Christoph H. Loch, Professor of Technology Management and Dean of PhD Program at the international business school INSEAD, has researched the challenge extensively. In his paper, titled Mobilizing an R&D Organization Through Strategy Cascading, he says that cascading business strategy down into an R&D organization is critical.
“Cascading business strategy down into an R&D organization is widely used as a useful tool to drive strategy into the organization and align researchers and developers behind the organization’s strategy. Strategy cascading is often seen as a formal tool of driving strategy top-down in the organization. This article argues that the key benefit from cascading lies not in top-down control, but in clarity for the technical personnel of what they can contribute, in the motivation that stems from being able to voice their views and concerns, and in the dialogue between senior management and the R&D organization. Dialogue is what mobilizes a technical organization to not only fulfill numbers, but also to contribute creatively according to their abilities. In other words, cascading becomes most useful when it is seen not as a tool to enforce strategy, but as an empowerment device for the R&D personnel to understand the sources of value for the business and to explore how to innovatively produce the highest value,” he says in the paper.
INSEAD is one of the leading and largest graduate business schools in the world. It has two campuses – one in Singapore, Asia and the other in France, Europe with two centers in the Israel and Abu Dhabi. INSEAD offers the MBA, Executive MBA and PhD programs to over 1,000 students and 9,500 executives from leading companies who are enrolled at the school. INSEAD was founded in 1957, and in 2001 it entered into a strategic alliance with the Wharton School in the United States.
INSEAD prides itself on its 137-strong faculty and its emphasis on cutting-edge research. Loch, for example, is a leading researcher in the field of management of product innovation. His focus is on technology strategy, project selection, concurrent engineering, project management under high uncertainty, and performance measurement. According to INSEAD, he is also interested in the emotional aspects of motivation and performance in organizations (such as R&D organizations).
Professor Loch is department editor of Management Science and Production and Operations Management, a senior editor of Manufacturing & Service Operations Management (M&SOM), and he serves on the editorial board of the Journal of Engineering and Technology Management (JETM). His work has appeared in many leading academic and practice oriented journals. At INSEAD, he teaches MBA courses and executive seminars at INSEAD, consults European corporations on technology management, and serves on the supervisory board of an educational software start-up company.
Automotive Industries (AI) asked Loch to explain how R&D organizations get mobilized through strategy cascading.
Loch: Often, strategy cascading is equated with scorecards and performance measures or objectives. But that is only one ingredient of effective cascading. Measures alone are insufficient because smart employees can run circles around any measure! Any NPV figure can be manipulated, any productivity measure padded, any “success rate” figure beautified (for example, by re-defining what is counted a an attempt).
There are at least two additional important ingredients:
The first is involvement in (or at least detailed and regular information about) the project portfolio process. The department heads and group leaders need to understand how their projects fit in the greater whole, what the priorities are, and what criteria determine the right BALANCE of the projects undertaken. Once they understand that the hurdle is not absolute, padding of business plans becomes a bit more difficult.
The second is a culture of communicating with marketing and manufacturing about the business value of R&D projects. Most R&D personnel (especially the more junior ones) have a technical outlook and respect technical merit more than anything else. Through enforced dialogue and negotiation with the other departments, they need to learn to make compromises in the interest of the business, and to learn the broader meaning of business contribution and the considerations of the other departments (such as cost, quality, and customer benefit).
AI: How does the cascading approach to R&D encourage greater creativity?
Loch: Remember that creativity has two ingredients: creation of variety AND selection. Variety creation without selection is randomness or chaos. And that’s how personnel in R&D sometimes feel – they generate lots of ideas, but these are shot down by bosses, business types and “suits” according to non-transparent and arbitrary criteria. If the technical person understands the selection criteria (including higher-level business and portfolio criteria), s/he can immediately eliminate her own ideas that really don’t promise a useful contribution, and then with rater confidence explore the avenues that do have the potential. This can produce higher motivation as well as increased creative effort spent on the issues that matter.
AI: How does the cascading approach help R&D organizations motivate their people and provide clear direction for future growth?
Loch: In the article, I give the example of the electrician who can explain the organization’s strategy and how his work contributes to it. Sometimes, participants in my R&D management workshops are not sure whether this is good, saying something like, “this blue collar person may get distracted by worrying too much about strategic things that are none of his business, and over his head anyway.” This is a dangerous attitude. Technical people who are better informed about the broader context, make better decisions and can explain their actions better to senior management. Moreover, because they know what matters, they have the feeling of achieving higher impact. There is nothing more motivating than having impact and being listened to.
AI: Please tell us a little about recent case studies carried out by INSEAD and BMW on the benefits of cascading R&D as a powerful empowerment device for the automotive organizational structure.
Loch: The BMW Dingolfing (Germany) drive train unit won our “Industrial Excellence Award” of excellent European manufacturing organizations this year. At the beginning of the decade, this unit was in danger of being replaced by external suppliers. But they took the challenge and simultaneously embarked on a road of process improvements that simultaneously reduced costs by a third within three years, increased quality and enhanced production flexibility. They deepened their collaboration with the engineering (product development) organization, which among other things that they took over design activities of the differential gearbox. Doing this in the factory allowed them to redesign these elements and save a lot of costs (in the gearboxes themselves and around them), as well as increase performance and robustness. Based on a combination of design and process efforts, management of the drive train unit decided to increase the performance of the unit beyond the strategic plans of the company and build a world class competitive position. All employees were regularly informed about strategy and its rationale and actively participated in generating actions for executing this transformation. The result in 2008 was an organization that marched into a consistent direction and exhibited great enthusiasm doing so.
AI: What are the other benefits for the automotive industry in using the cascading approach?
Loch: Cascading not only makes your R&D efforts more targeted and productive, it also helps o work across organizational boundaries with the other parts of the company, marketing, production, services, accounting and so on. Because cascading produces not only measures, but also action plans in discussion with your organizational partners, we can see interdependencies and synergies much earlier and more clearly, which gives people more visibility of the benefits and higher motivation to collaborate.