McKinsey Global Survey results

Organizing R&D for the future

Executives agree that R&D is a global effort requiring collaboration, yet many say their organizations must improve their skills in this area and focus on talent in order to meet strategic goals.
Executives from around the world say their R&D organizations require new ways of

The online survey was conducted from April 17 to April 27, 2012, and received responses from 1,283 executives representing the full range of regions, industries, functional specialties, tenures, and company sizes. To adjust for differences in response rates, the data are weighted by the contribution of each respondents nation to global GDP. 2 Respondents are executives who either work in their companies global R&D organizations or have a working knowledge of their R&D organizations activities. 3 High-performing R&D functions are those that, according to executives, have had higher rates of organic growth than competitors and realized more than 30 percent of that growth through new products developed in-house.

working and agree that as R&D activities become more global and complex, their organizations should move away from the predominantly centralized approach many companies now use. These are among the findings from our fourth annual survey on R&D,1 which asked executives about the structure of their companies global R&D footprints, the way product decisions are made, and the actions R&D organizations are taking to meet their objectives in the next three to five years.2 According to the largest share of executives, the R&D organizations best positioned to meet their strategic goals would consist of satellite units that operateand collaborateas a network. Meeting this goal will be a challenge, however: 63 percent of respondents say their R&D organizations already include multiple sites, but only 21 percent at these companies report that the satellite R&D sites collaborate effectively. The results also suggest that the differences between high-performing R&D functions and all others are not only financial.3 Rather, executives at the companies that excel in this area are likelier to say their R&D sites collaborate effectively and that their global R&D organizations are investing much more in talent. For R&D organizations to get where executives say they want to go, they will have to overcome key obstacles (the oversubscription of talent,

Jean-Franois Martin

McKinsey Global Survey results

Organizing R&D for the future

for example) and develop organizational capabilities, including greater transparency and collaboration-friendly mind-sets.
Going global

Executives responses on the current state of R&D depict an increasingly global reality that is at odds with todays organizational structures. The largest share of respondents say their current R&D organizations consist of a central function in a single location; to meet their goals in the next three to five years, the largest share say their organizations should employ a more
4

Includes executives working in Latin America and excludes those working in China and India. 5 This measure counts R&D sites with 10 people or more; 29 percent say their organizations include at least six separate R&D sites. 6 In the survey question, offshoring was defined as moving functions and processes away from the companys home country to a location abroad.

decentralized model in which individual R&D sites operate as nodes in a global network (Exhibit 1). Executives in developing markets4 indicate that their companies are at an earlier stage of this organizational evolution: 56 percent say their organizations are centralized today, and while only 27 percent think they should be in the future, these respondents are the least likely among their peers in other locations to prefer a global R&D network. This overall preference for moving away from centralization reflects the reality on the ground:

R&D 38 percent say their companies plan to increase offshoring6 of their global R&D activities. Exhibit 1 of 6 Exhibit title: Moving toward a global network

Survey 2012 63 percent of executives say their R&D organizations already include more than one site,5 and

Exhibit 1

Moving toward a global network

% of respondents,1 by ofce location
Current structure Preferred structure in 35 years

Organizational structure of global R&D, current and preferred Total, n = 1,081 AsiaPacic, n = 116 31 24 38 26 9 10 18 39 China, n = 71 Developing markets,2 n = 135 56 27 32 28 15 12 28 39 7 6 11 32 21 31 Europe, n = 358 India, n = 135 North America, n = 266 35 18 29 27 19 21 20 38 25 25 14 12 23 42

Central R&D function with a single location Central R&D function (eg, at headquarters) with sites in different locations Central R&D function with independent sites in different locations Globally distributed group of R&D sites operating as nodes in a network
1 Respondents 2Includes

36 19 26 27 13 12 23 39

23 8

32 20 24 27 14 12 27 40

30 11

who answered dont know are not shown. Bahrain, Bangladesh, Caicos Island, Egypt, Indonesia, Israel, Kenya, Kuwait, Lebanon, Macau, Malaysia, Mauritius, Morocco, Oman, Pakistan, Qatar, Saudi Arabia, South Africa, Sri Lanka, Swaziland, Syria, Thailand, Uganda, United Arab Emirates, and Zambia.

McKinsey Global Survey results

Organizing R&D for the future

While there has been much recent discussion of companies bringing manufacturing activities and processes closer to home (to increase operating flexibility, for example), our results suggest that for many R&D organizations, the offshoring trend continues. Just 18 percent say their companies onshoring7 of global R&D functions and processes will increase in the next three to five years, and only 24 percent say the same about nearshoring.8
The value, and challenge, of collaboration
7

In the survey question, onshoring was defined as moving functions and processes back to the companys home country. 8 In the survey question, nearshoring was defined as bringing functions and processes closer to the companys home country from another location abroad.

