Scottish Enterprise

A GUIDE TO DEVELOPING
NEW PRODUCTS AND SERVICES

New approaches to R&D

Supporting a globally competitive Scotland

INTRODUCTION A VISION OF THE FUTURE
R&D is essential for the long term growth of technology enterprises but it can be It’s difficult to say exactly how research and development will change over the next
expensive and is often associated with risk. This risk can be reduced by directing ten years however some predictions are outlined below based on trends that are
R&D spend towards the best opportunities and putting in place an R&D strategy.
strategy already emerging.

In recent years, there has been a lot of new thinking
on how to get a better return on investment from R&D
and some interesting approaches are currently being
pioneered which are likely to become mainstream
within10 years. This report is intended to provide an
overview of the most exciting global trends in the
management and processes of R&D so that companies in
Scotland can consider which may be appropriate to their
own R&D strategies.
To set the scene, it is useful to consider some of the
drivers, enablers and challenges that are shaping the
future of R&D:
Drivers
• Faster return on investment
• Fewer market failures
• Extracting more value from intellectual
property
• Differentiation that supports premium pricing
• Sustainability through the full product lifecycle
• Affordable customisation
• Higher product integrity
Disclaimer
Enablers
• Open innovation supporting IP exchange
• Online communities for funding, ideas and
skills
• Better connected consumers, supply chain
partners, regulators etc.
• More computing power enabling new
development methodologies
• Digital prototyping and 3D printing
• Innovative business models
• More agile product development processes
• Open source movement
Challenges
• Increasing global competition
• Faster pace of innovation
• More litigious IP environment
• Learning to collaborate effectively
• Growing volume of inputs and ideas to digest
R&D departments will typically be smaller, yet more
people will be working in R&D globally. This is because
companies will only maintain core R&D staff in-house
and supplement this through various open innovation
approaches including licensing IP from external
companies and universities, paying for particular
problems to be solved by independent experts through
crowdsourcing platforms and outsourcing non-core tasks,
such as coding or testing, to more cost-effective sub-
contractors.
Fewer products will fail in the market as customer
needs will be better understood. This is because more
methodical market research will be undertaken at the
start of the development process to determine user
needs, priorities and cost sensitivities. A much greater
breadth and depth of market research will be available
through online platforms and data mining. The use of
digital prototyping, immersive simulation environments
and 3D printing will allow end users to interact with
product concepts at an early stage of development, testing
their usability and identifying issues early on. Product
developments that are struggling to deliver value for the
end user will be aborted early.
Attitudes to intellectual property will become more
polarised and this will be reflected in the approach
of leading organisations. Some will invest substantial
amounts building strong patent portfolios and litigating
against competitors but few will have the finances to
make this a realistic strategy. A growing number of
organisations, not just software companies, will become
enthusiastic participants in open source initiatives
which will encourage the pooling of IP in digital formats
including hardware designs as well as software code. The
majority will seek to protect their core IP while using open
source components for the less differentiated parts of
their solutions.
Pressure will increase on both time-to-market and
product integrity due to increasingly sophisticated global
competition and this will stimulate faster but more
reliable development processes. Formal development
processes, such as the stage-gate approach, will be
adopted by a broader range of companies to enhance
product integrity. However, other companies in fast-
moving industries will prefer to use more agile, lean
product development approaches. Online platforms will
channel customer feedback to enable continuous product
improvement.
New levels of computing power will enable more
intelligent design automation. For example, evolutionary
and generative design techniques can deliver optimal
solutions to many tough problems. The time saved in the
optimisation process will free designers and engineers to
focus on the higher-end activities such as true systems-
thinking, requirements management and defining the
algorithms and boundary conditions for these automated
approaches.
Globally, many customers are becoming more
sophisticated and demanding so some products will be
designed to be customisable at the time of purchase.
However, other products will be completely re-engineered
to provide low-cost alternatives for high-growth, low-
income markets. In both cases, sustainability will be built
into the development process from the start, so that the
lifetime carbon footprint of the product is minimised while
its recycling potential is maximised. This, in turn, will lead
to innovation in business models, including leasing.
In short, by the 2020s, the likelihood is that R&D will
become more challenging yet more exciting than ever.

Throughout this guide, a number of companies, services and products are mentioned. It should be noted that these are not endorsements:
we have not tested the tools or services offered and provide these names merely as examples of what’s available.

2 3
THE R&D PROCESS
Brand Values

Emotional Strategic
Engagement Context Define R&D project
Customer Before starting a new R&D project the project itself
Perceptions
Long Term must be defined. The diagram illustrates the activities
Needs
that should be considered before starting a new R&D
Market project. Part one of the report explores each element in
Research
more detail.

