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Appendix F Industry's Best Practices In R&D Decision Making To make the best possible decision in a given situation, an organization's decision-making process can be examined to identify strengths and weaknesses using the decision quality framework shown below. This s~x-element framework is applicable to all types of decisions personal, industrial, and governmentaWand provides a basis for learning how excellent organizations make good decisions and applying these findings to diagnose and improve the decision-making processes of other organizations. The six elements are: I. Appropriate frame. perspective? 2. Creative alternatives. Has a wide range of significantly different yet potentially attractive alternative solutions for this decision been considered? 3. Reliable information. Has all available relevant information been gathered and utilized, including consideration of He uncertainty in this information? 4. Clear values. Has the organization clearly articulated its objectives and values, as well as how to make tradeoffs among these objectives and values? 5. Correct logic. Given multiple alternatives, uncertain information, and multiple objectives, have the relationships necessary to assess the value of each alternative correctly been defined and implemented properly? 6. Commitment to Action. Does the organization reach decisions through a well-def~ned decision process that ensures the right involvement of the right people and leads to a commitment to act on the recommended decision? Does the decision have a clear purpose, well-defined scope, and proper This framework provides conceptual guidance on what it takes to achieve a high-quality decision and can be used during the course of a decision process to measure progress. Extensive research and application experience has demonstrated that the decision quality paradigm applies to the R&D decision-making process (Matheson and Matheson, 1998; Matheson and Menke, 1994; Menke, 1994~. in 1992, the R&D Decision Quality Association set out to determine whether R&D decision making could be benchmarked and, if so, what were the best practices that leading industrial R&D organizations use to achieve R&D decision quality. The result was the framework shown in Figure F.! of 45 best practices for R&D decision-making (Matheson, et al. 1994~. These include practices for making quality decisions, organizing for decision quality, and improving decision quality. Making quality decisions further divides into practices for establishing a sound decision basis, for developing technology strategy, for managing the R&D portfolio, and for developing and evaluating project strategies. Organizing for decision quality subdivides into practices regarding organization and process, relationships with internal and external customers, and R&D culture and values. The validity, importance, and usage of these 45 practices were tested in the benchmarking. To provide quantitative benchmarks, nearly 300 R&D organizations answered a common questionnaire 153

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Appendix F Inclusoy 's Best Practices 155 regarding their usage of these best practices. The questionnaire included some overview information about the organization and the nature of its R&D, three questions about the it&D-related performance of the organization, and a matrix for documenting the applicability, frequency of use, quality of execution, and importance to decision quality of the 45 best practices. They then identified a sample of 79 highly regarded R&D organization using peer group nominations, Baldridge award winners, and Fortune's most admired company list, called the "best companies." The 79 organizations in this "best companies" subgroup are listed in Table F. ~ . If these are indeed best practices, they should impact performance. Using the average of the three measures from the questionnaire as a performance score, the entire database of nearly 300 organizations was divided into two groups, high performers (i.e., those with a performance score above the median) and low performers (i.e., those with a performance score below the median). Figure F.2 shows that the high performers are more likely to actualize' best practices than the low performers. This result is the primary "objective" evidence for the validity of most of these best practices, although the fact that they were initially derived from the common behavior of outstanding organizations is also very compelling. Although the difference in actualization on any one practice is not huge, most of the best companies interviewed use a process involving many of the 45 practices in a coordinated way, thus maximizing their combined impact to achieve substantial performance advantages. Note that the top ten practices in terms of greater actualization by high performers include four decision basis, two technology strategy, two project strategy, and two internal customer practices. The top twenty practices, whose usage discriminates high and low performers, include four decision basis, four technology strategy, three