There is an even more decisive difference between executives views on how product-related decisions should be made in the next few years (collaboratively, by members of a global R&D team in different locations) and how they are made today (by the central function and then applied to satellite R&D sites). Across regions, industries, company types, and locations within

Survey 2012 the R&D organization (Exhibit 2), pluralities of executives agree that decision making related R&D to products should be a collaborative effort in order to meet strategic goals. Exhibit 2 of 6 Exhibit title: Collaboration is ideal

Exhibit 2

Collaboration is ideal
% of respondents,1 by ofce location within R&D organization
Current decision-making process Preferred decision-making process in 35 years

Product-related decision-making processes for global R&D, current and preferred Total, n = 1,081 Central R&D site, n = 368 Satellite site in same country as company headquarters, n = 95 27 18 7 Satellite site in different country than company headquarters, n = 108 25

Centrally, then applied to satellite sites

40 21 33

56

Split, with some decisions made at central function and others at satellite sites Collaboratively, by members of global R&D team working in either central function or satellite sites Independently, at satellite sites 9 9

24 24

19 21

26 24

31 20

23 44

19 38

30 43

32 55

4 6

14 15

10 15

1 Respondents

who answered dont know or those who work in a function outside R&D are not shown.

McKinsey Global Survey results

Organizing R&D for the future

But collaboration is an art that many R&D organizations have yet to master. Of the executives who have a view,9 less than half say their central functions and satellites collaborate very or extremely effectively with one another; less than one-quarter say the same about satelliteto-satellite collaboration, a requirement of the very model they want to move toward.
9

When asked how effectively their central R&D function collaborates with the satellite sites, 17 percent say, dont know/not applicable, and 29 percent say the same about satellite-tosatellite collaboration. For this report, these responses were removed, and the results from the question were recalculated.

Respondents at larger organizations with at least six different R&D sites are likeliest to say their satellites collaborate effectively, suggesting that structural moves away from the center may be the push for organizations to improve internal cooperation. Whether or not their organizations collaborate effectively, respondents say that the most

Survey 2012 important capabilities for fostering successful collaboration are collaborative mind-sets and R&D greater transparency on R&D strategy (Exhibit 3). Improved talent management also ranks Exhibit 3 of 6 Exhibit title: Mind-sets matter for collaboration

Exhibit 3

Mind-sets matter for collaboration

% of respondents1 by effectiveness of companies collaboration
Between central R&D function and satellite site Between separate satellite R&D sites

Capabilities most important to promoting effective R&D collaboration Extremely or very effective,2 n = 479 Organizational mind-set that global collaboration is vital Greater transparency on organizations strategy and objectives Improved governance and decision making (eg, across global brands or categories) Improved talent management (eg, for team composition and selection) Better technological capabilities (eg, videoconferencing, intranet, instant messaging) Better-aligned metrics and incentives across organization and geographies Sufcient travel between R&D sites to allow for relationship building 43 41 38 27 32 43 31 39 29 24 24 18 20 29 54 54 Somewhat or not at all effective, n = 696 48 52 52 39 38 30 38 33 22 29 36 34

1 Respondents

2Respondents

who answered other or dont know/not applicable are not shown. who reported extremely effective or very effective collaboration were asked which capabilities are most important to promoting effective collaboration across their global R&D organizations; those who reported somewhat effective or not at all effective collaboration were asked which capabilities would be most important to promoting effective collaboration.

McKinsey Global Survey results

Organizing R&D for the future

highly among those who say their satellites work well together, but talent is an allocation issue as well. When executives identify the most significant challenge their R&D organizations face, the largest share (40 percent) say their key people are overextended and unavailable.
What high performers do differently

As in surveys past, we identified a group of high-performing innovatorscompanies where respondents report higher organic growth than competitors and say a large portion of that growth came from new, in-house products. While executives at this years highperforming innovators are still likelier than those at other companies to say their R&D budgets increased since last year,10 they also indicate that what is driving these differences is not necessarily budgetary or organizationalits cultural as well. Specifically, the executives at
10

high-performing companies say they are far ahead of their peers in three key dimensions: collaboration, allocation of talent and capital, and the use of product platforms to drive speed to market.11 For example, 31 percent of respondents at high-performing companies say their organizations already make product-related decisions collaboratively, compared with 20 percent of all other respondents. And while the results indicate that satellite-to-satellite communication a critical dimension of achieving a globally networked model of separate R&D sitesis

Compared with last years results, though, smaller shares of respondents overall and at the high-performing innovators say their R&D budgets increased from the year before. See R&D strategies in emerging economies, mckinseyquarterly .com, April 2011. 11 Product platforms are defined as products that use shared product architectures, which are meant to be tailored to local needs.

Survey 2012 a challenge for most organizations, executives at high-performing companies report more R&D effective collaboration than everyone else (Exhibit 4). The respondents at companies Exhibit 4 of 6 Exhibit title: Satellites struggle to collaborate
Exhibit 4

Satellites struggle to collaborate

% of respondents1 Effectiveness of global R&D collaboration
Extremely effectively Very effectively Somewhat effectively Not at all effectively Dont know/ not applicable

Between central R&D function and satellite sites At high-performing innovators, n = 262 At all other organizations, n = 819 2 16 40 28 14

Between separate satellite R&D sites

4 2

18

40

12

26

27

38

10

19

12

34

21

30

1 Figures

may not sum to 100%, because of rounding.

