International Journal of Innovation and Technology Management Vol. 4, No.

4 (2007) 393413 c World Scientic Publishing Company

ALIGNING R&D TO BUSINESS A LONGITUDINAL STUDY OF BU CUSTOMER VALUE IN R&D

FRANCES T. J. M. FORTUIN and S. W. F. (ONNO) OMTA Department of Business Administration, Wageningen University P. O. Box 8130, 6700 EW Wageningen, The Netherlands [email protected] [email protected] Received 6 February 2007 Revised 1 July 2007 Accepted 17 July 2007 In large technology-based rms, especially in long life cycle industries, often a tension exists between corporate R&D and the business unit (BU) customers. The long term R&D orientation needed to come to the more radical (even disruptive) innovations for the long term survival of the prospector rm being at odds with the need of the BUs for more incremental sustaining innovations for their day-to-day activities. This paper takes a new approach to this problem by analyzing the corporate R&D to business relationship from a customer value perspective by identifying R&D exibility, R&D communication, strategic alignment and R&D performance as the main attributes of the value map of the BU customers of corporate R&D. We then present the Cusvalin instrument (Customer Value Learning in INnovation) that was constructed to overcome the R&D to business incongruence by providing feedback on the gaps between the value maps of R&D and their BU customers. This instrument has been tested in a longitudinal survey from 1997 through 2002 (696 respondents) in a large technology-based supplier company (30 000 employees world wide). It is concluded that the Cusvalin model is an eective instrument to monitor the strategic alignment of R&D and the BUs, and ultimately leads to better R&D performance, as perceived by the BU customers. From the longitudinal analysis it is concluded that a system that balances radical innovation (via Technology Boardfunding, in which R&D management, headquarters, and BU directors jointly decide on long-term radical R&D projects) and incremental innovation (via BU unit-funding) is eective in providing strategic alignment between R&D and business. Keywords: R&D customer value; R&D performance; strategic alignment; gap analysis.

1. Introduction In todays markets, characterized by erce global competition and increasing customer demands, attaining product superiority by conducting superior R&D (Research and Development) is an important strategy for survival and growth. Watson [1993] emphasizes this by stating: Companies that want to compete successfully must oer quality beyond competitors, technology before competitors and cost below competitors. Consequently a number of authors have developed methodologies to assess and improve the quality of the R&D process [e.g. Brown and Gobeli (1992); Cooper (1999); Foster et al. (1985); Gerritsma and Omta (1998);
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Morbey (1988); Rosenbloom and Burgelman (1989); Zirger and Maidique (1990)]. However, most of the R&D management literature so far is based on industries characterized by relatively short product life cycles, such as the computer industry. Companies in long life cycle industries, such as pharmaceutics and aviation, are typically confronted with a long time span between the emergence of a novel idea and the nal launch of the product to the market, sometimes more than 10 years later. Unfortunately, especially in long life cycle industries, there often appears to be a certain tension between R&D and its BU (business unit) customers. The long term R&D orientation needed to come to the more radical (even disruptive, Christensen, 1997) innovations essential for the long term survival of the prospector rm, being at odds with the need of the BU managers for more incremental sustaining innovations to execute their day-to-day activities eciently [Roberts (1995); Glass et al. (2003)]. Although there is a vast amount of literature about this incongruence, up to now there is not much empirical evidence and no instrument has been developed to bridge it. The present paper aims at lling this gap by analyzing the corporate R&D business unit relationship from a customer value perspective. We do this by identifying the main attributes for R&D customer value from which an instrument is developed to assess the gaps between the value maps of the R&D sta and that of their BU customers. This instrument is called the Cusvalin (Customer value Learning in Innovation) instrument. It was tested in a large multinational technology-based company (more than 30 000 employees world wide) in a long life cycle industry in a longitudinal survey from 1997 through 2002. This study is part of a larger research program that aims at comparing the R&D management measures used in short and long life cycle industries. The main research questions that are addressed in this paper are: (1) Is it possible to device an instrument to monitor R&D performance, by evaluating the gaps between the value map of corporate R&D and that of their internal BU customers? (2) If so, can the feedback provided by such an instrument, be used to improve the alignment of R&D to business strategy and ultimately to higher R&D performance, as perceived by the internal customers? We have structured the paper as follows. Section 2 discusses the theoretical background of the concept of customer value and presents a theoretical framework for the customer value relationships in an R&D environment. In Sec. 3 the main R&D project attributes in the BU customer value map are identied, and used as variables to develop a conceptual model for the study. In addition, the longitudinal design of this study is discussed in this section. Section 4 presents the development of the Cusvalin instrument and discusses the methods of data collection and data analysis used. Section 5 presents the main results, while Sec. 6 discusses them in the light of the R&D management measures taken by R&D management, and the general measures taken by the corporate head oce from 1997 through 2002. Finally, the eectiveness of the instrument to bridge the gap between R&D and business is evaluated.

