R&D project selection : best practices for suppliers

Abstract

Successful research and development is critical in ensuring firms continue to meet customer needs and stay ahead of their competition. Hundreds of billions of dollars are spent every year on these R&D pursuits. It may seem logical that the more money a company spends on R&D, the more successful they will be. However, multiple studies have shown there is no significant correlation between a firm's R&D expenditures and its financial performance. The key to effective R&D is not how much a firm spends, but how well the money is spent. There are two sides of doing R&D effectively-doing the right projects and doing projects right. This thesis focuses primarily on the first side, creating a process to help a company choose the best projects to pursue. A significant amount of literature exists in this area, however that literature mostly focuses on R&D performed at original equipment manufacturers (OEMs). For OEMs, R&D is the first step in a product development process where the company has the ultimate decision over the form their product takes. This thesis expands on that literature to focus on R&D project selection for firms that act as suppliers to OEMs. Suppliers performing R&D are faced with significant additional challenges due to the OEM having final say over the product configuration. Suppliers have uncertainties about whether they are pursuing the right technology along with whether they will actually win business to utilize that technology. This fact often forces suppliers to adopt a conservative R&D strategy with a fairly secure likelihood of adoption over speculative R&D that might not come to fruition. Because every company and every industry is different and has different priorities for their R&D activities, there is no single process that will work at every company to help them choose a better portfolio of R&D projects. Instead, this thesis presents a set of guidelines that can be used to help companies (especially suppliers with conservative R&D strategies) design their own process. Along with those guidelines, a case study is presented based on implementing an R&D project selection process at Spirit AeroSystems. The process that was implemented, along with problems encountered with that process and ideas for further improvements are discussed. Lessons learned from Spirit AeroSystems can further be utilized to help companies create better project selection processes.