Research and Development (R&D) has been under pressure to do more with less for a long time, but the post-COVID-19 environment only adds more fuel to the fire: a highly uncertain and volatile environment and growing economic pressures that require managing with reduced R&D capacity. As a result, R&D needs to transform its operations into highly flexible, fast, and data-driven “innovation machines.” This requires moving beyond incremental efficiency improvements to master three key dimensions—stretch, speed, and scale.
By Stefan Lippautz, Andy Kohok, Phil Kyte, Adi Alon, and Ritu Chandra
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R&D needs to reshape its “what” (the product portfolio) and its “how” (ways of working) to foster the speed and right cost structure needed to compete in the emerging “never normal.” | Image: Accenture
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For years, R&D and product development executives have been pressured to boost innovation with fewer resources. In the wake of COVID-19, that pressure increased tenfold.
As the COVID-19 crisis unfolded, customer demand across all industries changed overnight. Companies had to act to adapt their supply chain to new customer behavior and needs. Now, economies around the world move into the first stages of recovery. Companies need to turn their focus to R&D. Through this, they align their innovation efforts with what customers want—both today and over the long term. This is complicated. Because organizations expect a R&D spend fall by 20 to 30 percent across industries. How can R&D leaders respond?
A new paradigm for the never normal: S3
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To thrive in the never normal, R&D needs to excel on three key dimensions. We call them S3:
- stretch (bending and adapting to rapid changes in demand, expectations, and capacity);
- speed (responding fast to dramatic shifts in consumer preferences and demand); and
- scale (ramping up production with the proper infrastructure, technology, and resources).
This requires R&D leaders to transform their function’s focus and keyways of working. In other words, both the “what” and “how” of R&D. Five critical organizational change initiatives backed by specific digital capabilities can help position R&D to respond to the operational, social, and financial disruption of the post-COVID-19 landscape.
To re-position R&D and new product/service development to drive the company forward, companies need to go these 5 steps:
1. Realign the Product Portfolio – S3 through simplicity
2. Develop Experimentation as a Core Capability – S3 through rapid testing and validation
3. End-to-End Digital and Data Continuity – S3 through substituting digital for physical development
4. Leverage Ecosystem Partnerships – S3 through accessing key capabilities and assets
5. Build a Responsive Skills Base – S3 through talent agility and diversity
1. Realign the product portfolio
For years, companies have experienced pressure to speed up their innovation efforts toward new offerings such as connected products, digital services, and platforms. COVID-19 only made matters worse, ushering in a sudden, rapid, and dramatic shift in customer behavior and needs that no one saw coming. The resulting impact on products was massive—with demand skyrocketing for some and evaporating for others.
In the short term, companies used to focus to rapidly pivot their offerings. Some companies did this faster and more effectively than others. In some cases, companies turned to items outside their traditional portfolio.
In others, companies adjusted their priorities to producing and selling a narrower range of high-demand products. Godrej Consumers Product Ltd (GCPL), for example, expects demand to shift to health, hygiene, and protection products. With consumers doing more online shopping than in-store, GCPL is also planning to become more aggressive in e-commerce.
Going forward, companies will need to reset their product portfolio. With this they can reflect, and be able to deliver, what customers want in this new environment. This includes:
- Reduce the complexity of current products to enable rapid scaling in design, engineering, and production.
- Align current pipeline and products with new demand patterns while exploring promising new customer segments.
- Focus on new products and packaging to ensure product integrity and distribution efficiency, with a greater focus on online sales and last-mile delivery.
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2. Develop experimentation as a core capability
With customers’ needs changing rapidly, often without warning, long and deliberate innovation cycles need to give way to a far more rapid, iterative approach to product development. This will enable companies to experiment with new ideas and quickly test and scale the most promising ones.
For most companies, determining how to create holistic customer experiences beyond their base products and incorporating sustainability in their new offerings will become increasingly important elements of their experimentation. Underpinning these efforts will be a growing use of digital technologies to help accelerate and streamline experimentation and testing.
For instance, Nike is currently developing new digital demand sensing tools that take in inventory data and consumer data from retail partners and Nike’s own digital sales channels to inform product development and order size.
Key actions companies must take include:
- Focus on creating holistic customer experiences (flexible, innovative, simple solutions). Use lean sustainable methods and technologies. That help product managers experiment and get customer feedback to development teams.
- Apply digital modeling and AI/machine learning tools to speed up insights generation and quickly simulate real-world scenarios and new-product features.
- Remove culture, organizational, or process barriers to experimentation (e.g., introduce an agile product development methodology and replace metrics that penalize failed experiments).
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Companies need a concerted effort to transform both the “what” and “how” of R&D. Click on the image to enlarge it. | Image: Accenture
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3. Invest in building end-to-end digital and data continuity
When countries began locking down all but essential businesses, entire workforces had to adjust to remote working. This includes the engineering teams responsible for developing new products. Instead of collaborating in physical labs, engineers have been thrust into working together in unfamiliar digital environments using different toolsets—often ones they never considered but will likely become commonplace in a post-COVID-19 world.
Companies need to invest in building end-to-end digital and data continuity. The key is to develop one data model in engineering with relevant data governance along the life cycle. Take, for example, Airbus, the company is planning to introduce Digital Design Manufacturing and Service (DDMS) program aiming at producing an aircraft 30 percent faster at 30 percent lower cost. Almost all PLM vendors are embracing this paradigm shift in engineering and are laser-focused on building end-to-end digital continuity capabilities.
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Another example, Dassault Aviation designed and tested its Falcon 7x in a virtual testing environment, with developers collaborating on a virtual platform and sharing a common database. The impacts of using a virtual platform include a 50 percent reduction in assembly time and a 66 percent drop in tooling costs. Reliance on physical testing and validation is expected to cede to greater use of virtual tools as previous concerns about the latter’s accuracy are dispelled.