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2. Theoretical Background Many scholars consider creating and delivering customer value as a cornerstone of competitive strategy [Payne and Holt (2001); Khalifa (2004); Lindgreen and Wynstra (2005); Hult et al. (2005)]. It is based on the observation that companies deliver value, and customers choose that value that best ts their needs, i.e. that provides the best trade-o between benets and sacrices, such as cost and time spent [e.g. Gale (1994); Gallagher (1997); Kim and Mauborgne (1997)]. Woodru [1997] denes the concept of customer value as follows: customer value is a customers perceived preference for and evaluation of those product attributes, attribute performances, and consequences arising from use that facilitate (or block) achieving the customers goals and purposes in use situations. This implies that companies have to engage in a continuous learning process about values that matter to their customers, and have to nd ways to create and deliver them (Slater, 1997). He notes that this can only be achieved when companies develop a customer value processfocused organization, and dedicate themselves to continuous innovation. Haar et al. [2001] point at the fact that customer value is typically a dynamic concept, for the perceived value of a product or service may change over time. For instance, as the experience with the product increases, the need for service and consulting may decrease. Although this literature is based on observations of external customer relationships, we reason that in large divisionalized multinationals the same principles hold for the internal relationships between corporate R&D and their internal customers in technology-based prospector companies where corporate R&D seeks to supply the business units with a stream of new product and service concepts that will enable them to compete on the long run. The most popular operationalization of the customer-value construct goes back to Gale [1994] who conceptualizes perceived customer value as a trade-o between perceived benets and costs. Costs can consist of material costs like money and non-material costs like time, loss of prestige and nancial costs. Benets relate to the fulllment of expectations, and are thus linked to the quality construct. One of the problems in operationalizing the concept of customer value is that it can be dened at dierent abstraction levels, and, consequently, has to be measured at these dierent levels (Holbrook, 1994). Basically, two abstraction levels of customer value can be distinguished. The rst-order level consists of the trade-o between the perceived benets and the sacrices of a product as perceived by the customers at the purchasing decision. The second-order level consists of the benets customers seek to fulll their goals [e.g. comfortable and reliable transportation [Gerritsma and Omta (1998)]. This is the level at which customers think about their needs before the purchase. The problem is that especially for new products and services hold, that these second-order level goals and desires are often vague and therefore dicult to assess. When investigating the relations between corporate R&D and their internal customers in the business units, we in fact use a third order abstraction level: Since here the situation becomes even more complex. The research projects carried out by corporate R&D are considered the products to be delivered to the BU customer. The BU customer in turn has to use the outcome of these projects to create products and services that will fulll the needs and desires of the external customer.

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CORPORATE R&D

Gaps

INTERNAL BU CUSTOMER

Intended Value

Alignment gap

Desired Value

Design gap

Compromise gap

Perfomance gap Designed value

Expected value

Fig. 1. Theoretical framework of the customer value maps of R&D and their BU customers and the gaps between them.

The theoretical framework (see Fig. 1) is based on the SERVQUAL model of Zeithaml et al. [1990] adapted to assess the value of innovation services. The term value map is used, since the customer value of a product or service can best be described as a bundle of values, being the aggregation of its benets and sacrices. The basic feature of our theoretical framework is the assessment of R&D performance in terms of the comparison of the delivered value as perceived by the corporate R&D lab and the received value as perceived by the BU customers. Below we will discuss the concepts used in the theoretical framework in more detail. First we will look at the corporate R&D site. Intended value At the start of the R&D process, the company may have only vague ideas about the value it intends to oer to its customers. This value depends on the companys perceptions of what the customer wants, and is based on its strategy, capabilities and resources [Gale (1994)]. This is called the intended value map. Through market research, the company will try to match its intended value map with the preferences and desires of the future users to create a product that fulls the customer needs. In the present study it is not the companys products, but the R&D projects, set up to investigate certain problems, or develop certain new technologies that have to meet the internal (business unit) customer needs. These projects will on the one hand be based on the companys long-term technology strategy, and on the other on the BUs short term requests, but always with the ultimate goal to enable the BUs to fulll the desires and preferences of their external customers. In our model this is called the intended (R&D) value map. Through internal communication R&D management will try to match their intended value map with the desired value of the business units.

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Designed value After the business development process, a product is created and introduced to the marketplace. The value of the product as designed by the company is called the designed value map. In our model designed value refers to the value of the project results to be delivered to the BU customers. One must realize however, that especially in research, it is very hard to plan outcomes. Therefore, a gap will occur between the intended and the designed value map. Design gap Due to technical restrictions and unforeseen events during the R&D process, the designed value map of the project may dier from the intended value map from which corporate R&D started out. Also miscommunication during the R&D process with marketing and the BUs may have led to putting the wrong priorities in project execution. This will result in the design gap. Now we will look at the internal BU customers. Desired value In the customer value model, the vague ideas and preferences the customer has before the actual purchase decision is made are termed the desired value map (basically the trade-o between customer desires versus costs and sacrices, see Holbrook, 1994). In the CUSVALIN model the desired value map of the business unit managers represent their notion of what the outcomes of an R&D project should be in order to enable them to fulll their customers needs. Compromise gap Customers have to make a compromise between the value they perceive in the marketplace and the value they would desire. This gap is called the compromise gap. The smaller the compromise gap, the higher the chance that the company is successful in winning and maintaining customers. The compromise gap in our study indicates the level to which the BU customers expect their desires can be fullled by the R&D centre. Expected value When the product is on-the-shelf customers can base their expectations on what they see and test. This expectation is called the expected value map. This map may dier from the desired value map because there might not be any product on the market that exactly matches the customers desires. Therefore, customers have to choose that product or service that best matches their expectations. In our study, the expected value map of the business unit customers also diers from their desired value map, because they too know that not all is technically feasible with the existing R&D capabilities. Between the value maps of corporate R&D and the BUs also gaps appear. Alignment gap A gap may occur between the intended and the desired value map. It reects a situation in which the company has insucient information about what the customer desires. Due to restraints in the companys strategy and/or marketing capabilities,