Key
Trends
Customer
Roadmapping
Business
Models
Funding R&D Tool Box
Needs
The second part of the diagram shows a range of
Background approaches that managers may wish to use once the
Technology project is defined. The list is not exhaustive, but focuses
Idea on more recent techniques, or those which have not
Management
yet been widely adopted that could benefit a company
Innovation developing an R&D strategy. Each is explored in more
Define R&D detail in part two.
Finance
Unstructured Project
R&D

Ideas

Crowdsourcing Please click on the boxes in the

R&D
Toolbox diagram opposite to visit the
relevant parts of the report.
Information about support offered to companies carrying out
R&D in Scotland is available on page 35 of this document.
R&D Innovative Open
Techniques Processes Innovation

Generative Joint Research

3D Printing Phase Gate Co-creation
Design Centres

Scalable Human Lean Product User

Innovation Open Source
Computing Modelling Development

Digital Value De-risking

Crowdsourcing Patent Markets
Prototyping Engineering Innovation

Evolutionary Recording
Intrapreneurship University IP Outsourcing
Design Usage

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PART 1 DEFINING AN R&D PROJECT
1. STRATEGIC CONTEXT
R&D must be fully integrated into a company’s overall
strategy and market approach otherwise resources may
be wasted either developing technology the enterprise is
unable to exploit or creating undifferentiated technology
that could have been sourced elsewhere. From the start,
the company’s senior management must consider how
to drive and exploit its innovation1.
Market Pull vs. Technology Push
New technologies take a long time to develop but markets
are evolving at a quickening pace. This growing disconnect
means that vertically integrated companies will be rare
by the 2020s. Instead, innovative companies will tend
to position themselves as either market focused or
technology focused.
• Market focused companies will seek
competitive advantage in understanding their
customers better and will rapidly source
innovative technology from a suitable partner
once they have identified a clear opportunity.
They will be adept at finding technologies
developed elsewhere and tailoring them to
their particular application. Such companies
may still expend a lot of money on R&D but
their development work will always have a
clear market application. The majority of
successful companies will be market focused.
An example would be Apple.
• Technology focused organisations will
seek competitive advantage in developing
outstanding technological expertise within
their niche and will seek suitable market-
focused partners from diverse sectors to
licence and exploit their technologies. Their
engineering teams will be adept at developing
highly differentiated platform technologies and
supporting technology transfer into partners.
1. Roussel, Saad, Erickson (1991) Third-Generation R&D Management
6 7
Such companies will include the likes of
materials companies, engineering design
services companies and start-ups that develop
differentiated IP to attract acquisition.
An example would be ARM.
TECHNOLOGY MARKET
INNOVATION
Of course, there will be some blurring of the edges in
these categories. For example:
• Some market focused companies will still
retain a small R&D team at the technology
platform level in addition to their larger
product development teams. This will focus
on a few “crown-jewel” technologies which
provide genuine differentiation.
• Some technology focused companies will
develop platform technologies which they will
use in-house to address a few markets where
they have a strong focus. However, they will
also promote and licence their technology to
other companies who may even compete with
them in end markets. W.L Gore and Associates
is an example of this type of company. The
challenge for such companies is to avoid
the temptation to keep the best technology
for themselves. Only by marketing their IP
externally can they hope to maintain a large
R&D base long-term.
Putting it into Practice – Mobile Phone Industry
In the mobile phone industry, SonyEricsson used to develop all their
phone platforms in-house for their exclusive use. However, as margins
were squeezed and complexity rose, the cost of developing mobile
phone platforms made this approach unsustainable. Therefore, they
split into a market-focused company (SonyEricsson) which develops
mobile phone models for consumers and a technology-focused
company (ST-Ericsson) who market the mobile phone platform to
other phone manufacturers, to gain economies of scale.
2. BUSINESS MODELS and, ultimately, decommissioning as part of the package.
Such business models work in situations where
A business model describes how a product or service operational expenditure (OpEx) is more acceptable to
delivers value for its customers and profit for its owners. the customer than capital expenditure (CapEx), or where
Disruptive technologies often require new business equipment is seen as complex, high maintenance or high
models to break through while innovative business risk. The decision to move to such a business model
models often affect the direction of technology innovation. will affect R&D as it will adjust priorities: with a product
Therefore, the business model should be considered early (CapEx) model, a company has to be very competitive on
in the R&D planning process as it may influence not just initial selling price but can make more profit on servicing
the viability of the product but also the specification of later. With a service (OpEx) model, the initial price of the
the technology. Developing the business model involves equipment is no longer the main driver, what matters
reviewing resources, cost structures, potential revenue is the lifetime cost, so any innovation which reduces
streams, channels to market, customer segments and and simplifies maintenance will increase long-term
