and
alignment with business strategies amplify the need for
centralization of decision-making. Conversely, decen-
tralization follows from globalization, non-core activi-
ties and customer intimacy.
For companies in a given industry, there are specific
internal factors (e.g., strategic intent) and external factors
(e.g., globalization) that correlate closely with the imple-
mented structures for their R&D organizations. Within a
given industry, R&D organization structures tend to
evolve in specific ways. For example, as the company’s
age, size and level of diversification increase, the
structure moves from centralized to decentralized to
hybrid. Companies playing the same Innovation Game
tend to use similar R&D organization structures. This
appears to be true since the industry largely dictates the
game a company plays, unless a company decides to
change its business strategy or the cyclical need for reju-
venation forces the company back to a central R&D
structure.
It must be recognized that the job of innovation is not
limited to the R&D organization, but is a company-wide
effort, supported by resources from every functional and
business group. The MINE study estimates the cost of
innovation to be roughly 30 percent more than the cost of
R&D. This represents significant resources in
Marketing, Manufacturing, Quality, HR, Corporate
Strategy, and other areas of the business. Effective inter-
facing between R&D and other functional groups is criti-
cally important.
Ultimately, a good R&D structure is one that meets the
expectations placed on it, such as supporting corporate
growth and building new technology platforms. There is
the need to specifically define those expectations, e.g., x
new products from R&D each year, and there are always
trade-offs. 䡩
䊱
Acknowledgements
We thank Alan Fusfeld (The Fusfeld Group) and George
Farris (Rutgers University) for their many insightful con-
tributions to this project and paper. Thanks also to Ben
Subscribers Read RTM OnLine . . .
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within text and across other journals.
26
The estimated cost of
innovation is roughly
30 percent more
than the cost of R&D.
Strickland, Bonnie Anderson, Rob Oehman, Andrea
Sinko, and Dong Xu (North Carolina State University)
for preparing the initial literature search and survey.
Thanks also to members of the IRI ROR 04-03 Subcom-
mittee for helping to formulate an approach to R&D
structural design, and to companies that participated in
our surveys.
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Research 䡠 Technology Management