Issue 19 spring 2010

PDF Downloads click to download PDF Email send via email Contact EIRMA send us a message Diagrams Overseas R&D centres needs to maintain two sets of proximities

The local researchers: at the interface between the local and global environments

Links ABB EIRMA’s global R&D Focus Group Representatives’ Round Table Akzo Nobel Bekaert Technology Centre Unilever R&D Alcatel-Lucent Bell Labs France GreenTouch consortium ARMBASF CaRLa Joint Innovation LabGlobal Research Center in Singapore BASF Advanced Research Institute ETH Zurich IBM/ETH nanotechnology research centre IBM’s Zurich Research Laboratory IBM/ETH advanced electronics collaboration Computer security collaboration Unilever DSMAcoris Research

Globalisation and open innovation have moved from being a competitive advantage in research to a necessity. Research managers are now focusing on how to make a good job of running partnerships, internal or external, which cross the bounds of geography, organisational and local culture. Knowing what you want from such partnerships, having clear processes to get it, and understanding the cultures with which you are working all help. The rest takes good luck and hard work.

These partnerships are no longer just about saving money. It is still cheaper to do some forms of R&D with academics or in emerging countries than in industrial labs in the West, but the cost advantages are disappearing. Many companies that initially sent R&D work offshore to save money now say that they keep it there, despite rising costs, to secure access to people and skills, and to be present in a booming market.

A lot of the value from being an offshore R&D centre comes from the external networks it brings

“A lot of the value from being an offshore R&D centre is not from the lab itself but from the external networks they bring,” said Julio Danin Lobo, group leader at ABB and a member of EIRMA’s global R&D focus group.

There’s also value from working with another culture. For example, part of the reason that Akzo Nobel put its colour research centre in India was because of the rich relationship that many Indians have with colour.

And there’s a brand value to a local presence, too. “ABB has approximately one third of its profit coming from India, so it's important for us to be a good local presence,” said Lobo.

Proximity

EIRMA’s Focus Group has been studying globalisation for the past two years, and last year visited a number of labs in India. It has defined three forms of globalised R&D: the first adapts products and processes to a local market; the second supports a base of R&D at home; and the third is a true global development centre with its own research agenda. Labs can evolve from one type of work to the next, an evolution that also changes the relationship between the lab and its parent company.

Dominiek Verkinderen, senior project leader at the Bekaert Technology Centre and a member of the Focus Group, said that one of the group’s key findings was the importance of understanding the proximities between a lab, its location and the parent company. These proximities are much more than just a location.

“There are two proximities, because overseas R&D centres have to live in two worlds,” said Verkinderen. An offshore R&D centre has to maintain a social, cultural, institutional and cognitive proximity to its parent organisation, as well as maintaining the same proximities to its local environment.

“It may be difficult or impossible to be cognitively close to both the local and global environment,” said Verkinderen. He gave the example of working in India, where the cultural commitment to social responsibility is so strong that it is hard to give people the power to run a project and expect them to get on with it (at least at first): you have to coach them into taking on that challenge.

The idea of proximity provides a useful tool for thinking about making outsourced research relationships work

This idea of proximity provides a useful tool for thinking about making outsourced research relationships work, whether they’re with an internal lab offshore, an academic partner or even a government. For example, Verkinderen suggests that people will fit better in a global organisation's offshore R&D centre if they have already worked in a corporate environment. Similarly, applying an organisation’s global processes to offshore labs may initially seem overly bureaucratic, but can help people become cognitively and culturally close to the parent organisation.

“The creation of an overseas R&D centre is a long and step-by-step process,” said Verkinderen. “You should create favourable conditions that enable the new centre to benefit from its local environment and at the same time feel part of the global R&D activities.”

Clarity wins

It’s easier to feel part of a global organisation if you understand what it is doing and where your work fits in with its strategy. Hans Dröge, senior vice president R&D to the regions, Unilever R&D, say his company is moving some R&D to China and India, having opened five labs there in just two years, and so feels this issue acutely.

“The three key ways we work in R&D are to have one organisation with one head, to use one operating framework, and to have one research program,” he said. “Then it is absolutely clear who is working on what.”