relationships. It is often advisable to involve value-chain profitability.
partners early in the process, as they may be a key
In the software world, the move from selling shrink-
element of the business model (this is explored further
wrapped software to offering software as a service
in the open innovation section).There are tools available
(pay per use) is another manifestation of this trend.
to help companies explore all aspects of their business
model to ensure that their R&D is delivering the optimal
value proposition to the target market2.
Consumables Focused
There are many business models in common use, and
This is also known as the “bait and hook” model.
more are being developed every year. A few are described
The classic example is printers, which are generally
below.
cheap to buy but expensive to refill with ink. Another
example is video games: the console is often sold at an
attractive price to build an installed base but the games
Product to Service
are expensive and often take just a few days to play.
Many technology companies have moved from a product- In both cases, the initial hardware price is effectively
centric to a service-centric business model. There are subsidized by later consumables sales. This model
several variants. may fit many industrial segments where low CapEx
is prioritized over OpEx.
For example, instead of selling a product, a company
could lease that product and provide servicing, support
2. Osterwalder, Pigneur (2012) Business Model Generation website
 Putting it into Practice – Amazon
Sometimes, a new technology cannot be exploited until new business
models are developed. For example, the development of “e-ink”
displays did not make a strong impact on the market until a new
business model for downloading from a huge library of e-books onto a
dedicated e-reader was pioneered by companies like Amazon.
Licencing 3. EMOTIONAL ENGAGEMENT
For some companies, it is best to focus on developing WITH THE CUSTOMER
excellent technology and licencing it to others for
exploitation, yielding an ongoing royalty stream. This is In consumer products and services, emotional appeal is
what ARM has successfully done3. They make no silicon very important, enabling brands such as Apple or BMW
chips themselves but they design processor cores and to charge a high premium in the market. However, in
licence the designs to companies who have made billions commercial and industrial markets, R&D staff rarely
of devices using them. consider the potential emotional appeal of the products
that they are developing, believing that more features and
higher performance will be sufficient. This is a mistake
Freemium as a brand with strong appeal can add huge value to a
company. The prime example is IBM who sell innovative
In the software world, it can be economical to offer a
technology into the B2B space and whose brand is
basic version of a product or service for free. The hope is
estimated to be worth over $100 billion4.
that, once the users become convinced of the value of the
product or service, a proportion of them will be willing To achieve this emotive appeal, the products and services
to upgrade to a paid product or service with additional a company develops must reflect its brand ethos in a
features. In some cases, after a certain period, the free positive and consistent way. This philosophy has to be
option is discontinued, forcing users to start paying or designed-in at every stage of the product development
look for an alternative – not easy if you have embedded to be credible. For this to happen, the company has to
the software into your business processes. have a clear brand ethos which everyone involved in
product development and marketing must understand
and practise. Cisco sell its products predominately to
B2B customers but they have invested in developing a
brand ethos that starts with their hardware and software
designers and finishes with a consistent image of
innovation, inspiration and thought leadership at all their
customer touch points5.
3. ARM Holdings plc (2012) Company Overview
4. Marketing Week (2011) B2B brands build extra marketing muscle
5. Rebrand (2012 ) 2012 Rebrand 100 -Cisco
8 9
Putting it into Practice – Philips
Philips has always been an innovative company with a huge R&D
spend. However, its connection with end users was weakening. Many
products bristled with features but were complex to use. There was
no consistent approach to the way products were designed that an
end user could recognise. In response, Philips adopted a new brand
philosophy called “Sense and Simplicity”6. The goal was not to simplify
the technology itself but rather to hide all the complexity from the end
user, so that the product would be intuitive to use. This required not just
a marketing relaunch but a re-education of all the R&D departments
to adopt the same philosophy in designing their products, underpinned
by a common approach to market research and product concept
development. Crucially, this applied not just to consumer products, but
also to industrial products as there was clear evidence of spill-over in
the minds of purchasers (“I’m not buying your CAT scanner because my
video broke!”).
Emotional engagement with industrial clients can be built on a wide variety of approaches which will influence
R&D approach:
Development Priority Emotional Impact
Reliability or durability Sleep easy, our products won’t let you down
Ease of use A pleasure to use, avoiding confusion or frustration
Quality and attention to detail Satisfaction of knowing you’ve bought the best
Innovation You feel ahead of the pack using our product
Serviceability No headaches if something needs fixed
Sustainability You can feel virtuous in selecting our product
Of course, whichever approach a company decides to an impartial third party survey) before adopting a
take has to be grounded in reality, so it’s necessary branding approach which will influence your R&D
to check how your customers actually feel about decisions.