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the company may focus on the wrong customer needs. Similarly, corporate R&D, facing technological, budget and sta limitations, may focus on the wrong priorities when selecting R&D projects and taking decisions on critical issues in the development process. This is termed the alignment gap in our model. Performance gap The performance gap reects the mismatch between the value designed by the company, and the customers perception of the product value as it is delivered to him or her at the purchase. In the theoretical framework (Fig. 1) the performance gap is the gap between the BU customers expectations and what they perceive as the value delivered by the R&D projects. From this theoretical framework we derive the rst main feature of the Cusvalin instrument, namely that it assesses the gaps between the R&D self perception and the perception of their internal customers in the business units. 3. Study Design 3.1. Conceptual model In order to investigate the theoretical framework empirically, we need to identify what are the main attributes of R&D projects in the BU customer value map and how these relate to one another. These attributes form the variables in the conceptual model behind the Cusvalin instrument. They were rst identied from literature and then veried by in-depth interviews with R&D and business unit managers at the start of the study in 1997. The variables as they appear in the model are discussed below. Flexibility: Responsiveness and Timeliness Yamada and Watanabe [2005] point at the importance of R&D adaptability, which is dened as the capability to select the correct R&D themes in response to technological chances and market opportunities, and which is included as exibility in the present study. Aaker and Mascarenhas [1984] dene exibility as a rms ability to adapt to substantial and uncertain changes in the environment. Because exibility in the innovation process involves not only the speed by which the existing R&D

Flexibility Responsiveness

Flexibility Timeliness

Strategic Alignmen

R&D Performance

Communication

Fig. 2. Conceptual model of the CUSVALIN instrument.

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portfolio can be changed but also how much time it takes before such changes take eect in the form of newly developed products or processes, it was decided to include two dimensions of exibility, namely responsiveness and timeliness. Responsiveness stands for the time that it takes to get a BU idea into the R&D portfolio, timeliness stands for the time it takes for an idea has been materialized into a project outcome, once it has entered the R&D portfolio. The importance of this factor was conrmed by in-depth interviews with R&D and BU managers of the company under study. BU managers expect corporate R&D to respond quickly to BU requests to take up research projects in the R&D portfolio (responsiveness) and execute R&D projects with a fast pace (timeliness in order to enable them to address market opportunities eectively). Communication In literature communication is identied as one of the main drivers of R&D project performance; see for instance Brown and Eisenhardt, 1995. The importance of communication in terms of R&D project reporting was also underlined in the in-depth interviews with R&D and BU managers prior to development of the Cusvalin model and instrument. They stressed that regular communication between R&D and the BUs on what both parties perceive to be the day-to-day and long term market opportunities and technology needs of the company can help prevent R&D from putting the wrong priorities (and thus diminish the alignment as well as the design gap early in the R&D process). From these interviews it also became clear that good communication before; during and after project completion may help prevent the BUs having the wrong (e.g. too optimistic) expectations about the technological possibilities (diminishing the performance gap at the end of the R&D process). This means that regular communication, combined with an R&D responsiveness and timeliness of R&D project delivery (or early on communication about technical problems that will slow the project cycle time) form the main attributes of the BU customer value map. Hence it is expected that regular feedback on these attributes will reduce both the alignment and performance gap and will lead to improved strategic alignment of R&D to business and ultimately to better R&D performance in the eyes of the BU customers. R&D Performance The construction of the variable of R&D performance was based on in-depth interviews with experts. This led to the identication of six technology elds, ranging from basic research to applied engineering tasks (see Table 1). The variable R&D performance consists of an assessment of the corporate R&D centres achievement on each of these elds in the past year, weighed for the relative importance of this eld, as assessed by the responder. Strategic alignment Strategic alignment is the central mediating factor between exibility and communication on the one had and R&D performance on the other in the conceptual model. Following Omta and Folstar [2005], strategy is dened as the long-term orientation of an organization, and more precisely as: A series of goal-directed decisions and actions that match an organizations skill and resources with the opportunities and

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F. T. J. M. Fortuin & S. W. F. Omta Table 1. Operationalization of the variables of the CUSVALIN model.