To bolster end-to-end digital and data continuity capabilities, companies should:
- Leverage digital tools to enable remote working and greater visibility among internal groups, suppliers, and service providers. Exploit customers’ evolving digital capabilities to connect, test, and validate new products and services.
- Use digital twin and digital thread technologies to orchestrate and optimize physical and digital engineering processes.
- Develop integrated data models and analytic tools to inform engineering and development priorities. Example: For consumer sentiment, integrate demographic with engineering data to explore new product priorities and features.
4. Leverage ecosystem partnerships
Companies have embraced ecosystems and their partners’ unique capabilities. Doing so has enabled them to boost innovation, speed products to market, enhance customer experiences, and become more competitive.
The fact is, addressing a major challenge is far easier to do as a team. That’s especially true of companies that are at the forefront of the fight against COVID-19.
Many of these companies are collaborating with ecosystem partners—including, in some cases, their competitors—to win the battle. Consider BioCentury’s pre-competitive forum, which unites many pharmaceuticals groups to quickly test ideas for new COVID-19 therapies and vaccines. Teamed with extra working groups for data sharing and clinical trial accelerated, several groups have leveraged their assets, employees, and connections to bring forth cost-effective change.
The winning ecosystem formula includes several key actions:
- Pursue private-public partnerships that bring together top pharmaceutical company R&D leaders with venture capital firms, biotech’s, and other organizations to speed up the development of critical offerings.
- Use partners’ supply chains to quickly launch new products while maintaining supply chain ability and capacity to deliver existing products.
- Enhance formal programs that bring the best thinking from academia, early start-ups, and the supply base to fuel new product development for adjacent sectors and companies to generate near-term growth.
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5. Build a responsive skills base
If the COVID-19 crisis proved anything, it’s that people are still the most critical dimension of the modern business. Demand in most industries will continue to be characterized by uncertainty, so companies will need to develop and manage a more diverse and nimbler R&D talent pool. This will enable companies to quickly assemble and deploy smaller expert teams to alter product portfolios and enter or switch customer segments as needed to satisfy demand.
Effective cross-company collaboration, combined with intelligent resource allocation (i.e., R&D investment in product areas experiencing high demand), will become more critical to responding to changes in the market’s needs.
Huawei, for instance, is boosting its 2020 investment in research and development to $20 billion as the company prepares for stronger demand for network infrastructure and services and opportunities for growth once the pandemic ends. The spike in investment represents nearly a 41 percent increase from Huawei’s previous guidance for the year.
Key actions to consider include:
- Diversify product development talent with creative and consumer-sensing skills such as design and ethnography.
- Train the workforce to adapt to smaller pod teams that are cross-functional instead of traditional functional R&D teams. Should also develop rapid prototyping capabilities for quick-cycle experimentation and market validation of new products and services.
- Revamp project management, from coordination and monitoring of tasks to orchestration and effective integration of cross-functional teams (such as engineering, design thinking, developers, and scrum masters).
The preceding five actions form the foundation for an R&D transformation that virtually every company requires to be relevant and thrive in the never normal. While the importance and priority of these actions will vary by industry sector (Figure 2), the overall message is still the same for all: R&D needs to adjust now to reap the benefits as the recovery sets in and the future becomes clearer.
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Relative importance of each action for major industry sectors. Click on the image to to enlarge it. | Image: Accenture
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Redefining the future of R&D
The COVID-19 pandemic will have long-lasting implications for the future of R&D.
It has highlighted the shortcomings in R&D’s traditional focus and ways of working while putting incredible pressure on R&D to build greater operational stretch, speed, and scale.
Companies that don’t reinvent their R&D function will find themselves unable to adapt to dramatic shifts in consumer preferences and demand for both existing and new products. They also will struggle to overcome major supply chain disruptions.
Those that do make substantive changes in what R&D does and how the function does it will come out as winners in the next 12 to 18 months—and beyond. They’ll be able to flex, adapt, and respond quickly to rapid and unforeseen changes in demand and supply. They’ll also be able to leverage the right infrastructure, technology, and resources to ramp up production as needed in concert with changing market conditions.
An immediate response to the current challenges, a resetting of priorities and capabilities, and a renewal of product portfolio and pipeline are necessary to ensure short-term stability and long-term success.
Stefan Lippautz, Andy Kohok, Phil Kyte, Adi Alon, and Ritu Chandra
Stefan Lippautz is Senior Functional Strategy Executive at Accenture Strategy. Stefan leads the Intelligent Products and Platforms practice advising clients on why and how to bolster end-to-end digital and data continuity capabilities. Reach out to him via LinkedIn.
Andy Kohok is Senior Functional Strategy Manager at Accenture Strategy, Supply Chain & Operations Strategy. Andy leads the Intelligent Products and Platforms Strategy practice advising clients on product cost and portfolio complexity management. Get in touch with him via LinkedIn.
Phil Kyte is Strategy Principal Director at Accenture. Phil advises clients on how to create and deliver successful new, innovative consumer products and services, quickly and efficiently, to enhance innovation performance. Connect with him over LinkedIn.
Adi Alon is Industry & Business Service Innovation Lead at Accenture Strategy. Adi works with clients to define their innovation and ecosystem strategy, improve related processes and accelerate the execution of innovation initiatives. Get in contact with him via LinkedIn.
Ritu Chandra is Offering Development Principal at Accenture Strategy, Industry X. Ritu is responsible for innovating and differentiating Accenture’s smart connected product design and development offering. Start a conversation with her via LinkedIn.