your products and services (preferably through
6. The Times (2005) Philips: Brand repositioning and communications
4. MARKET RESEARCH This approach is widely adopted and successful but care
must be taken in its application. Where questions focus on
A number of research studies have estimated that customer experience with current products and solutions,
approximately half of new products fail7. This is often it is likely to lead to incremental improvements. Where
because of an insufficient understanding of market needs. more radical innovation is sought, the questions have to
Therefore, it is wise to invest in detailed market research probe the customer’s whole operational environment and
before committing substantial resources to an R&D deeper aspirations, which is a more challenging task to
project. In fact, EU empirical research suggests that the structure and interpret.
level of marketing expenditure in a company may be more
important to the success of innovative products than the
level of R&D expenditure8. Outcome Driven Innovation10
It is essential to have effective processes for undertaking This approach pioneered by Strategyn focuses on
market research. The digital age has made market understanding the ‘jobs to be done’ through an exhaustive
research far more sophisticated through techniques from interview process with end users. This approach avoids
the mining of big data sets to the use of social media for talking about potential solutions and focuses on identifying
feedback. Some current methodologies are described the most important under-served needs where there is
below. an opportunity for innovation which will be valued by the
customer. This is more likely to lead to a unique insight
but it is a difficult technique to master, and may be less
Voice of the Customer9 appropriate in cases where product evolution rather than
revolution is desired.
This collates a comprehensive list of customer
requirements and desires, structured hierarchically and
then rates them by importance and current satisfaction
level. Both qualitative research (e.g. interviews, focus
groups, online forums) and quantitative research (e.g.
larger surveys, text analysis of social media) are used.
Putting it into Practice – Intel
Intel worked with Advanced Marketing Science Inc. to adopt the
Voice of the Customer methodology in 2004. Using a combination of
interviews, focus groups and large scale surveys with IT Directors, they
identified a particular need for corporate desktops with security from
external corruption and tampering. This led to the development of the
v-Pro™ which became the fastest product in Intel’s history to exceed
$1 billion in revenue.11
Key Customer Driven
In industrial markets, key customers may provide
suppliers with roadmaps of features, performance and
price targets they require in future while the supplier will
have to figure out how to meet these. The key customer
will evaluate prototypes and provide guidance. Where
the risk and the potential benefit are high, customers
may even be willing to part-fund this development
through non-refundable engineering payments or
through guaranteed orders if the specs are met: however,
sometimes exclusivity is demanded in return. This
approach will only work if the customer has a high degree
of confidence in the supplier’s ability to deliver as a strong
mutual dependence develops so they will succeed or fail
together.
Online Crowdsourcing
Where the customer base is broad, crowdsourcing
could make sense. Well deployed digital techniques
allow greater quantitative and qualitative input than
traditional focus groups, customer visits or surveys
can achieve. There are a number of large international
companies offering specialised digital platforms while
many smaller local agencies are skilled in using open
social media platforms like LinkedIn in tandem with more
traditional techniques. Alternatively, if the company has
market research expertise in-house, judicious use of
LinkedIn communities, Knowledge Transfer Networks
etc, combined with online survey tools can achieve useful
results for minimum expenditure.
The market research phase should deliver strong
customer insights against which a clear value proposition
can be developed and verified. In some cases, it may even
be possible to produce a detailed product specification at
this stage if the customer is precise in their requirements.
These outputs will guide the R&D work, though it is
wise to check regularly with the customer during the
development phase that the proposed product is meeting
their needs as expected.
5. ROADMAPPING
Technology roadmapping is a strategic process to define
the development of technology platforms over an extended
time horizon to meet a set of evolving industry needs. In
high-capital industries with lengthy investment cycles,
such as aerospace and semiconductors, technology
roadmapping is a well established process12. However,
many other industries could benefit from using the
methodology, particularly where cross-industry
collaboration is envisaged. It begins by identifying the key
drivers for the technology and forecasts requirements
at various points in the future. It then identifies which
technologies need to be developed to meet those
requirements. Often, there will be a point where further
evolution of established technologies will no longer
meet the anticipated requirements and there is a need
to jump to a new technology with more potential, which
is expensive and risky. However, the technology roadmap
will help identify the best point to make the transition.
Similarly, product roadmapping is now routinely applied by
many market-focused companies though the time horizon
is typically shorter and the focus is on feature-sets and
performance requirements at various points in the future.
In both cases, roadmapping informs resource planning
and prioritisation and is a useful tool for discussions with
key customers.