R&D performance (2 6 questions using ve-point Likert-scales ranging from strongly agree to strongly disagree, with no verbal labels for the intermediate scale points, Cronbach = 0.72) Relative importance of R&Ds objectives: 1. expanding the companys technology knowledge base. 2. Developing new technology in a product/process area. 3. Oering new technology for cost reduction. 4. Translating existing technology in a new product or process area. 5. Developing new product or process tests. 6. Contributing to the improvement of product or process designs. The labs perceived performance per objective. Objective weighed performance, the labs achievements weighed for the relative importance of its objectives. Strategic alignment (4 questions using seven-point Likert-scales ranging from strongly agree to strongly disagree, Cronbach = 0.85) Strategic alignment of R&D to corporate strategy in terms of technologies and market needs. Flexibility: Responsiveness (2 questions using seven-point Likert-scales ranging from strongly agree to strongly disagree, Cronbach = 0.73) Ease of incorporation of Business Units requests in the corporate R&D portfolio and start-up time lag of R&D projects. Flexibility: Timeliness (3 questions using seven-point Likert-scales ranging from strongly agree to strongly disagree, Cronbach = 0.68) The number of projects which are perceived to be delivered before or conform the agreed date. The average project cycle time; The time lag to answer technical questions. Communication (5 questions using seven-point Likert-scales ranging from strongly agree to strongly disagree, Cronbach = 0.64) Communication during project execution; idem after project completion; idem after new products/processes are introduced; quality of project reporting; complaint handling.

threats in its environment, to meet the needs of markets and to fulll stakeholder expectation. Strategic alignment is thus concerned with nding the right balance between the relevant contingencies in the business environment (external t) and the rms internal resources, competences and capabilities (internal t) (Fortuin, 2006). It is assessed by measuring how far the R&D activities conducted by the corporate R&D center are aligned to the technology needs of the rm, as well as to the market opportunities. The main proposition of the strategic alignment paradigm is that maintaining a close and consistent linkage between the rms strategy and the internal as well as the external context within which it is implemented leads to superior performance [e.g. Venkatraman and Prescott (1990); Lemak and Arunthanes (1997); Lukas et al. (2001)]. From this we derive the rst two propositions of the present study: P1 responsiveness, timeliness and communication will be positively associated with strategic alignment;

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P2 strategic alignment will be positively associated with R&D performance as perceived by the BU customers. The second main feature of the Cusvalin instrument is the identication of the variables of responsiveness, timeliness, communication, strategic alignment and R&D performance as the main customer value attributes for R&D. 3.2. Longitudinal design Burgelman [1988] argues that experience with (performing) a strategy will have feedback eects on the set of organizational capabilities. In the case of the CUSVALIN model this works as follows: The feedback provided by its application at time T0 enables R&D management to address specic problems with targeted management measures. The subsequent measurement with the CUSVALIN model at time T1 will provide information on the eect of these management measures, and will lead to adjustments or new measures, the eect of which can be measured at time T2 etc. It is proposed that as the R&D-BU communication improves over time the regular feedback will lead to a learning loop that will lower the gap between the R&D and BU assessment. For this reason it was decided to apply a longitudinal research design, which forms the third characteristic of the Cusvalin instrument. This leads to the third proposition of the present study. P3 Regular feedback from the internal BU customers on the customer value attributes will diminish the gaps between the value maps of the R&D sta and their BU customers, and will eventually raise R&D performance, as perceived by the BU customers. 4. Research Methods and Data Collection 4.1. Questionnaire construction Nonexistence of validated scales for the variables identied as relevant for the customer value map of business unit customers in innovation forced us to develop measures ourselves. Scales were based on expert inquiry and interviews with R&D and BU top managers. From these interviews the initial pool of items, representing the variables identied as key attributes in the customer value map of the business unit customers of corporate R&D was formed. The process resulted in the generation of 61 items (approximately 12 items per variable). These 61-items were used to construct an initial questionnaire. This questionnaire was pretested on 75 respondents, and then subjected to two stages of renement. The rst stage focused on condensing the questionnaire by retaining only those items capable of discriminating across respondents having dierent value perspectives, and examining the dimensionality of the scales and establishing the reliabilities of its components. The second stage was primarily conrmatory in nature and involved re-evaluating the condensed scales dimensionality and reliability by retesting the scale. This led to the nal questionnaire: the Cusvalin instrument. Table 1 provides an overview of the operationalization of the dierent variables, as used in the nal questionnaire.