McKinsey Global Survey results

Organizing R&D for the future

whose budgets grew attribute this increase to a corporate focus on organic growth. Yet the
12

A global average of 48 percent of executives say the use of product architectures, or platforms, best describes the way their R&D organizations currently manage global products and categories; 30 percent say their organizations operate almost exclusively with global products that are standardized across markets and 17 percent say they develop local products almost exclusively.

high performers resource moves are likelier to be proactive and directed toward defined growth opportunities, while their peers are likelier to say their companies increased budgets as a reaction to competitors moves. More executives at high-performing innovators also say their companies allocate additional resources to hiring, though oversubscribed talent is the challenge the respondents at these companies cite most often (Exhibit 5). Another area where the high performers stand out is speed to market. On average, more

Survey 2012 executives say their R&D organizations product strategies focus on creating shared R&D platforms12 rather than developing local or standardized global products. At highproduct Exhibit 5 of 6 Exhibit title: A talent challenge, even for high performers
Exhibit 5

A talent challenge, even for high performers

% of respondents1
At high-performing innovators, n = 262 At all other organizations, n = 819

Most signicant resource-allocation challenges that global R&D organizations face Key people are always oversubscribed 50 37 32 34 23 32 Members of technical staff are not easily interchangeable across projects Organization does not address resource allocation frequently enough Organization does not have a complete, up-to-date knowledge inventory of staff 27 22 16 20 12 15

Decision making requires approval from too many layers of the organization Organization is not exible or dynamic enough in allocating resources (eg, people or funds)

1 Respondents

who answered other or dont know are not shown.

McKinsey Global Survey results

Organizing R&D for the future

13

Among executives at highperforming innovators, 57 percent say their R&D organizations use product architectures or platforms, and 71 percent say their organizations focus on these products will increase over the next three to five years, compared with 66 percent of the global average who say so.

performing organizations, respondents more often report that they use these platformed products now and plan to focus on them more in the coming years;13 at 51 percent, the largest share also say they use these products for faster times to market. The high performers are ahead in their use of technologies as well (Exhibit 6) and are more likely to be using (or

Survey 2012 social media to collaborate internally, engage external partners, and planning to use) R&D crowdsource ideas. Exhibit 6 of 6 Exhibit title: High performers use technology better
Exhibit 6

High performers use more technology

% of respondents,1 by digital business trends Adoption of business technology trends at global R&D organizations
Initiatives under way Plans to pursue initiatives in the next year No plans to pursue in the next year

Big data and analytics

Mobile Social media technologies to engage and applications customers 49 20 22 44 20 30

Cloud computing

Embedded computing

At high-performing innovators, n = 262 At all other organizations, n = 819

1 Respondents

42

31 18

38

25 22

29 24

35

32

25 30

36

25 29

39

22 30

30 22 33

25 16

44

who answered dont know are not shown.

McKinsey Global Survey results

Organizing R&D for the future

Looking ahead

As R&D organizations continue to globalize and pursue less-centralized decision making, the talent-allocation challenge that many executives report will become even more important, yet respondents are dissatisfied with how their companies are handling the issue now. That the high-performing innovators are more concerned with this issueand also report higher growthspeaks to the link between talent and successful R&D. Other companies would do well to follow the high performers lead by paying as much attention to the management and communication elements of their R&D footprints as to their budgets and portfolios. Although a majority of respondents say their R&D organizations use social media internally,14 the reported lack of effective collaboration suggests that technological solutions are no panacea. Compared with the global, cross-functional responses from last years Web 2.0 survey,15 where the largest share of executives said their companies use social tools and technologies for customer-related purposes, R&D organizations are still thinking about these as internal tools. In the coming years, they will need to use technology in a broader, more externally facing way to achieve their aspirations of operating as a global network. The shift away from centralized R&D organizations is particularly preferred in the developing markets, according to respondents. This may speak to a larger trend of emerging-market companies moving away from their home base and into other geographies in greater numbers that may, potentially, result in the rise of a new type of global organization.

14

This refers only to those respondents who say their companies global R&D organizations are pursuing or planning to pursue socialmedia initiatives to engage customers; 30 percent of all respondents say their R&D organizations have no plans to pursue these initiatives in the next year. 15 See Jacques Bughin, Angela Hung Byers, and Michael Chui, How social technologies are extending the organization, mckinseyquarterly.com, November 2011.

Contributors to the development and analysis of this survey include Marla M. Capozzi, a senior expert in McKinseys Boston office; Peet Van Biljon, a consultant in the Washington, DC, office; and Jim Williams, a consultant in the Seattle office. They would like to acknowledge Chris Musso for his contributions to this work. Copyright 2012 McKinsey & Company. All rights reserved.