7. Edget (2011) Latest Research: New Product Success, Failure and Kill Rates
8. Garcia (2011) The relevance of marketing in the success of innovations
9. Cooper and Dreher (2010) Voice-Of-Customer Methods: What Is The Best Source Of New-Product Ideas?
10. Ulwick (2005) What Customers Want
11. Applied Marketing Science Inc (2012) Sample Cases (Voice of the Customer) 12. Sandia Labs (1997) Fundamentals of Technology Roadmapping

10 11
Intellectual Property
In recent years, the proportion of a company’s market
valuation attributed to “intangible assets” has grown to an
average of 80%. For technology businesses, most of that
80% is their intellectual property (IP)13.
In certain markets, where innovation is fast-paced
and costly, including consumer products and mobile
communications, IP has become a battleground and
this trend is set to continue. IP is expensive to protect,
especially internationally, and it can be very costly
and time consuming to defend patents and prosecute
offenders, especially if they are large companies with
strong legal teams and extensive patent portfolios which
may allow them to countersue. As such, large corporations
are putting more resources into strengthening their own
IP portfolios and litigation is more common to cover these
costs and protect market positions.
In this environment, it is increasingly difficult for small
companies to secure a defensible IP position allowing
them to compete directly in high-value markets which
are dominated by powerful companies. Instead, they
increasingly choose to either licence their IP to larger
players, or to be acquired by them14.
Companies do not always choose to exploit the IP they
have developed, due to changes in strategic direction etc.
Other companies may need to acquire IP to enable them
to quickly enter a market of strategic importance to them.
This increasing separation of IP developers from IP users
has led to a growing secondary market in patents as
companies seek to sell or acquire IP.
Of course, there are many other attractive markets where
IP is more dispersed and it is much easier for SMEs to
establish a defensible IP position. There is also a growing
market for IP insurance which could help SMEs with
limited resources to defend their IP.
Finally, the open source movement, which aims to make
certain IP freely available, is developing a broader base
which is challenging traditional IP strategies (this is
discussed below).
13. McKee, Voorhees & Sease, PLC (2011)
Intellectual Property and Company Valuations
14. Merges (2012) Secondary Patent Markets: A Possible Role for Startups
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6. KEY TRENDS
Sustainability
There is strong pressure, both from a cost saving and
regulatory angle, to reduce the carbon footprint and
general resource usage through a product’s lifetime.
Initially, this can be achieved by designing with materials
which have a low carbon footprint, low water usage in
production and minimal chemical pollution. The product
should also be designed to consume as little energy as
possible through its lifetime (for software, this equates
to requiring minimal processing resources). Finally, the
product should be easily serviced and maintained and,
when it reaches end of life, be simple to dismantle and
recycle. These design objectives are not always compatible
with each other, so an exercise has to be undertaken to
understand which facets should be prioritised for minimal
overall impact. For example, for a light bulb, the key factor
is likely to be energy consumption during use, but it may
be the choice of refrigerant gases used for a domestic
fridge, or ease of maintenance for an offshore wind
turbine.
The drive to sustainable products and services is likely to An alternative approach is to automatically propose a
shake up business models as much as technology. For unique product or service based on “customer experience
example, many organisations are already outsourcing intelligence” (which might include personal details,
much of their IT infrastructure to third-party data centres. purchasing history, usage pattern, internet favourites,
This not only lowers the company’s own carbon footprint Facebook etc)17. Gaps in information can be addressed by
but lowers the total societal carbon footprint as large interpolating the preferences of customers with similar
data centres are optimised for low-energy usage whereas profiles. If this approach is well calibrated, the end user
office servers may not be. could be offered the ideal product with a minimum of
direct input.
Leasing models are expected to become popular again for
other equipment such as domestic washing machines15.
This clearly changes the design priorities as total lifetime
cost becomes more important: washing machines that
are built to last and can be easily serviced are likely to be
more profitable to lease.
Mass Customisation
There is a trend towards increasing sub-segmentation of
markets and customisation of products and services that
is ultimately leading to the ‘market of one’. For example,
new cars can now be finished at the factory to meet the
exact preferences of the buyer, with even unique paint
colours available at a premium.
The challenge is to provide the capability for the end user
to customise the product without significantly affecting
the economies of scale in producing the product or
service. In some industries, this challenge has been met.
For example, some semiconductor companies provide
Field Programmable Gate Arrays with development kits
that allow each industrial customer to program their
devices to implement the precise function required.
The Glasgow School of Art have done work on mass