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The CUSVALIN instrument uses ve-point Likert-scales for the questions constituting the variable of R&D performance. This variable is a formative latent variable, because it is dened by the combined indicators, being the dierent technology elds in which the corporate R&D centre is active [Hair et al. (1998)]. The other variables are all reective latent variables, because the underlying construct causes the observed indicators [Hair et al. (1998)]. For these variables seven-point Likert-scales are used. All scales range from strongly agree to strongly disagree, with no verbal labels for the intermediate scale points. The construct validity is acceptable, the Cronbach Alpha of the ve variables range from 0.64 to 0.85 what is within the generally accepted guidelines for measuring organizational attributes. Several items were negatively worded to reduce response tendencies by the respondents [Cooper and Emory (1995)]. These items were reverse-scored in order to ensure that a higher assessment in all cases reects a more positive judgement of the item at issue. 4.2. Method of data analysis To analyse the conceptual model Wolds [1982] method of latent variables PLS was employed. Although PLS estimation has some shortcomings, such as the bias and inconsistency of loadings and inner structural coecients [Fornell and Cha (1994)], the choice was motivated by several considerations. First, compared to the better known factor-based covariance tting approach for latent structural modeling (e.g. LISREL), the component-based PLS avoids two serious problems: inadmissible solutions (e.g. negative variance) and factor indeterminacy [Fornell and Bookstein (1982)]. Second, PLS estimation imposes substantially less conditions for its application. It requires only that the basic assumptions of least squares estimation are satised. Third, PLS can model both formative and reective variables simultaneously [Fornell and Bookstein (1982)]. In addition, PLS is a theory prediction rather than theory conrming analytical method which coheres with the objective of the present paper. PLS uses jackknife or bootstrap [Efron and Gong (1983)] in combination with the traditional measure of goodness-of-t [Bagozzi, (1981)] to evaluate the model. In order to obtain the signicance level of the path coecients, a bootstrapping approach was applied with 500 times re-sampling as suggested by Chin [1998]. For the analysis of the gaps between the assessments given by respondents from the Business Units and the self-assessments given by the R&D sta, two tailed t-tests were used. For the longitudinal comparison over the dierent years One-way Anova was used. Non-parametric analyses of group means, using the KruskalWallis test, did not alter the conclusions. Furthermore, best tting curve analysis was conducted, using linear and second order polynomial trend approximation, for the graphic representation of the longitudinal developments. 4.3. Method of data collection The data were collected in a multinational supplier company of technology-intensive industrial components for dierent industries. The company employs about 30 000

Aligning R&D to Business Table 2. Number of R&D and BU respondents and response rates. 1997 BU respondents R&D respondents Total study sample 147 (63%) 69 (70%) 216 (65%) 1998 189 (48%) 67 (70%) 256 (51%) 2000 102 (36%) 44 (67%) 146 (43%) 2002 45 (28%) 33 (70%) 78 (38%)

403

employees worldwide, working at 83 production sites in 24 countries. The annual sales volume in 2002 amounted to about US$ 5 billion, with an operating prot margin of about 8%. In 1997, 1998, 2000 and 2002 the CUSVALIN Questionnaire was sent to the sta of the corporate R&D laboratory and those sta members of the business units, who are in (regular) contact with this lab. Table 2 shows the number of respondents per year, as well as the response rates of BU sta and sta of the R&D laboratory. The total study population consisted of 696 respondents (483 from the business units, 213 from the corporate R&D centre), with an average of 174 respondents per year. The average response rate was 48%. Over the years a downward trend could be observed in the response rate, probably because of questionnaire fatigue. 5. Results 5.1. Baseline description and PLS analysis The correlation matrix presented in Table 3 shows that all variables in the model are signicantly correlated except R&D responsiveness and R&D performance. We also checked the possible multicollinearity of the variables in the model. Researchers commonly use a cut-o point of 0.8 for correlations among variables to indicate possible multicollinearity problems. With all the correlation coecients well below 0.8 (the highest correlation is 0.45) the correlations between the variables do not suggest problems of pair wise collinearity. Table 4 provides the results of the PLS path analysis for the conceptual model. As can be seen from Table 4, one of the path coecients is signicant at 0.005 and the other three even at 0.000. The overall model explains about 20% of the variance of the endogenous latent variables. Both criteria indicate that satisfactory model t is obtained for the whole sample. The results show a signicant impact of timeliness, responsiveness and communication on strategic alignment. This indicates that decreasing the time span of

Table 3. Correlation matrix. Resp. R&D responsiveness R&D timeliness R&D communication Strategic alignment R&D performance Timel. Comm. Align.

0.27 0.24 0.27 0.10

0.32 0.45 0.19

0.35 0.25

0.33

Note: Numbers in italics are signicant at 5% level.

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F. T. J. M. Fortuin & S. W. F. Omta Table 4. PLS path analysis. Relationship Responsiveness Alignment Timeliness Alignment Communication Alignment Alignment R&D Performance Note:
a Path

PLS est.a 0.127 0.351 0.199 0.329

St. error 0.039 0.035 0.036 0.038

t-stat. 3.29 9.98 5.55 8.69

Sig. 0.005 0.000 0.000 0.000

coecients of the proposed relationship (direct eect). Average R2 = 0.19.

innovative ideas to be materialized into project outcomes can improve the strategic alignment on innovation. Responsiveness, shortening the time span to get an innovative idea into the R&D portfolio also has a signicant direct impact on strategic alignment. Moreover, the information exchange between R&D sta and their most important BU customers during and after project execution also signicantly contribute to realizing strategic alignment. Based on the magnitude of the path coecients we may conclude that the eect of timeliness on strategic alignment is higher than that of responsiveness and communication. The results further show the signicant impact of strategic alignment as a mediating variable to R&D performance. This implies that achieving strategic alignment ultimately improves R&D performance. 5.2. Longitudinal analyses Table 5 shows the means of each variable for the R&D sta and the business units in the successive surveys from 1997 to 2002.
Table 5. Comparison of the R&D and the BU assessments from 1997 through 2002. 1997 Strategic alignment R&D center 4.03 (1.53) BUs and HQs 3.33 (1.31) Perception gap 0.70** R&D performance R&D center BUs and HQs Perception gap 3.22 (0.44) 2.94 (0.61) 0.28** 1998 2000 2002 F value 21.34*** 76.29***