He also recommends applying clear key performance indicators (KPIs) and giving people a sense of how the KPIs are used by the R&D leadership. This kind of openness can have its challenges, though: if everyone knows what everyone else is doing it soon becomes clear whose work is apparently less valuable, interesting, or successful.

“There is a trap there,” said Dröge, “when local labs do localisation and can end up feeling like second-class citizens. We sometimes tend to undervalue the intellectual capabilities of the offshore labs.”

His solution? Give offshore labs work that is challenging and of global value.

“Unilever has an R&D strategy of ‘discover, design and deploy’, and then it's horses for courses [a case of picking the best team for each phase] and making a three-tier piece of work. The key is clear roles and responsibilities.”

Dr Jean-Luc Beylat, chairman and chief executive officer of Alcatel-Lucent Bell Labs France, recommends embedding research centres within development centres to give greater flexibility as well as the ability to deliver complete, complex solutions.

His issue is managing R&D within a company that has €17bn in revenues, 23,000 R&D staff and a €2.5bn R&D budget. The company has Bell Labs laboratories in the UK, Ireland, US, Germany, China and India and the trick is to orchestrate their work to the company’s advantage. This means, for example, ensuring that you have a critical mass of people working in an application area so the research has a chance to flourish, but ensuring that individual disciplines don’t cluster in one place, which would drive out diversity and undermine multidisciplinarity.

Alcatel-Lucent is also trying to be more open and entrepreneurial in its approach to research and recently took an important step in this direction with the launch of the GreenTouch consortium. This is a global collaboration to cut the carbon footprint of the communications industry, which is growing rapidly as the use of the Internet increases. What’s striking about the alliance is that it began as a two-person thought experiment at Bell Labs last summer, quickly grew to a multidisciplinary team of two dozen by the autumn, and by Christmas had turned into an open-innovation project attracting many of the industry’s top companies. According to Beylat, part of what made this possible was having sufficiently senior people present in each region to persuade top decision makers to act quickly.

Connecting to the business

ARM develops microprocessor designs and then licenses those designs to semiconductor companies to include in the chips they make, particularly for the mobile phone industry. Krisztian Flautner, vice president of R&D at ARM, runs a team of about 50 people, in the UK, Belgium, and in San Jose and Austin in the US.

The company has had a flat R&D organisation for a while, but has recently had to define three core research areas to get people to ignore the geography of the organisation and focus on its research topics.

“We are now at the scale where we have to make an effort to get people to work together,” said Flautner.

One of his key roles is matching the output of the research group to the needs of the technology and product development groups.

“It's all about how a company enables technology development and the flow of work out of R&D,” he said.

ARM’s approach is to let the research team do its work, and then, when it comes up with an idea that it believes could be commercialised, have the researchers work with the marketing team to produce a story about what a new technology might achieve. This can be enhanced with ideas about potential lead customers and even the offer of the transfer of some resources from R&D to help make it happen. Once a division has taken an idea on, Flautner works on keeping them focused on implementing the new technology, as other priorities compete for attention and financial and resource pressures emerge. How does he do it?

“The small stuff just fits and the big projects demand attention,” he said. “It's the mid-sized projects that can get lost.”

One approach is to move a project to a remote site.

“It can be easier to get a project to work by exporting it to a remote site, where they will feel more ownership and see it as a way of proving themselves to the parent organisation,” he said.

ARM has also formed a research collaboration with the University of Michigan but it took a long time for the university, with its various stakeholders, to agree.

“Collaboration that is acceptable to academia and industry is very hard work,” said Flautner. He says that university collaborations can halve the cost of doing the research work, but that it is not really about the money. “What's more interesting is that academics are less bounded [limited in their outlook] than industry.”

Linking with academia

BASF, the world’s biggest chemicals company, has a series of academic collaborations. According to Dr Markus Muller-Neumann, senior manager, science relations and innovation management at BASF, the collaborations are used as a bridge to basic research, as a way of accessing the right people, to speed up projects, to reduce risk and cost, and to benchmark internal R&D.

BASF uses various forms of collaboration include consulting, bilateral research corporations and consortia, with varying degrees of commitment and control.

