Local Rationality, Resource Accumulation Structures and Emergent
Strategic Behaviour in Explaining R&D Resource Building and
Adaptation
Edoardo Mollona
Doctoral Candidate, London Business School
Sussex Place, Regent’s Park
NW1 4SA London (UK)
emollona@lbs.lon.ac.uk
1. Introduction
The literature of R&D portfolio management illustrates how R&D resource portfolio
management in a large multi-business firm is a complex system which aggregates
many interconnected sub-process and actors.
Morone [1989], for example, pointed out how business units and corporate top
managers compete in influencing the direction of research activity conducted in R&D
departments. Moreover, R&D resource and capability management in multi-business
firms has also to consider the feedback that links decisions to their consequences. For
example, Scholefield [1994] highlighted that the performances of a business set a
ceiling for the R&D resources allocated to it, and the R&D resources allocated set a
ceiling to the feasible business strategies that are likely to result.
This has created concerns about how project selection mechanisms and the
management of the R&D resource portfolio are coupled with corporate strategy-
making in order to co-ordinate resource building, business needs and corporate goals.
Indeed, a recurring puzzle [Ruggles, 1982; Venkatraman and Venkatraman, 1995;
Coombs, 1996] concerns firms’ inability to couple corporate goals with existing R&D
resources and activities. This mismatch generates such undesired consequences as
high rates of project refusal, fluctuation and underutilisation of valuable human
resources, and frustration of the underutilised capabilities [Venkatraman and
Venkatraman, 1995].
The present work aims at explaining the origin of the discrepancy between desired
and effective corporate R&D capability portfolios. and the fluctuation in R&D
capability utilisation. A System Dynamics simulation study, grounded on a business
744
case, represents R&D capability portfolio management as a complex resource
accumulation system; and highlights the role of resource accumulation structures in
directing R&D portfolio evolution.
2, Research Context
The case studied is an integrated company operating in the oil and natural gas,
petrochemicals, and oilfield services contracting and engineering industries.
The centralised R&D activity covers four areas of research. Oil Upstream, Oil
Downstream, Environmental Protection and Restoration, and Alternative Sources of
Energy.
These four areas of research impinge upon four core R&D capabilities: colloids and
chemical synthesis, thermal processes, catalytic processes and environmental
sciences.
3. Historical Behaviour
The System Dynamics model explores resource allocation behaviour in the different
research areas of the organisation. In particular, it addresses the forces that influenced
the evolution of the portfolio of R&D capabilities. Major concern is the explanation of
the origins of this mismatch between R&D activities and capability portfolio and
corporate strategic objectives. Such a mismatch has generated persisting discrepancy
between the submitted projects and the accepted ones; and has produced oscillations
in capability utilisation. Figures 1 shows the historical behaviour of the rate of project
approval (project approved/projects submitted).
Figure 1 - Reference Modes: trend of the rate of project
approval
Rate of Project Approval
1
08 |
H ie
! 04
te 02
8 0
% 285s 82858382328
eeeege 8 8 2 8.8 &
years
742
3. Dynamic Hypothesis
Figure 2 presents a major dynamic in the case studied. R&D capabilities in the
different research areas determine the number and the quality of projects submitted for
approval. The quality and the number of projects submitted affects the number of
projects that will be ultimately approved. The higher the number of project accepted
in each research area, the larger the amount of resource allocated to that research area
and the higher the possibility to enhance capability building and futher augment future
chance of project approval.
Figure 2 - Dynamics of R&D capability accumulation
Total projects presented
Research hours to be allocated
Approval rate
Quality Sf projects presented
Total projects accepted
Resource allocated
R&D Capabilities
Environmental
Sciences
Chemical Syatesis
cate | | rar! rcs a
4, Preliminary Findings and Further Research
One crucial decision firms deal with concerns enhancement, development or
refocusing and dissipation of organisational R&D capabilities. In this light,
particularly crucial is the coupling between evolution of a portfolio of R&D
capabilities and firm strategy-making. Using System Dynamics modelling, this paper
represents R&D capability management as a complex process embracing corporate,
business and technology strategic decision-making. The study proposes three
considerations. First, System Dynamics is particularly useful to elicit, represent and
study the structure of strategic decision-making embedded in the corporate context.
Second, the evolution of R&D capability portfolio can be explored through the
analysis of feedback structure which underpins strategic decision-making in
. 743,
organisations. Discrepancy between desired and actual R&D capability portfolio can
be explained by the misperception that boundedly rational decision-makers have of
the feedback structure in which they are embedded. Three, this study has revealed
promising avenues for further research. In particular, the built System Dynamics
model will be used to explore the co-evolution of R&D capability portfolio and
business and technology strategy, thereby illuminating an intriguing theoretical
territory in the strategy literature [Burgelman and Rosebloom, 1989].
References
MORONE, J., Strategic use of technology; California Management Review, Summer 1989.
SCHOLEFIELD, J. H., The allocation of R&D resource; R&D Management, Vol.24, No.1, 1994.
RUGGLES, R.L, How to integrate R&D and corporate goals; Management Review. Vol. 71, No. 9,
September 1982.
VENKATRAMAN, R. and S. VENKATRAMAN, R&D project selection and scheduling for
organizations facing product obsolescence; R&D Management, Vol.25, No.1, 1995.
COOMBS, R., Core competencies and the strategic management of R&D; R&D Management, Vol.26,
No. 4, 1996.
BURGELMAN, R.A.. ROSENBLOOM, R.S. Technology strategy: an evolutionary process
perspective, In Research on technological Innovation Management and Policy, edited by
ROSENBLOOM, R.S, Vol.4, JAI Press, 1989.
744
CC BY-NC-SA 4.0