4.17 (1.42) 3.49 (1.34) 0.68** 3.41 (0.57) 3.04 (0.53) 0.37*** 4.75 (1.47) 3.96 (1.60) 0.79*** 4.33 (1.64) 3.40 (1.40) 0.93*** 3.77 (1.43) 3.94 (1.33) 0.17 ()

5.59 (1.02) 5.14 (1.09) 0.45** 3.36 (0.59) 3.13 (0.47) 0.23* 4.58 (1.55) 4.49 (1.54) 0.09 5.34 (1.48) 3.78 (1.65) 1.56*** 3.30 (1.23) 4.02 (1.32) 0.72** ()

5.55 (1.03) 5.64 (1.00) 0.09 () 3.37 (0.62) 3.21 (0.42) 0.16 4.58 (1.80) 4.80 (1,85) 0.22 () 5.21 (1.52) 3.89 (1.57) 1.32*** 3.00 (1.17) 4.22 (1.44) 1.22*** ()

1.23 1.37

Flexibility: Responsiveness R&D center 4.25 (1.53) BUs and HQs 3.87 (1.66) Perception gap 0.38 Flexibility: Timeliness R&D center 3.50 (1.78) BUs and HQs 2.89 (1.25) Perception gap 0.61** Communication R&D center BUs and HQs Perception gap 3.78 (1.34) 4.44 (1.22) 0.66** ()

1.17 5.95**

14.48*** 9.80***

3.64* 3.99**

Note: t-tests + One way Anova; ***p = 0.000; **p < 0.01; *p < 0.05.

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Table 5 and the Figs. 3 to 8 show how the assessment of the R&D sta and that of their BU customers developed over time. The general trend is that the BU respondents, in particular, became more positive about the work of the corporate R&D center. Their assessment increased signicantly for strategic alignment, responsiveness, communication and timeliness (although here the self perception of the R&D sta increased even more). Also the assessment of R&D performance went up, although not signicantly. The self-assessment of the R&D sta in general went
Product and process alignm ent 5.84 5.71 5.60 5.40 5.33 5.20 5.00 4.80 4.60 4.40 4.20 4.00 3.90 3.80 1996 1997 1998 1999 2000 2001 2002 2003 4.26 5.00 y = -0.0618x 2 + 247.37x - 247693 R2 = 0.9757 y = -0.0817x 2 + 326.66x - 326682 R2 = 0.9746 5.46 5.52

5.80

R&D BU Poly. (BU) Poly. (R&D)

Fig. 3. Strategic alignment of corporate R&D to business. Light gray = perception of corporate R&D sta; dark gray = perception of BU customers.

Responsiveness: Ease of R&D project incorporation

4.90 4.75 4.70 4.58 4.50 4.49 4.58 R&D BU 4.30 4.26 Linear (BU) Poly. (R&D) y = -0.0407x 2 + 162.94x - 162929 R2 = 0.4792 4.80

4.10 3.96 3.90 3.87 y = 0.1976x - 390.79 R2 = 0.9808

3.70 1996

1997

1998

1999

2000

2001

2002

2003

Fig. 4. Responsiveness, ease of incorporation of R&D projects. Light gray = perception of corporate R&D sta; dark gray = perception of BU customers.

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5.50

y = -0.1328x 2 + 531.51x - 531715 R2 = 0.9993

5.34 5.21

5.00

4.50 4.33 4.00 3.89 3.78 3.50 3.50 3.40 y = 0.188x - 372.37 R2 = 0.8591 3.00 2.89 R&D BU Poly. (R&D) Linear (BU)

2.50 1996

1997

1998

1999

2000

2001

2002

2003

Fig. 5. Timeliness, R&D cycle time. Light gray = perception of corporate R&D sta; dark gray = perception of BU customers.

Im portance of R&D-end user m eetings to assess m arket needs

5.96 5.90 5.82 5.70 5.73

5.97

5.50

y = 0.0384x 2 - 153.53x + 153498 R2 = 0.9943 R&D 5.29 5.20 5.18

5.30

BU Poly. (R&D) Poly. (BU)

5.10 y= 4.90 -0.0612x 2 + 244.72x - 244561 R2 = 0.9237

4.70 4.64 4.50 1996

1997

1998

1999

2000

2001

2002

2003

Fig. 6. Communication, evaluation of R&D project results after completion. Light gray = perception of corporate R&D sta; dark gray = perception of BU customers.

up as well, although to a lower extent. The assessments of strategic alignment, and especially timeliness went up. Interestingly, the assessment of communication went down signicantly. We will return to this point when we discuss the communication trend in Fig. 6. The development of the gaps between the R&D sta self assessment and the assessment of the BU customers over time shows a mixed picture. As can be seen

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3.50
3.41

3.40

y = -0.0143x 2 + 57.36x - 57362 R2 = 0.5343 3.36 3.37

3.30 3.22

3.20

3.21

R&D BU

3.13 3.10 3.04 3.00 2.94 2.90 y = 0.0522x - 101.25 R2 = 0.9703

Linear (BU) Poly. (R&D)

2.80 1996

1997

1998

1999

2000

2001

2002

2003

Fig. 7. R&D performance. Light gray = perception of corporate R&D sta; dark gray = perception of BU customers.