For example, CaRLa, the Catalysis Research Laboratory, is supported by BASF and yet a part of the University of Heidelberg. A Joint Innovation Lab in organic electronics acts as a cooperation platform for BASF, hosting BASF employees, PhD students, trainees, and industrial partners. The Global Research Center in Singapore links the company to Asian universities and institute networks, and is linked with BASF’s Asian business units, while at the BASF Advanced Research Institute at Harvard University the projects are jointly defined and managed by BASF project leaders and Harvard professors. The Institute only has one BASF employee, and the lab work is done by postdoctoral students in the faculty’s labs.

Each of these collaborations involves different proximities between the partners, and different levels of adaptation and compromise for all involved. Common measurement schemes help make them part of the BASF culture.

IBM is making a big commitment to an academic collaboration with leading technical university ETH Zurich to build a nanotechnology research centre that will become part of IBM’s global research lab network – as well as an open facility that third parties can use.

The facility will cost $90 million, with IBM paying $60 million for the building, and ETH and IBM splitting the $30 million cost of equipping it. ETH will then take a ten-year lease from IBM for space in the building, as well as basing two professorships there. The whole centre will be open to other companies, to work on their own, with ETH or with other partners.

“It's truly an open platform for nanotechnology research,” said Dr Matthias Kaiserswerth, director of IBM’s Zurich Research Laboratory. “It’s also the first time in Switzerland that industry and academia are creating a shared research infrastructure.”

How has this been possible, given strict Swiss government laws about how taxpayers’ money is spent? Part of it is due to the fact that IBM has had research in Zurich since 1956, demonstrating a long–term commitment. Part of it is that IBM has two other long-term collaborations with ETH, on advanced electronics and computer security. And part of it is the approach Kaiserswerth and colleagues have taken to getting the deal done.

“One needs to understand the cultural differences,” he said, “for example between a government institution’s sense of urgency and industry’s sense of urgency.”

He suggest that companies trying to build similar collaborations should create ‘mirrored’ teams, where each function on one side has a counterpart on the other, that the lawyers are kept under control, and that everyone sticks to the agreed schedules.

“The key, though, is respect and compromise, and understanding each other's boundaries,” he added. For example, IBM usually shares intellectual property (IP) rights in collaborations, allowing its partners to licence the IP but not to assign it to another organisation. With ETH, it has compromised and allowed the university to assign its rights to another company, in part to enable it to give any start-ups that might emerge from the collaboration a clear IP position from the start.

China

This issue of matching cultures is particularly important when creating research labs in China and India. Although excellent scientists and technicians may be available, the success of an offshore lab is more likely to hinge on efforts its management makes to bring the two sides closer together.

Dröge at Unilever says his company is setting up large R&D centres in China, in part to reflect the fact that the amount of the company’s global business that has been done in emerging markets has grown by almost a third, from 36% to 47% of the total, between 2004 to 2008. Unilever also sees China as reflecting key global trends, such as increased urbanisation and the need for sustainability.

Unilever opened its first wholly owned research lab in China in 2000, which was employing 450 people by 2009. Around 60% of them have a Masters or PhD. Many of the research leaders are ‘repatriates’, Chinese people who have worked in the West and returned to China to exploit the value of that experience by acting as bridges between the two cultures. One key issue is the Chinese employees’ attitude to their work: according to Dröge, although they may have excellent theoretical education, they’re not as used to taking the initiative as Indians or Westerners.

The Chinese are also in a hurry for progress, and so want to see regular increases in their salaries and upgrades in their positions. Some Western companies have suffered staff turnover of up to 15% per year, as Chinese staff have moved on for better wages, titles and responsibilities.

“The war for R&D talent is intense,” said Dröge. “You need to invest in career counselling and manage their expectations, more on a monthly basis than on an annual or biannual basis as in Europe.”

He said that the idea of ‘paying your dues’, in other words achieving something for your employer before expecting promotion, is latent in Chinese staff, so it needs to be brought out through career counselling, awards schemes and so on.

Some companies have simply tripled the number of job grades available in their Chinese research organisations, as compared to those in the West, to provide regular opportunities for ‘promotions’. Dröge said that such schemes, combined with building a state-of-the-art R&D centre in Shanghai, have helped to reduce by half the staff turnover.

“Things like this are absolutely a key tool.”