portfolio management, five project strategy, one organization and process, two internal customers, and one culture and values practice. Overall, 16 of the 20 practices whose actualization discriminates high and low performers are for making quality `decisions, 4 of the 20 concern organizing for decision quality, and none of the 20 concerns improving decision quality through measurement and learning. This does not mean that the latter two areas are less important. It simply means that there is much more variability in the actualization of practices for making quality decisions than in the other two areas. This suggests that many R&D organizations can improve R&D performance and gain competitive advantage by improving the frequency of use and quality of execution of practices for making quality decisions. Figure F.3 shows the importance of the practices in terms of their perceived potential contribution to decision quality. Potential contribution to decision quality was scored on a scale of ~ to 7. Since people often ignore the extreme high and low scores on a rating scale, practices whose average score is above 6 from a large number of respondents must be considered extremely important. Ten of these stand out for having a mean potential contribution to decision quality greater than 6.0, specifically: I. Understand We drivers of industry change 2. Coordinate {ong-range business and R&D plans 3. Focus on end customer needs 4. Agree on clear measurable project goals 5. Use a formal development process 6. Use cross-fi~nctional teams 7. Coordinate development with commercialization 8. Determine, understand, and measure end customer needs 9. Refine projects with regular customer feedback 10. Hire the best and maintain expertise These 10 practices are essential for R&D strategic excellence (Menke, 1997a). iAs used here, the term "actualization" is the product of frequency of use and quality of execution, so it measures effective use of the practices. Since actualization is the product of two numbers between O and 1, it may be more intuitive to think about the square root of actualization as the level of effective usage.

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156 Decision Making in the DOE-OST TABLE F. ~ Organizations That Participated in the Quantitative Benchmarking of Best Practice Usage. Abbott Diagnostics Amoco EPTG Amoco Chemical Amoco Technologies Amoco Corporate Research Apple Mac Systems Division Asahi Glass Central Research Center AT&T Bell Laboratories x 2 AT&T Operating Systems Business Unit AT&T Global Public Network Platforms AT&T Network Systems AT&T GBCS Bayer Pharmaceutical Boeing Commercial Aircraft x 2 Bristol-Meyers-Squibb Project Management Coca-Cola Compaq Corporate Development Compaq PC Product Development HP Corporate Engineering Hoffman-LaRoche IBM Applications Development I&] Medical I&] Pharmaceutical Research Institute Kirin Brewery Li,,y MallinkroUt Medical Matsushita Electrical Industrial Central Research Labs Matsushita Electrical Industrial Tokyo Research Institute Merck Project Management Merck Regulatory Affairs Microsoft Development Microsoft Research Mitsubishi Chemical Mobil Chemical Motorola Automotive Motorola Semiconductor Products Motorola T&Q Conoco Corning Daimier Benz Central Research Dow Chemical DuPont Central R&D DuPont Business Unit DuPont Merck Project Management E. Merck Eastman Chemical Research Eastman Chemical Development Eaton GE Corporate Research and Development GE Aircraft Engines Genetech Discovery Research Genetech Product Development Gillette Corporate R&D Gillette Research Institute Glaxo Welicome Motorola Energy Products Pfizer Central Research and Development P&G Laundry and Cleaning Rhone-Poulenc Rorer Project Management Sandoz Corporate Project Management Shell Chemical Shell Development Shell International Petroleum Research Smi~Kline Beecham Sony Research Center Sumitomo Chemical Tskuba Research Center Sumitomo Electric 3M Corporate Research 3M Coporate Research Process Technology Lab 3M I, r & E Sector TT Central Research Laboratories x 2 T} Systems and Software R&D Xerox Corporate Research and Technology x 2 Xerox High Volume Reprographics

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Appendix F-Inclust~y 's Best Practices 159 To gain additional insight, the top 10 percent of the best company data for potential contribution and actualization were looked at on a practice-by-practice basis. The mean score of this group (which is different for every practice) is called the benchmark. These benchmarks establish standards of importance and doability for each of the 45 R&D decision quality practices. Since they are the top 10 percent of a highly selected group of excellent R&D organizations, they truly set a high standard. Table F.2 lists the 79 best company mean importance and actualization of the 10 essential practices and compares them to the benchmarks. Figure F.4 shows the mean potential contribution of the best companies versus the benchmarks (i.e., average of the top 10 percent) for each practice. The best company data are the same as presented in Figure