Flexibility Responsiveness

Flexibility Timeliness

Strategic Alignment

R&D Performance

Communication

The arrows indicate significant path coefficients The thick arrows indicate the highest path coefficients
Fig. 8. The signicant relationships in the CUSVALIN model.

from Table 5, the perception gap between the sta of the corporate R&D center and the BUs (t-tests), diminished signicantly over time for strategic alignment and R&D performance. This also holds, although to a lower extent, for responsiveness. For strategic alignment and responsiveness, the average assessment of the BU respondents was even higher than that of the R&D sta at the end of the six-year period. For timeliness and communication, however, the gap between the BU sta assessment and the R&D sta self assessment increased over time. For timeliness the perception gap did not diminish because although the BUs became more positive over time, the R&D stas self-assessment improved even more. Table 5 also shows, that from the start, the BU sta was more positive about the level of R&D-BU

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communication than the R&D sta. After 1998, the gap between the R&D stas self assessment and the BU sta assessment on communication widened, because the R&D sta perception on communication went down even further, while the BU/HQ perception stayed constant. In Figs. 3 to 8 we show the longitudinal trends per variable. For clarity of presentation we selected from the reective variables (responsiveness, timeliness, communication and strategic alignment) that item that was central according to the factor analysis and best reected the issue at stake. Since this does not make sense for a formative variable, for the formative variable of R&D performance the weighed average was used to show the longitudinal trend. As can be seen in Fig. 3, the BU assessment regarding the strategic alignment of the corporately funded R&D projects improved considerably over time, and the gap between the BUs assessment and the R&D self assessment has totally disappeared in 2002. The results on R&D responsiveness show a similar pattern as those for strategic alignment, namely a clear tendency of rising Business Unit assessment, and closing of the gap between Bu and R&D assessment. In the item shown in Fig. 4 (ease of incorporation of BU projects in the corporate R&D portfolio), the gap between the BU and the R&D assessment has even reversed The results on timeliness also show a positive eect. Figure 5 shows a representative item: the assessment of R&D projects cycle time. The trend line of the Business Units assessment clearly indicates that the feed back has had its positive eects, but the inclination of the line is only moderate. The gap between the BU and R&D assessment has become even wider over time. The results for communication show an unexpected tendency. During the whole period of the investigation the BU assessment of the item evaluation of R&D projects results after completion was higher than the self-assessment of the R&D sta and remains more or less stable at a level of 4 to 4.5, which indicates a fairly positive judgment on a seven-point scale. The R&D sta self-assessment started lower and declined steadily after 1998. We think this result can be attributed to the fact that the total number of employees in the company, including the R&D sta, was reduced in the period under study. For R&D this meant that they could no longer provide the business units with regular detailed update reports on every project and expected that this would be perceived negatively by their customers in the business units. Apparently the customers did not feel this, thereby indicating that good is good enough. Figure 7 shows the R&D performance. The longitudinal data show a steady progress in the laboratorys overall performance as perceived by its customers, while the R&D self-assessment stayed constant. This means, that after four successive surveys, the gap between the BU assessment and the R&D sta self-assessment has gradually disappeared. 6. Discussion and Conclusions In Sec. 3 we proposed that the main customer value attributes in R&D would be responsiveness, timeliness, communication, strategic alignment and R&D

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performance, and that: P1 responsiveness, timeliness and communication will be positively associated with strategic alignment; P2 strategic alignment will be positively associated with R&D performance as perceived by the BU customers. The results of the PLS analysis summarized in Fig. 8 clearly support these two propositions. We conclude, that it is indeed possible to device an instrument to monitor R&D performance, based on the value maps of the R&D centres internal business unit customers. Concerning the third proposition: P3 Regular feedback from the internal BU customers on the customer value attributes will diminish the gaps between the value maps of the R&D sta and their BU customers, and will eventually raise R&D performance, as perceived by the BU customers. It must be remarked that the expected gap reduction was indeed found for the variables of responsiveness, strategic alignment and R&D performance, but not for timeliness and communication. However, from the nding that the longitudinal trends show clear reduction in the gaps on three of the ve variables, and the nding that the BU perception went up for all ve variables over time, we conclude, that the feedback provided by the Cusvalin instrument, can indeed be used to improve the alignment of R&D to corporate strategy and ultimately to higher R&D performance, as perceived by the internal BU customers. We will now discuss how these results were achieved. The presentation of the results of the four CUSVALIN questionnaires led to intensive discussions at the corporate R&D Centre, rst at the management level and then in the quality circles. The feed back on the gaps between the Business Units assessments and the R&D self-assessment proved to be a powerful tool to motivate the R&D sta to change its attitude towards its customers. Where in the rst surveys the BU assessment on many items was rather low (below 3.5 on a 7 point-scale), and in the comments section of the questionnaire many BU respondents complained about the head-inthe-cloud mentality of Corporate R&D, the results of the later surveys show, that together with the disappearance of the gap, the BUs appreciation for the R&D Centre did clearly improve. The results of the successive surveys provided the feedback on the eects of the former actions and input for further actions. After each survey a number of improvement actions was introduced. After the rst survey it was decided to set up a global benchmark study to identify best practices in R&D management used by the leading companies in other long life cycle industries, and to compare them with the R&D management measures used in short life cycle industries. Based on the results Corporate R&D decided to include new management measures which were already common in short life cycle industries, such as market-technology road mapping and the Balanced R&D Score Card, including nancial and non-nancial indicators [Omta and Bras (2000)]. There were also management measures taken by