Rob Kirschbaum, vice president of open innovation for DSM, advocates retaining staff by paying them very well: “There is a way to fight, but it will cost you.”

Richard Grainger, a consultant who worked with Ericsson when it set up R&D in China, said the key to successful personnel management there is to hire a Chinese human resources manager. If this is impossible, have an expatriate HR manager and surround them with Chinese senior managers who can bridge the two cultures.

India

It’s a similar story in India: high-quality science skills are available, but the thing that will make or break an Indian research lab is the research manager’s success in increasing the proximity between his lab and the local culture, and his lab and the corporate culture of its parent company.

Dr Helmut Rupp, president of Acoris Research, a contract research organisation, has built a number of R&D centres in various parts of India, taking responsibility for everything from design and construction to staffing and management.

“In the design phase you have to answer questions like whether you go it alone or work with a partner who can help manage the local authorities,” he said. “The fact that legislation exists doesn't mean it will be implemented as we would understand it in the West. You need to know who's who and who will be who in one year’s time. We have to accept that these things work differently than in Europe and plan accordingly.”

Rupp’s advice is to use someone from Europe to set a standard and check things as they go along, and an uncompromising local project manager, with a track record of working with Western companies, to keep the work on track. You also need to build in more contingencies than you would in the West, for example to take account of the fact that work can be interrupted for religious festivals at short notice.

The people issues are more subtle. Rupp says that it is critical for the head of the research lab to understand the parent company's desires and the extent to which the local lab should be embedded in the global network. Middle managers must have been exposed to the parent company’s culture and able to continue to live those Western values and norms when in India.

It’s also important to hire carefully. Rupp says that the quality of Indian education may not be all that it seems to be, and that a recent Indian government analysis of 100 Indian universities recommended removing the licence from 44 of them. The answer, Rupp says, is to do your own assessments.

According to Rupp, Indians are very innovative and creative, but have to be guided.

“I have never worked with more intelligent or more creative people than I have in India and this could also be the country's problem,” said Rupp. “You are likely to get five or six solutions to a problem and when you choose one you should then make sure to check that your staff are not also working on solutions 11, 12 and 13 on the side.”

Thinking styles may differ, too, with consequences for team dynamics.

“You have to appreciate that Indian culture and history [defers] upwards,” said Rupp. “To challenge the work of a senior manager is still very rare. The ability to do this has to be trained and nurtured as diligently as technical skills.”

Corruption can also be an issue, though this is not as clear-cut as you might imagine. Licences can be held up until the ‘right’ consultant is hired to smooth their path. Work can be halted for religious festivals until the construction team builds the local village a small amenity.

“There is a grey zone between doing a favour and hard bribery and you have to decide where that is,” said Rupp. Much of this is relative, too. Architect David Leon pointed out that UK planning laws include provisions for ‘planning gain’, in which commercial developers have to build a certain amount of social housing or other amenities in return for being granted key planning permissions. Is this state-sponsored blackmail, or just an equitable exchange of favours?

Taking stock

Grainger summed up the meeting by suggesting that the key to creating successful partnerships, whether within organisations or between them, was due to three factors: purpose, process and people.

Understanding the purpose of collaboration with an offshore lab or an external organisation, and where it fits on a scale from serving local needs to contributing globally, will help set the venture off on the right foot. The leadership of the venture needs to be well connected locally and globally and, if possible, to maintain multiple forms of proximity to both the parent organisation and the organisation they’re running. And there needs to be a plan for oversight, so that a venture’s progress can be properly monitored.

Process issues also need to be addressed, so that they can be adapted to local culture without becoming separated from corporate norms. Hiring local partners can help bridge this gap.

People issues are of the greatest importance. You need to hire senior managers who can walk a difficult line between the local culture and corporate expectations, and who can continue to do so even as they become settled in their roles. At less senior levels, remember that there is a war for talent so consider offering top pay levels to retain people, and using regular career counselling to establish the idea that regular promotions and awards are available for those who contribute the most.

Finally, remember that different cultures, be they in other companies, other countries, the public sector, or academia, have different norms and behaviours. The better you understand your partners’ cultures, the easier it will be to develop long-term relationships of mutual benefit.

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