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Understanding Private-Sector
Decision Making for Early-Stage
Technology Development
III. PROJECT SCOPE AND METHODOLOGYMETHODOLOGYBetween July 2001 and January 2002, Booz Allen Hamilton researchers conducted detailed interviews with 39 company chiefs, senior executives, technology managers, and venture capitalists to identify emerging corporate trends and strategies for managing early-stage technology development (ESTD) activities. Of the 39 interviews, 31 were with technology companies from across 8 different industries and 8 were with venture capital firms. In total, the interviewed firms account for approximately 7% of total U.S. industrial R&D expenditures. In advance of each interview, respondents were sent materials with background information to familiarize themselves with the concepts and goals of the research. During telephone and in-person interviews, respondents were asked to discuss the R&D management process within their organizations, including investment strategies, funding decisions, and partnership efforts. Specifically, interviewees were asked to discuss their firm’s R&D activities leading to research-based disruptive innovations aimed at new markets along the following four-stage invention-to-innovation framework, which are defined below and presented in Figure 3.
Additionally, respondents were asked to
To gain insight on the levels of ESTD funding across industries, each respondent was asked to provide details of the firm’s R&D budget in 2000 along with their best-informed estimates of how these funds were distributed across the four-stage invention- to-innovation framework. Once all the interviews were completed, detailed quantitative analysis was performed to derive estimates of corporate ESTD spending. As we were particularly interested in intra-industry variations in ESTD support, all interviewed firms were classified into industry groupings modeled after categories from the North American Industry Classification System (NAICS) classification scheme, which in 1997 replaced the 1987 Standard Industrial Classification and groups together business establishments that use the same or similar processes to produce goods and services. Our industry classifications are presented in the Appendix. To estimate total corporate ESTD spending across the nation, we summed ESTD funding estimates from across each of the eight sampled industry categories. To achieve individual industry estimates, we added up total ESTD funding in each category of our interviewed firms and compared it with their total R&D budgets to derive an industry-specific weighted average of ESTD as a portion of R&D spending. These weighted averages were then applied to total R&D expenditures within each industry to come up with an estimate of total ESTD funding by industry. The results of these calculations are presented in Table 1. LIMITATIONS OF DATA AND METHODSIn planning our interviews, efforts were made to target a qualitatively diverse sample of firms along dimensions of industry, firm size, and lifecycle stage. In the end, we relied heavily on established relationships and contacts between members of the research team and industry leaders to select our interviewees. No effort was made to create a random statistically significant sample, as this was outside the scope of our study. The small number of firms in our study sample allowed us to conduct in-depth interviews with each of our respondents but does place serious limitations on our ability to assess the accuracy of our extrapolations to industry sectors as a whole. Table 1 compares the R&D expenditures and sales of interviewed firms aggregated by industry with industry totals. These data indicate that the firms interviewed are more R&D intensive than the average firm in every industry analyzed. Furthermore, for all industries with the exception of computer software, the interviewed firm with the highest level of R&D intensity was also that with the greatest share of ESTD activity. To the extent that a firm’s overall R&D intensity affects the share of R&D dedicated to ESTD activities, this difference may imply that our results overstate the share of corporate resources dedicated to ESTD activities. In our interviews, we made an important distinction between incremental improvements in a firm’s core products and processes and disruptive innovations as defined earlier. As we define it, only early stage research that is disruptive because its market lies outside that of the firm’s core products or core business model, or because the introduction of the new product disrupts the firms current technology or impacts current products qualifies as ESTD. This distinction is subtle, however, and in many cases, deciding what technologies and products lie within a firm’s core business and what lies outside is a subjective judgment. To facilitate this discussion we often used a framework represented in Figure 2 on page 7. Early development within the context of familiar technologies and familiar markets was not considered to be ESTD. Early development work oriented to new products using familiar technologies but focussed on new value propositions, using new technologies deployed against a familiar value propositions, or new technologies focused on new value propositions were all considered ESTD. When using this framework most of the interviewees recognized that most of their ESTD activity was in fact focused in the upper left or lower right hand quadrants. These interviewees also observed that they would generally not allocate funds to activity in the upper right hand quadrant. Moreover, the operational definition of R&D process terminology like “exploratory research” and “process development” varies widely across industries and firms. While we made efforts to ensure consistency in the way terms were defined and used in our interviews, some variation in the way our respondents categorized their research activities was expected. In a few exceptional situations, there were clear discrepancies in the way respondents decided what portion of their R&D investments to characterize as ESTD work. In these cases, we made slight adjustments to the categorizations to be more broadly consistent with our set of definitions. ____________________
Return to Table of Contents or go to next section. Date created: October 7, 2005 |
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