F.3, but are ranked here in descending order. For most of these practices the benchmark is well above the mean of the best companies; for 5 of the practices the benchmark is 7.0, indicating that at least 10 percent of the best companies rated the potential contribution of the practice to decision quality as high as possible. For 30 of the 45 practices the benchmark potential contribution is greater than 6.0, which again indicates the importance of the majority of these practices. However, despite their acknowledged importance and potential to improve performance, the actualization of these practices varies widely. Moreover, there is a very large gap in mean actualization between the best-company and the benchmarks. As Figure F.5 demonstrates, the benchmark actualization for the vast majority of practices is more than 80 percent, whereas the mean actualization for the entire best companies sample starts at 60 percent and drops rapidly to about 20 percent. For most of the practices, benchmark actualization is more than twice the mean actualization for the best companies. From the benchmarks we can conclude that it is possible to implement nearly all of these practices to a high degree. The mean actualization of the entire best-company sample shows that even many of the "best" companies have substantial room for improvement. One reason is that many of these practices are difficult to learn and implement effectively. Another reason is that many R&D organizations have a tradition of being independent from their internal and external customers, which is not very appropriate for today's competitive environment. The Strategic Decisions Group and the Quality Director's Network TABLE F.2 Behavior of 79 Organizations Benchmarked by Ten Practices Essential for Excellent R&D Decision Quality as Indicated Potential Contribution to Actualization (0-100/O) Decision Quality (0-7) Decision Quality Best Practice Mean Benchmark Mean Benchmark Hire best and maintain expertise 6.4 7.0 60 94 Focus on end customer needs 6.2 6.7 48 83 Determine,measure,and understand 6.1 7.0 46 88 customer needs Understand drivers of industry change 6.l 7.0 41 79 Use cross-functional teams 6.1 6.7 55 98 Use aformaldevelopment process 6.0 6.8 60 96 Coordinate development with 6.0 6.8 49 92 commercialization Agree onclear,measurable goals 6.0 6.7 50 91 Coordinatelong-range business and 6.0 6.3 39 82 R&D plans Refine projects with regular customer 5.9 6.8 45 90 feedback NOTE: Actualization = frequency of use x quality of execution (i.e., effective usage)

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162 Decision Making in the DOE-OST of the Industrial Research Institute studied this issue in the context of several member companies and identified a series of organizational enablers that assist in implementing best practices (Menke, 1997b). Further analysis has identified 10 other practices for gaining competitive advantage. These are the 10 least well actualized from a set of 28 practices judged to be very important in terms of performance impact or potential contribution (starting from the lowest actualization): 1. Learn from post-project audits 2. Evaluate the R&D portfolio 3. Measure R&D effectiveness 4. Hedge against technical uncertainty 5. Create frameworks for learning 6. Insist on alternatives 7. Manage the pipeline 8. Design progression of your technology 9. Evaluate projects quantitatively 10. Anticipate competition Organizations that want to gain a competitive advantage can very likely do so by actualizing these practices better than their competitors. Specific data on the importance and actualization of these 10 practices are shown in Table F.3 for both the mean of the best company group and the benchmarks. These practices derived from industrial experience were reviewed by our committee for their perceived relevance to DOE OST decision making. The committee's conclusion is that many of the same practices should be relevant to making good RD&D decisions in the DOE-EM environment. Below is a list of the 45 best practices from Matheson, Matheson, and Menke (1994) gleaned from a survey of industrial companies with large internal R&D operations. TABLE F.3 Ten Practices that Offer the Possibility of Gaining Competitive Advantage Potential Contribution to Actualization (0-100/O) Decision Quality (0-7) Mean Benchmark Mean Benchmark . Decision Quality Best Practice Lean from post-project audits 4.9 5.2 24 83 Evaluate the portfolio 5.3 6.2 29 78 Measure effectiveness of R&D 5.0 5.2 29 81 Hedge against technicaluncertainty 4.8 6.0 29 79 Create frameworks for learning 5.2 5.3 30 74 insist on alternatives 5.3 6.0 30 70 Manage the pipeline 5.4 5.7 33 76 Design progression ofyour technology 5.4 6.4 34 74 Evaluate projects 5.1 4.7 34 87 Anticipate competition 5.6 5.8 36 82 . NOTE: Actualization = frequency of use x quality of execution (i.e. effective usage)