customisable homes where the components of housing
are standardised and integrated into an overall system
approach which may have the potential to reform the
current house building methodology to offer homes
that are both affordable and customisable16. In both
of these cases, the key is to provide the user or retailer
with intuitive tools to customise the product themselves.
Developments in 3D printing are likely to make
customisation more accessible in many markets as the
price of equipment drops.
15. Ellen McArthur Foundation (2012) In depth - Washing Machines
16. Macintosh School of Architecture (2012) Zero Energy Mass 17. Piller (2010) Mass Customisation: A Strategy for
Customised Housing Graduate Course Customer-centric Enterprises
13
Frugal Innovation
In developing economies like India, innovation is driven
by the need to minimise costs and reduce the use of raw
materials and energy in development, production and
use. This often leads to dramatic breakthroughs in
price/performance ratios18. Given ongoing financial and
environmental pressures in the developed world, there
is increasing interest in frugal innovation. In particular,
sectors like health and care, where demand is set to
outstrip supply, could benefit from the philosophy of frugal
innovation.
Creativity and an open-mind are essential for frugal
innovation. Simplifying existing products or services will
not achieve major cost reductions. A whole new approach
to analysing the real market need and proposing radical
solutions is required. Value engineering techniques
(see below) can be useful. Frugal innovation is an area
where collaboration with professionals with different
skill sets and experience is likely to be helpful in finding
breakthrough solutions, perhaps through crowdsourcing
approaches. Companies could also benefit directly
from Indian expertise in frugal innovation by working
collaboratively to develop low cost products for European
markets19.
18. Prahalad (2011) Bottom of the Pyramind as a Source of
Breakthrough Innovations
19. NESTA (2012) Our Frugal Future: Lessons from India’s
Innovation System
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Ubiquitous Intelligence
There is now a range of wireless network technologies,
from low-cost ZigBee to high-performance 4G, which
means it is feasible to connect almost any device to
another device or to the internet. Meanwhile, the relative
cost of computing power continues to drop exponentially,
so that even a low cost microcontroller can manage
relatively sophisticated algorithms. As a result, many
environments including clothing, cars, buildings and even
whole cities are becoming ‘smart’.
Ubiquitous Intelligence presents both opportunities and
challenges to R&D departments in industries which do
not traditionally include information technology in their
products or services. For example, some sports shoes
already contain wireless sensors which enable the user to
monitor their athletic performance, when combined with
a wireless hub and a PC application. Such an approach
promotes customer loyalty as they will wish to maintain
the performance data when they change shoes. Again, this
highlights the need to consider business model innovation
at the same time as R&D.
Wireless sensors could be used for a myriad of
applications, such as supply chain tracking, guarantee
validation, maintenance recording, gathering usage
statistics and adapting to the local environment (context
awareness). In the next decade, imaginative engineers will
add many more applications in areas not yet considered.
Globalisation
In order to build a sustainable position, companies
increasingly have to market their products globally. This
allows the economies of scale to be developed which are
necessary to stay competitive in the face of aggressive
global competition. This means:
• Maintaining good intelligence on international
competition.
• Understanding the potentially diverse needs of
multiple markets early in the product design
process. This could encompass cultural,
regulatory and economic factors as well as
differences in applications. The product can
either be specified to meet all these needs
in a single package or, where that is not
economical, have a modular approach so that
regional variants can be painlessly spun-off
the original product.
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7. IDEA MANAGEMENT
AT Kearney’s research shows that leading companies tend
to consider more ideas at an early stage but select fewer
of them to go forward. This requires careful management.
Limited
Ideas More Ideas
Many Fewer
Projects Projects
An effective ideation process stimulates more
raw ideas but soon funnels them down to a few,
high-impact projects.
A process is employed to collect and cluster the ideas,
select the best ones and introduce them into the R&D
pipeline20. A good suite of online tools (sometimes called
an ideation platform) enables the community to review,
comment on and strengthen each others’ ideas before the
selection stage. This is key as, while a spark of inspiration
may produce a good idea, it will take a collaborative effort
with diverse experience to turn it into a great idea, or to
point out the issues that may mean it’s not such a good
idea after all. The use of such a tool will also mean that
management time need only be devoted to ideas that have
already been subject to critical peer review.
Ideation platforms have been implemented by a number
of leading companies into their innovation processes.
Examples include IBM’s ThinkPlace, Accenture’s
Innovation Grapevine and Whirlpool’s Innovation E-space.
There are also a number of 3rd party IT tools available,
such as Brightidea and Ideacomb, which companies