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the corporate headquarters of the company. The most important of these was the change in R&D funding in 1999 from 100% corporate funding to a mixed system of 50% Technology Board funding, in which R&D management, headquarters, and BU directors jointly decide on long-term radical R&D projects, and 50% BU funding to guarantee that enough incremental innovation projects will be developed for the BUs. Table 5 and Fig. 3 clearly show that, although the introduction of the Balanced R&D Score Card and the system of market-technology road mapping certainly had a positive impact on strategic alignment, it was clearly the change in the R&D funding structure, shifting the locus of control over the R&D portfolio from R&D exclusively to a joint responsibility of R&D and the BUs, that had the largest impact on strategic alignment. In management literature there has been a erce debate as to whether a shift from corporate to BU funding would not destroy the long-term R&D orientation of these companies. From the longitudinal analysis it is concluded that a system that balances radical (via Technology Board-funding) and incremental innovation (via BU unit-funding) is eective in providing strategic alignment between R&D and business. The old closed model of innovation, in which the corporate R&D center exclusively provides for the new products and processes to foster a prospector companys growth, does not work any more in todays highly dynamic business environment. Companies are increasingly perforating the boundaries of their rms by starting alliances with (start-up) rms, and building up internal venture groups scouting for new ideas, products and processes outside the rm. This recent transition to more open forms of innovation [Chesbrough (2003)] has made the task of aligning R&D to business even more complex. The contribution of the present paper lies in the development of the Cusvalin instrument that assists prospector companies, especially in long life cycle industries, to perform this very important task by extending the customer value approach to the corporate R&D function of a large technologybased company. Further research will focus on extending the Cusvalin instrument to include the open mode of innovation.

Acknowledgments The authors want to thank Xin Song for conducting the PLS analyses. The authors are further grateful for the constructive comments of the anonymous reviewers that enabled them to improve the manuscript.

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Biography Frances T. J. M. Fortuin is a senior researcher at the department of business administration of Wageningen University in the Netherlands. In 2006 she defended her PhD thesis at Wageningen University that discusses the important topic of aligning innovation to business strategy, based on in-depth research of leading technology-based companies in dierent industries. She received an MSc in Biology from the University of Groningen. After graduation, she worked as an EU expert in the eld of rehabilitation and as consultant and researcher for a number of multinational technology-based companies. She was a member of the Board of the European Blind union for seven years, and the European delegate to the executive committee of the World Blind Union for four years. She is the vice chair of the Netherlands Eye Foundation and an advisor to the Netherlands rehabilitation fund. She has published a number of scientic articles and presented her work at international conferences in the eld of innovation management. Her current research interests focus on innovation management in prospector companies, with special focus on the agrifood industry. S. W. F. (Onno) Omta is Chaired Professor in Business Administration at Wageningen University and Research Centre (WUR), the Netherlands. Before joining WUR in 2000, he held the position of Associate Professor at the University of Groningen for 8 years. He received a PhD in innovation management and an Msc in Biochemistry, both from the University of Groningen. His current research interests focus on innovation management and entrepreneurship in international chains and networks in the life sciences, with special reference to the agrifood sector. He has published numerous articles in leading scientic and professional journals. He won the Best Paper Award at The 6th Int. Conference on Chain and Network Management (2004), and at The 7th Int. Conference on Management of Technology (1998). He received the Citation of Excellence, Highest Quality Rating for research implications (***) by ANBAR Management Intelligence Accreditation Board (e.g. C.L. Cooper, R. Katz, and P. Kotler) for his article in Technovation (1997). His book: Critical success factors in biomedical research and pharmaceutical innovation, has been sold all over the world. He serves on the organizing and editorial committees of a number of international conferences and he is the Editor-in-Chief of The Journal on Chain and Network Science. Onno Omta has worked as an EU expert and as consultant and researcher for a large variety of (multinational) technology-intensive companies (e.g. SKF, Airbus, Erickson, Exxon, Hilti and Philips). He has been an invited and keynote speaker at a number of international academic conferences. He is a reviewer for a number of international scientic journals in the eld of business administration. He is the Chairman of the Jury for the Dutch Innovative Packaging Award and the Dutch PhD Award in Business Administration and Business Economics.