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Appendix F Industry 's Best Practices I63 THE 45 BEST PRACTICES Practice I. Frame R&D Decisions Strategically Distinguish clearly between strategic and operational situations, and frame each strategic decision at the anorooriate level: technology strategy, portfolio management, or project strategy. i! err- -rA ~ Practice 2. Understanding Drivers of Industry Change Products that result from current R&D projects will be launched in a fixture business environment. it ~s critical for R&D planning to anticipate changes that might occur in the industry during this time. R&D management should understand all potential drivers of change (e.g., competition, technology, regulatory) and incorporate their impact in decisions. Practice 3. Insist on Alternatives Although it may be tempting to go along with the first alternative suggested, take the time to develop alternative ways of achieving similar objectives. Frequently this approach stimulates creativity and identifies an alternative that is clearly superior to the initial strategy. Practice 4. Ensure Credible, Consistent Inputs Good decision making depends on inputs that can be verified and trusted. Furthermore, for decisions across projects, inputs and assumptions must be consistent. R&D requires a methodology that allows decision makers to check all inputs and verify their credibility and consistency. Practice 5. Quantify Decision Inputs Although expressive, English has ambiguities that can lead to confusion, misunderstanding, and poor decisions. Whenever possible, and especially when making major decisions, quantify decision inputs to ensure clear and precise communication. Where information is uncertain or subjective, introduce ranges of inputs as well as probabilities. These practices lead to clarity, simplify analysis, and improve decision making. . Practice 6. Measure the Contribution to Strategic Objectives It is important to measure each project's contribution to strategic objectives to ensure that it supports the business vision. By considering a clear statement of objectives, goals, strategies, and measures, you can more effectively evaluate R&D projects as well as the R&D portfolio, selecting projects that contribute the most to strategic objectives. Practice 7. Build Commitment for Successful Execution A good decision is wordless unless the willingness to implement it enthusiastically exists among all those whose efforts are required for success. For this reason the decision process must be fair and open, with ample opportunity for participation of all relevant individuals and functions. An important objective of the decision process is to build organizational commitment step by step, so that the decision leads naturally to effective action. Practice X. Coordinate Long-Range Business and R&D Plans Coordinating R&D plans with long-range business goals and objectives can result in significant advantages. The company's strategic business vision usually incorporates information and insights from many internal and external sources--including the corporate mission statement, integrated business unit strategies, internal business planning documents, and business information obtained from major customers. With a clear, unbiased view of long-range business strategy, R&D can align its programs and projects to achieve business goals and objectives and add value to the company. R&D can also influence and improve business strategy. . . _

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164 Decision Making in the DOE-OST Practice 9. Develop a Global Technology Plan The greatest economies of scale are available to corporations that organize and conduct their technology development on a global basis. Great leverage can be gained by thinking and planning globally while acting locally. At every level, from comprehensive technology planning to organizational efforts involving the chief executive officer, a corporation has to act on its global vision in applying fundamental technologies to serve the needs of diverse markets. Practice 10. Focus on End Customer Needs Developing a technology strategy-a process that includes selecting a comprehensive set of technical alternatives for consideration and evaluation-can be made easier by focusing on end customer needs. This needs-focused approach helps ensure that the strategic alternatives are relevant to customer requirements. More important, this approach establishes clear criteria for determining the best strategy to pursue. Practice Il. Design Progression of Your Technology Effective technology strategy allows you to determine and manage the rate at which you will advance technology. For example, one strategy would be to use technology advances to refresh well-known project brands a strategy that deliberately renders current product versions obsolete. Another would be to gain economies of scale by making capital-intensive investments in long-term projects that regularly produce spinoffs while building toward blockbuster innovations every few years. These practices are an example of how to achieve significant gains by strategically managing technology advances. Practice 12. Anticipate Competition Build models, obtain competitive analysis information, conduct surveys, and apply other techniques to anticipate the competition. Practice 