f128c16 R&D IP

Amity Business School
Management of research and

development
Structure of lecture Amity Business School
1. Introduction
2. Background: The management of R&D
within organisations
3. R&D and the link with corporate strategy
4. R&D strategic planning

5. R&D operational activities
6. Allocating funds to R&D
7. Summary and recap
Nov 2007
US leads way as global R&D spending rises 10%
China and India both recorded growth of more

than 30 per cent, albeit from low bases – £766m
for China and £268m for India.
R&D in organisations: Expenditure in 2005

$bn % sales
Ford 8.0 5
Pfizer 7.4 15
Siemens 6.5 7
Johnson & Johnson 6.3 12
Microsoft 6.1 16
GlaxoSmithKline 5.7 14
Samsung 5.4 7
Nokia 4.7 11
What is R&D?
“R&D is the purposeful and systematic use of
scientific knowledge to improve man’s lot even
though some of its manifestations do not meet with
universal approval.”
(Twiss, 1992)
“To develop new knowledge and apply scientific or

engineering knowledge to connect the knowledge
in one field to that in others.”
(Roussel et al., 1991)
Extended product life cycle

Basic Applied research: Development:
research: laboratory demonstration of ROI
Introduction
scientific verification application and
suggestion, product Revenue
engineering Growth
discovery,
recognition, Maturity
new concept. Decline
Investment
Accumulated investment
Time
-12 -10 -8 -6 -4 -2 0 2 4 6
R&D expenditure (mean)

across industries
Industry %
Pharmaceuticals 15
Aerospace 5
Automotive 5
Chemicals 8
Electrical and electronics 7
Food 1.5
General manufacturing 6
Computers 12
R&D as % of sales = (R&D expenditure/total sales income × 100%)
Source: UK R&D scoreboard 2001, DTI (2002). Crown copyright material is reproduced with the permission of the Controller of Her Majesty’s Stationery Office and the
Queen’s Printer for Scotland
Classification of new product development

activities across different industries
Industrial products
Technological Pharmaceutical industry

activities
Electronics industry
Balance of
activities White goods and
domestic appliance industries
Marketing FMCG
activities
Food and drinks industries
Strategic management of research

and technology
What are we trying
to do in this business?
How can R&D

What will we
contribute?
support in R&D?
What are the costs,

What can we benefits and risks?
afford?
Strategic role of R&D

R&D and
its link with
businesses N.B It’s the businesses
that pay for it
1. R&D for existing businesses.

This will ensure the businesses 3. Exploratory research.
are able to compete and to This helps to develop
exploit all opportunities understanding of technology
available to it. that the business is using
or may use.
2. Drive new businesses.
Business opportunities will
continually arise. R&D will
ensure that these can
be exploited.
R&D strategic planning means

developing a technology portfolio
• Core technologies
Central to all or most of the company’s products
• Complementary technologies
Additional technologies
• Peripheral technologies
Whose application contributes to the business
• Emerging technologies
Long-term significance
Classification of research
knowledge and R&D continuum
concepts
Basic research
Applied research Close to market
Development
Technical service
Physical
products
Product tangibility
low high
R&D operational activities

Basic research
Work of a general nature intended to apply to a broad range
of uses or to new knowledge about an area.
Applied research
Work involving basic knowledge for the solution of a problem.
Development
The application of known facts and theory to solve a particular
problem through exploratory study.
Technical service
Cost and performance improvements to existing products,
processes or systems.
Resource allocation to R&D

• Inter-firm comparisons
• A fixed relationship to turnover
• A fixed relationship to profits
• Reference to previous levels of expenditure
• Costing of an agreed programme
• Internal customer–contractor relationship
Key points from the lecture

• R&D can be managed and is managed
• Technology for today, tomorrow and the
future
• R&D operational activities
• R&D Project evaluation
References
Roussel, P.A., et al. (1991) Third Generation R&D,
Harvard Business School Press, Boston, MA.
Trott P (2005) Innovation Management & NPD 3rd ed.,
Prentice Hall.
Twiss, B. (1992) Managing Technological Innovation,
Lithedin FT: Pitman publishing, London.
UK R&D scoreboard 2001, DTI (2002).
Managing intellectual property

Learning objectives
• Understand the role of intellectual
property in appropriating gains from
innovation
• Understand different forms of protection
available for intellectual assets
• Appreciate the limitations of the patent
system
Profiting from innovation