can use as a platform for such a process but, in small
companies, it may also be practical to conduct such a
process face-to-face.
20. Karlsson (2010) Collaborative Idea Management -
Using the creativity of crowds to drive innovation
One interesting way of assessing the relative merit of
ideas is through an “ideas market” where members
of the community can use a virtual currency to invest
in ideas they believe will be successful. The best ideas
and most successful “investors” can be rewarded with
more tangible returns at the conclusion of the idea
selection process21. Such an approach is best suited to
large, multisite organisations where it has the benefit of
encouraging diverse departments to participate.
8. UNSTRUCTURED R&D
A growing number of companies like Google, Facebook,
eBay, Twitter, LinkedIn and Yahoo allow their employees
to spend a certain percentage of their work time on
their own projects: creative ideas they believe can make
money for the enterprise22. The benefit is that people work
hard and think smart when they are passionate about
an idea. Developers are generally asked to produce an
early prototype of their idea which they can pitch to their
colleagues, seek feedback and, if there is enthusiasm,
refine the idea further. Sometimes this is manifested as
“Friday afternoon” work, while other companies undertake
regular 24 hour “hackathons” where the whole staff (not
just R&D) form into multidisciplinary teams to work on
their ideas. Some notable success stories to emerge from
such unstructured R&D include Flickr, Twitter and Gmail.
It is likely that this approach will become more common
in sectors which are fast moving and highly innovative,
where traditional bureaucratic approaches to setting up
new research projects may be too slow. With 3D printing
and virtual prototyping making it easier to bring ideas to
life, it is also expected that this approach will gain ground
beyond the IT industry.
21. Soukhoroukova, Spann, Skiera (2011) Sourcing, Filtering, and
Evaluating New Product Ideas: An Empirical Exploration of the
Performance of Idea Markets
22. Tate (2012) The 20% Doctrine
16
9. CROWDSOURCING IDEAS
The R&D and marketing departments need not be the
only sources of new ideas. Other valuable sources could
include customer-facing employees, manufacturing
engineers, external business partners and end
customers. Crowdsourced ideas may be responses to
specific challenges set by the company or they could be
spontaneous and freeform.
The first step is to decide how wide to cast your net for
ideas. A larger community will generate more ideas,
but it will take more effort to manage. There can be
spin-off benefits in generating more engagement with
the company and its brand. Once the crowdsourcing
community has been set up (usually an online forum) they
can be stimulated to provide innovation ideas and then
encouraged to review each other’s ideas and vote for their
favourites. Dell’s Ideastorm is such a platform, used to
gather ideas for new or updated products. While some
small incentives and personal recognition can be offered,
such ideas platforms are generally run on goodwill
towards the brand.
10. FUNDING
R&D projects can be associated with risk and often
have a long delay before any return on investment can
be realised, so funding is a challenge. However, it is
important that R&D is adequately funded, as delays
in getting a new idea to market leave a gap for the
competition to exploit. Unfortunately, there are many
good ideas which struggle to find adequate funding
from traditional sources. To bridge this gap, a number
of new sources of R&D funding are steadily growing in
importance, including SBRI and crowdfunding.
23. Hughes and Mina for CIHE (2012) The UK R&D Landscape
24. Technology Strategy Board (2012) Small Business research Initiative
17
Small Business Research Initiative (SBRI)
Apart from grants and tax rebates, the public sector
invests a huge amount directly in R&D to address its own
challenges. Historically, this public sector procurement of
R&D has tended to benefit large companies, particularly
in the defence sector. This is one of the reasons why SMEs
only account for 3.5% of total UK business R&D spend23.
However, there is a trend to channel more public money
towards SMEs who often have more innovative and cost
effective approaches to problems. A key mechanism to
achieve this is the Small Business Research Initiative24.
SBRI enables governments to act as an intelligent lead
customer and drive innovation, leading to new product
and service solutions to specific public sector challenges.
This approach is well established in the USA: for example,
Qualcomm, now a communications industry giant, traces
its early success back to the US Government’s equivalent
of SBRI grants which gave it the time and space to develop
game-changing technologies.
In the UK, the Ministry of Defence has been the largest
user of SBRI but more government departments and
agencies are now starting to use this approach, including
the NHS and environmental agencies. Unlike R&D grants,
SBRI is fully funded and exempt from state-aid legislation,
as it is seen as pre-commercial research procured from
the market. Often, the SBRI begins with a feasibility study
and, if promising, it may proceed to developing prototypes
and demonstrators. It is expected that more SMEs will
actively search for funding through this mechanism in
coming years, as it not only connects the SME to real
market needs but it also has the advantage that the
company keeps all the IP generated, so it can exploit it in
markets beyond the original government requirement.
 There are also crowdfunding platforms where profit
is the primary motive, but because the stake is low