13. Maintain a Commitment to Basic Research Given the importance of basic research to long-term success, resist attempts to cut back on basic research to create the appearance of short-term gains. Practice 14. Evaluate the R&D Portfolio Portfolio analysis is a key practice that categorizes, compares, and evaluates the portfolio as a whole. Compare alternative portfolios first on probability distributions on net present value. Other comparative measures should include expected product launches over time, patterns of resource requirements over time, and the ability of the portfolio to meet corporate objectives. This approach provides a clear sense of the value of the entire R&D portfolio, leading to significantly better portfolio investment decisions. Practice 15. Balance Innovations and Incremental Improvements A balanced portfolio gives your organization the best chance to achieve sustained R&D and commercial success. Strive for the best balance between projects that provides incremental improvements to current products and projects that have significant breakthrough potential. Practice 16. Manage the Pipeline Manage the product pipeline to ensure a smooth, reliable flow of products and product improvements. A hallmark of the portfolio approach to R&D management is the ability to balance long-term and short- term interests and support the technology strategy that brings the greatest overall value to the company over time.

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Appendix F IndFust~y 's Best Practices 165 Practice 17. Balance Across Strategic Objectives Effective portfolio management entails aligning individual projects with the achievement of strategic objectives. This requires well-defined strategic objectives and consistent priorities that permit the appropriate positioning of project~by category, by business unit, by technical focus. By segmenting the portfolio and managing projects accordingly, you can balance R&D across strategic priorities. Practice IS. Hedge Against Technical Uncertainty In managing a portfolio, protecting the company against unforeseen and unpredictable technology failures is very difficult. The best practices involve hedging the portfolio against technical, regulatory, and industry uncertainties through systematic project analyses and portfolio evaluation. Practice 19. Manage and Prioritize Different R&D Differently A comprehensive R&D program encompasses basic research and technology development along with projects directed at process improvements, incremental enhancements to product lines, new product development, and breakthrough innovations. Portfolio managers should be sensitive to differing objectives among projects and manage them accordingly. Practice 20. Fully Resource Projects When budgets or staff are constrained, it is tempting to cut from all projects rather than continue to support some projects while cutting others entirely. Unless the cuts are minor, avoid this practice. Inadequate resourcing delays projects, sometimes to the point where competitors reach the market first. Since delays usually result in higher overall costs, inadequate resourcing can result in higher total project cost. When faced with constraints, R&D should filthy resource the most important projects rather than cutting across the board. Practice 21. Evaluate Projects Quantitatively Quantitative evaluations of projects are essential for clear communications and equitable prioritization. The best companies combine economic and technical evaluations, including market potential as well as technical hurdles. Uncertainties are addressed directly using the language of probability. Most projects are ultimately compared on the basis of the expected net present value and a productivity indicator such as expected net present value divided by expected R&D cost. Practice 22. Focus on Factors That Create Value New products and processes may have many technical performance features, but their value to the company usually depends on only a few. Knowing which features add value can help you select projects and allocate R&D resources better. Project efforts should focus on features that create the most value. Terminate projects that do not meet key performance factor requirements in favor of more promising efforts. Practice 23. Evaluate and Plan AR Projects _ . . .. . . . ~ . . ~ Good projects can withstand a rational analysis in the cold light of day; bad ones are likely to wither. When powerful champions recommend projects, there is a tendency to move ahead without evaluation or careful planning. This can result in poorly executed research and misallocation of resources. Always plan and Filly evaluate projects regardless of pressure from champions. Practice 24. Agree on Clear, Measurable Goals Project success requires a fully empowered team that agrees on strategic objectives, major milestones, and clear, measurable goals. The best approach is to build alignment within the team and give it the power to negotiate, obtain authorizations, and implement midcourse corrections to move R&D toward achievement of the agreed on goals and objectives.