• For an innovation to be profitable:
– The technology underlying the product must
work
– The product must create value for the
customer/consumer
– The innovator must be able to appropriate
(capture) enough of the value to make a profit
• Value can be lost to competitors, buyers, suppliers,
etc.
(Winter, 2000)
Mechanisms of appropriability
• Secrecy
– Trade secrets
• Legally protected intellectual assets are
termed intellectual property (IP)
• Control of complementary assets
– Other assets such as distribution, service
capability, customer/supplier relationships,
complementary products
• Lead time (Winter, 2000)
– First-mover advantage
Trade secrets
• Often applied to ways of working, price costings
or business strategies
• Also applied to products (e.g. Coca Cola)
• Legal definition unclear
• Maintain secrecy during product development
– Risk of information leakage?
– Inhibits internal knowledge transfer?
– Limits inter-company collaboration?
• Difficult to maintain once marketed
– Reverse-engineering by competitors?
• No protection against independent invention by others
Trade secrets
No sign of the recipe on the can!
“The secret to one of the world's most famous brands lies deep in a bank
vault somewhere in Georgia, US. Its exact location is reportedly known
only to between two and four Coca-Cola executives.
It is rumoured that measures are employed to protect the chosen
few – the executives never travel together, and must approve a
successor should one of them die.
Outlets which make the drink are simply supplied with syrups
and other ingredients from Coca-Cola – but not the original recipe.
People have revealed what they claim to be the official recipe
after analysing the drink, but Coca-Cola remains tight-lipped.”
Source: Tom Geoghegan, ‘What we still don’t know’, bbc.co.uk/1/hi/business 2nd June 2005
Types of intellectual property

Intellectual property Key features
Patent Offers a 20-year monopoly; for new products or
manufacturing processes, or improvements to
an existing product or process, which was not
previously known
Copyright Provides exclusive rights to creative individuals
for the protection of their literary or artistic
productions
Registered design Registration of the outward appearance of an
article; provides exclusive rights for up to 25
years
Registered trademark A distinctive name, mark or symbol identified
with a company’s products
Copyright ©
• Applies to:
– Original literary, dramatic, musical and artistic works
(70 years a.d.)
– Sound recordings, films, broadcasts and cable
programmes (50 years post publication)
– Typographical arrangements or layout of a published
edition (50 years post publication)
• Automatic protection
• Cannot copyright ideas
– Must be in tangible form (e.g. written)
– Copyright applies to the presentation of the idea.
Copyright
"Dan Brown copied from The Holy Blood and the Holy Grail and
therefore the publication of the result by the defendant is in
infringement of the copyright of my client in the United
Kingdom."
"The authors' historical conjecture has spawned many other

books that developed aspects of this conjecture in a variety of
directions.
But none has lifted the central theme of the book."
Source: Lawyers for Baigent & Leigh, February 2006

Registered design
• Intended for designs with aesthetic appeal
– Toys, electrical appliances, packaging, etc.
• New designs:
– Not published in the UK
– Materially different appeal to the eye.
• Outward appearance of an article

– Actual shape, configuration, pattern, etc.
• Maximum of 25 years
– Exclusive rights for initial five years, renewable for
up to five five-year periods
• Similar in operation to the patent system
Registered design
Registered trademark ®
• Distinctive names, marks and symbols identifying
a company’s products
• Must be:
– Distinctive in itself
– Non-deceptive
– Not confusing.
• International registration
• Many brands are registered trademarks
• Licensing
Trademarks
Orange colour clash set for court
A row over the colour orange could hit the courts after mobile phone
giant Orange launched action against a new mobile venture from Easyjet's
founder.
Orange said it was starting proceedings against the Easymobile service
for trademark infringement.
Easymobile uses Easygroup's orange branding. Founder Stelios Haji-
Ioannou has pledged to contest the action.
The move comes after the two sides failed to come to an agreement
after six months of talks.
Orange claims the new low-cost mobile service has infringed its rights
regarding the use of the colour orange and could confuse
customers – known as "passing off".
Source: bbc.co.uk 20th February 2005