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166 Decision Making in the DOE-OST Practice 25. Use a Formal Development Process For R&D that leads to a sustained presence in national and international markets, the best companies use a formal development process with phases, checkpoints, and milestones to frame decisions and track their implementation. The process includes features and documentation that make continuous improvement possible through iterative refinement. Practice 26. Ensure Active and Explicit Management Support Management support for R&D strategy and implementation shouIcl be active, explicit, and visible throughout the company. In particular, you can benefit from the involvement of the CEO and board of directors-or senior business unit executives in developing organizational alignment of business objectives, technology strategy, portfolio strategy, and project strategy. Practice 27. Organize R&D According to Major Customers By organizing according to major customers, R&D remains responsive to customer needs. Researchers and managers in each organization learn what it takes to be successful in the customer's business. Alignment between customers and technology centers grows naturally from the organization of R&D. Practice 2X. Use Market Incentives To obtain solutions that your organization cannot or does not wish to achieve internally, offer incentives to other organizations with an interest in achieving these solutions. A variety of incentives could be introclucec! for this purpose, from prizes and awards, to licensing anct royalty agreements that take advantage of products based on successful R&D by the outside organization. Practice 29. Use Innovative Budgeting Mechanisms Full-burden costing, collaborative funding, and continual zero-based budgeting are several innovative approaches to R&D budgeting that can result in improved performance. Practice 30. Use Cross-Functional Teams Any successful product must be successful in every phase R&D, manufacturing, marketing, sales, ant! customer support so the best project teams involve representatives from these functional areas. If the R&D team has no information about what the market wants or what makes the product easy or difficult to manufacture, the product probably will not reach its market potential; it may not even reach the market. Multifunctional teams ensure that information from all relevant functions is conveyed to all relevant functions. This practice increases the probability that R&D will create a first-rate product that meets customer needs and regulatory requirements. Practice 31. Maintain Intimate Contact with Internal Customers Maintaining close relationships with internal customers is a key to R&D success. R&D should communicate with customers, learn from and educate them, involve them in decision making, anc! organize them to benefit from R&D programs and activities. This important practice area was mentioned repeatedly in benchmarking interviews. Practice 32. Create R&D Planning Group To make sure that "doing the right R&D" gets sufficient attention, have your R&D organization create its own planning group. The group supports management in making the right decisions and therefore in doing the right R&D~omplementing the operational approach of others who are appropriately concerned with doing the R&D right. This planning group works with R&D anclL business managers to keep strategic questions on the agenda and coordinate the process of making strategic R&D . ~ c .eclslons.