Patents
• 20-year monopoly to make, use or sell
• Legal right to prevent others using the invention
• Public disclosure of details of the invention
• Novelty
– Must not be part of ‘state of the art’
– Words, publications, anticipation
• Inventive step
– Not obvious to a person skilled in the art
• Industrial application
– Machine, product, process
Limitations of patents
• Annual fees required
• National patent protection
• Patent harmonisation
– European Patent Convention (EPC)
– Paris Convention – 114 countries
– First-to-file (EU) vs first-to-invent (US)
• Legal costs of defence
• Limited effectiveness in some industries
– Patent life vs ‘imitation lag’
• Inventing around patents
Limitations of patents
Creative wins MP3 player patent
One of Apple's main rivals, Creative Technology, has

been awarded a patent in the US for the interface
used on many digital music players.
"The first portable media player based upon the user interface covered in
our Zen Patent was our Nomad Jukebox MP3 player," said Creative CEO Sim
Wong Hoo.
"The Apple iPod was only announced in October 2001, 13 months after we
had been shipping the Nomad Jukebox based upon the user interface
covered by our Zen Patent."
In its press release, Creative said Apple had filed for a patent for a user
interface in a multimedia player in late 2002, but its application had been
recently rejected.
Source: bbc.co.uk 30th August 2005
Strategic alliances and networks

Strategic alliances
1. Introduction
2. The fall of the go-it-alone strategy
3. The rise of the octopus strategy
4. Forms of strategic alliances
5. Reasons for entering alliances
6. Risks and limitations with strategic alliances
7. Licensing
8. Critical success factors
9. Case study: The film industry
Learning objectives
• Understand the reasons for increasing use of
strategic alliances
• Recognise different forms of strategic alliance
• Identify factors critical to the success of strategic
alliances
• Appreciate the risks and limitations of strategic
alliances
Introduction
• Collaborating with suppliers and customers is
not new
• The intensity of competition is increasing
• The nature of collaboration is different
• Nowhere is this more evident than in new

product development
The fall of the go-it-alone strategy

• Increased levels of competition
• Increased complexity of products and

production
• Widening technology base
• Dramatically shortened product life-cycles
• Pressure to reduce NPD time

The rise of the octopus strategy

• Sharing resources
• Facilitate the achievement of strategic objectives
• Provide opportunities to expand into new markets by

sharing skills and resources.
• A lack of trust often lies at the heart of an unwillingness

to engage in any form of cooperation.
• The element of trust can be highlighted through the

use of the ‘prisoner’s dilemma.’
Forms of strategic alliances

Strategic alliances can occur intra-industry or inter-industry.
Faulkner (1995); Conway and Stewart (1998) identify seven

generic types of strategic alliance:
1. Licensing
2. Supplier relations
3. Joint venture
4. Collaboration (non-joint ventures)
5. R&D consortia
6. Industry clusters
7. Innovation networks
Reasons for entering a strategic alliance

Reasons Examples
1 Improved access to capital and European Airbus to enable companies to
new business compete with Boeing and MacDonnell
Douglas
2 Greater technical critical mass Industry alliance formed between US
microchip manufacturers to compete with
Japanese
3 Shared risk and liability Sony-Ericsson
4 Better relationships with strategic European Airbus
partners
5 Technology transfer benefits Customer-supplier alliances, e.g. VW
and Bosch.
6 Reduce R&D costs GEC and Siemens 60/40 share of
telecommunications joint venture: GPT
7 Use of distribution skills Disney and Pixar

Reasons for entering a strategic

alliance (Continued)
8 Access to marketing NMB, Japan and Intel; NMB has
strengths access to Intel’s marketing
9 Access to technology IBM gained access to Apple’s user

interface technology
10 Standardization Attempt by Sony to get Beetamax

technology as industry standard.
Also Microsoft Windows
11 By-product utilisation GlaxoSmithkline and

Matsushita, Cannon, Fuji
12 Management training Use of management & IT consultancies

Risks and limitations with

strategic alliances
It can lead to:
• competition rather than cooperation,
• loss of competitive knowledge,
• conflicts resulting from incompatible cultures and
objectives,
• reduced management control,
• increased complexity,
• loss of autonomy,
• information asymmetry.
It may harm a firm’s ability to innovate.
Licensing
• Licensing is granting another business permission to use
your intellectual property.
• Payment of a fee in return for access to the technology.
• Very often the technology in question will be protected by
patents.
• Level of involvement varies considerably.
• Mutual self-interest is key driver.
• Product, manufacturing process and brand, which is
protected by patents; or a product or service, which is
protected by a trademark or copyright.
Licensing (Continued)
• Licensing is the main income generator for many firms
e.g. Microsoft, BTG, etc.
• It helps businesses and universities generate income

from their intellectual property through the licensing of
technology to third parties.
• N.B. Licences to competitors constitute a high

percentage of all licences extended; e.g. (MS-DOS).
Licensing brand names
• A growing area of business e.g.:

• All England Club and use of Wimbledon Trademarks
JCB
Harley-Davidson
Disney
• Brands, trademarks and the internet
e.g. domain names – www.3m.com
• Negotiate with care . . .
The licensee must be careful to evaluate the need for

and the benefits likely to accrue from the technology
before making the commitment to pay.
• How advantageous is the technology?

Many patents can be legally breached with sufficient
R&D investment.
Other reasons for licensing are (Rothberg, 1976):
• to avoid or settle patent infringement issues

• to diversify and grow through the addition of new
products
• to improve the design and quality of existing products
• to obtain improved production or processing technology
• to ensure freedom of action in the company’s own R&D
programme (patents held by other companies may
inhibit R&D activities).
Other reasons for licensing are (Rothberg, 1976):
• to save R&D expense and delay

• to eliminate the uncertainty and risk involved in
developing alternative processes and technology
• to accommodate customer needs or wishes
• to qualify for government and other desirable contracts.
Critical success factors

• Creating knowledge sharing routines
– Codifiable knowledge, ‘know-what’
– Tacit knowledge, ‘know-how’
• Choosing complementary partners
– Strategic complementarity
• Assets, distinctive resources
– Organisational complementarity
• Decision processes, information/control systems, culture
• Building and managing co-specialised assets
– New assets created as a result of the alliance
• Establishing effective governance processes
– Formal (legal, financial), informal (trust)
Case study: The film industry

• The Hollywood film industry and the role of
knowledge network organisations
• Industry clusters and networks
• Independent film making and the $60 billion porn
industry in the San Fernando Valley
• The nature of film making and the project-based
enterprise
• End of the film, end of the enterprise
The end
Thank you for listening

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Amity Business School

Management of research and

4. R&D strategic planning

US leads way as global R&D spending rises 10%

China and India both recorded growth of more

R&D in organisations: Expenditure in 2005

“To develop new knowledge and apply scientific or

Extended product life cycle

R&D expenditure (mean)

Classification of new product development

Technological Pharmaceutical industry

Strategic management of research

How can R&D

What are the costs,

Strategic role of R&D

1. R&D for existing businesses.

R&D strategic planning means

R&D operational activities

Resource allocation to R&D

Key points from the lecture

Managing intellectual property

Profiting from innovation

Types of intellectual property

"The authors' historical conjecture has spawned many other

Source: Lawyers for Baigent & Leigh, February 2006

– Materially different appeal to the eye.

• Outward appearance of an article

Source: bbc.co.uk 20th February 2005

– Words, publications, anticipation

One of Apple's main rivals, Creative Technology, has

Strategic alliances and networks

• The intensity of competition is increasing

• The nature of collaboration is different

• Nowhere is this more evident than in new

The fall of the go-it-alone strategy

• Increased complexity of products and

• Widening technology base

• Dramatically shortened product life-cycles

• Pressure to reduce NPD time

The rise of the octopus strategy

• Facilitate the achievement of strategic objectives

• Provide opportunities to expand into new markets by

• A lack of trust often lies at the heart of an unwillingness

• The element of trust can be highlighted through the

Forms of strategic alliances

Faulkner (1995); Conway and Stewart (1998) identify seven

Reasons for entering a strategic alliance

7 Use of distribution skills Disney and Pixar

Reasons for entering a strategic

9 Access to technology IBM gained access to Apple’s user

10 Standardization Attempt by Sony to get Beetamax

11 By-product utilisation GlaxoSmithkline and

12 Management training Use of management & IT consultancies

Risks and limitations with

• It helps businesses and universities generate income

• N.B. Licences to competitors constitute a high

• A growing area of business e.g.:

The licensee must be careful to evaluate the need for

• How advantageous is the technology?

• to avoid or settle patent infringement issues

• to save R&D expense and delay

Critical success factors