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Appendix F Industry 's Best Practices 167 Practice 33. Coordinate Development with Commercialization Many organizations must deal with the problem of R&D that is not effectively commercialized. Successful R&D organizations take three important steps to make sure that their value added is captured by the company: they (~) use a formal development process, (2) sustain projects through this process, and (3) obtain strong commitments from their marketing organizations to commercialization of project results. Practice 34. Determine, Understand, and Measure Customer Needs Successful companies make every effort to determine, understand, and measure the needs of their internal and external customers. Their R&D organizations determine customer needs by soliciting frequent input. Many techniques can be used to gain customer feedback and inspire customer loyalty from focus groups and customer associations to telephone surveys. They all have a structured interaction that returns knowledge, insight, and information to the organization. Practice 35. Refine Projects with Regular Customer Feedback As part of the ongoing technical planning and project development process, successful companies take advantage of a very powerful resource: their customers. in regular customer meetings, they review progress on current programs, develop new ideas, and align priorities; these inputs are then used to guide decision making. The result can be a customer-driven organization that responds to consumer needs for information, and tests products and processes with relevant customers in real situations as early as possible. For more effective R&D, use customer input to refine project concepts for an actual marketplace. Practice 36. Create "Market Research" Capability Within R&D In many industries, an effective R&D organization needs its own capability to do conceptual product design and market research. You need the vision that arises from direct access to customers and customer information. Focus groups, surveys, analysis of competitive information, and other mechanisms produce a more direct encounter with customers than can be provided by another organization. While your marketing organization handles activities such as advertising and sales support, the R&D organization creates the vision and generates information about what customers will need in the future. Practice 37. Hire the Best and Maintain Expertise The most successful R&D organizations hire the best professional staff available and provide them with opportunities and substantial support for further professional development. In this area, the best practices are those that inspire knowledge-intensive endeavors from highly motivated R&D staff members who fee! that they have found the right place to make a personal contribution. Practice 3X. Protect R&D Intellectual Freedom Companies that participated in the benchmarking study strongly endorsed the need for an open environment characterized by intellectual freedom, encouragement and protection of nsk-takers, debate across an unlimited horizon of issues, conflict resolution procedures, and creative negotiation with outside departments. The practices they contributed are designed to stimulate the best possible thinking leading to successful R&D. Practice 39. Maintain Connections with Research Organizations To maintain technical vitality, it is important to participate in research organization networks. Active involvement of researchers and developers promotes technical achievement and advances the discovery of new technologies that may be exploited to competitive and commercial advantage. Opportunities to benefit from interactions with research exist within large organizations as well as throughout the larger community.

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168 Decision Making in the DOE-OST Practice 40. Share an Integrated View of the R&D Portfolio The R&D culture and organization benefit greatly from sharing an integrated view of the portfolio. People who are dedicated to a single program or project need to understand how their work fits into the larger scheme or things. A major benefit ot understanding the entire portfolio is that people working on individual projects can see these projects in context, understand how they contribute value to the organization, and can collaborate proactively with others to bring them to successful completion. Practice 41. Empower R&D Managers and Teams A variety of practices were recommended to empower project teams to accomplish their objectives. Empowerment to negotiate midcourse corrections, change direction in the search for better technological solutions, and manage the project according to its own imperatives results in more effective management and decision making because the people closest to the situation are making the decisions. What is required at the project level is also required at the levels of technology and portfolio strategy, where global accountability for success must be accompanied by global authority to direct R&D activities, or management lacks the ability to change course to achieve the best results. . . , ~ Practice 42. Learn from Post-Project Audits R&D decision makers can learn from retrospective audits of all projects that reach the market-testing phase. An audit shows how good the decision-making process is and reveals how it can be improved. Post-project audits are a key to continuous improvement in building the effectiveness of R&D teams. You can learn more from failures than you can from successes. You can learn most by finding the factors that differentiate failures from successes. Practice 43. Measure R&D Effectiveness A key to improvement is knowing where you stand at present, so you know where to focus your next efforts. The best organizations devote substantial attention to measuring the effectiveness and productivity of R&D. These measurements take two forms: retrospective and prospective. The best retrospective measures relate to commercial successor example, the fraction of revenues and profits from new products. The best prospective measures relate to the position of R&D in future operations of the company for example, expected net present value and contribution to strategic goals. Practice 44. Create Frameworks for Learning One of the best approaches to R&D involves creating a framework for learning-individual learning and organizational learning-and making sure that the benefits of continuous learning are fully realized. You can institute quality programs that reinforce leadership in various areas of R&D, or you can allow the documentation process to provide structured organizational learning-at the levels of technology planning, portfolio management, and project strategy. Practice 45. Learn from Others Worldwide In rapidly changing global markets, where uncertainty and unexpected change place added demands on expectations and success or failure, R&D organizations must be open to learning as much as possible from others worldwide. The best approach involves identifying the most successful organizations, especially competitors and organizations in other countries, understanding what makes them superior R&D performers, and adapting your version of their best practices.