and the payback is usually months rather than years,
psychologically it can feel more like online gambling
than sober investment. Indeed, crowdfunding very rarely
addresses larger or more complex projects which require
significant investment and lengthy development periods.
Typically, the process works as follows:
• The enterprise submits its proposal, including
the minimum funding required, to an online
crowdfunding platform, such as Kickstarter.
This will include details of what investors will
get for their stake, which is often simply the
proposed product.
• If sufficient people invest before the cut-off
date to meet the minimum funding target, the
Crowdfunding enterprise gets the money and goes ahead
with the project. Otherwise, the money is
Crowdfunding represents a radical new way for inventors
returned to the investors.
and young companies to raise finance to take their
products to market. In 2011, $1.5B was raised globally • The development and production cycles
through crowdfunding – a figure that is expected to grow for these products are typically fairly short
steadily over coming years25. Crowdfunding effectively (months not years) so the investor should get a
de-risks a new venture by spreading the investment very product within a reasonable timeframe.
thinly over many individuals: no one is investing money
they couldn’t afford to lose.
The motivations for funders to participate in crowdfunding
are very different from traditional investors. Often, they
wish to enable the development of a new product or
service of personal interest as they typically get the
finished product in return for their small investment.
Others are attracted by a perceived social benefit, such as
a device which helps disabled people, or by a particularly
creative proposition.
25. NESTA (2012) The Venture Crowd
18
Prospective entrepreneurs should not expect to sit stage to a large pool of committed people who can
back and watch the funding mount up. They must help with future market research, product testing
be proactive and promote their idea on a number and promotion as the business progresses, as
of relevant online communities and networks with well as buying the next products. However, it has
links back to the crowdfunding platform. taken Pebble longer than anticipated to develop
the product which has disappointed some of its
The most notable crowdfunding success to date is investors. The lesson is that expectations need to
the Pebble smart watch which raised over $10m be managed and timescales realistic.
on Kickstarter in 2012 from about 69,000 backers26.
The inventor was unable to raise capital from The platforms typically take a 10% cut if the
traditional sources but it took only a day to raise project is successful. This seems a reasonable
the first $1M on Kickstarter. Such a response was charge when the time, costs and equity loss of
a clear signal that the market wanted the product, seeking investment through traditional channels
which provides added value over other sources are compared. Some companies have undertaken
of capital. If the idea had no market traction, crowdfunding directly, such as BrewDog27 in
insufficient funds would have been pledged and a Scotland: this cuts out the middleman, but there
costly mistake would have been avoided without are legal and promotional costs involved and you
anyone losing money. This benefit has ongoing need to have very good PR to reach your target
value as the enterprise gets connected at an early shareholders.
Putting it into Practice – Appbackr
Appbackr28 have an alternative approach to Kickstarter: they are
focused purely on mobile apps, so the backers typically have a
good understanding of the technology, the business model and the
marketplace can recognize good proposals. Another difference is
that backers effectively advance-purchase wholesale licences of the
proposed app. They get their payback when the licences are sold to
end users at a mark-up through their own channels, including social
networks and their own client bases. This promotional activity also
generates a lot of PR for the new app, allowing it to gain momentum in
the marketplace.
26. Kickstarter (2012) Pebble: e-paper watch for iPhone and Android
27. growthbusiness.co.uk (2011) Raising Equity its Own Way
28. www.appbackr.com
19
PART 2 THE R&D TOOL BOX
R&D TECHNIQUES
3D Printing and Additive Manufacturing
Three dimensional shapes can be produced, layer by layer,
by 3D printers. These technologies have been available for
years but it is now becoming affordable for a wider range
of applications.
3D printing and additive manufacturing can be used
to accelerate the product development process and to
manufacture end products, especially for small production
runs or mass customisation. It enables greater design
freedom leading to higher functionality, lower part counts
and reduced weight in products29. Radical new business
models are likely to be developed on the back of 3D
printing.
Scalable Computing
Today, computing resources can be hired by the hour
and scaled up or down as required. This varies from
generic resources such as Amazon’s Elastic Compute
Cloud to more specialised supercomputers like HeCTOR.
As a consequence, small companies can access huge
computing resources for R&D as and when required.
And, if they develop a new online product or service, they
can scale it according to demand, dramatically reducing
capital investment and risk.
Supercomputing can take modelling, simulation, analysis
and 3D immersive visualisation to new levels able to
support R&D in highly complex systems. Application
examples include diesel engines, airplane wings, battery
chemistries and flow analysis. Supercomputers are rarely
used by the majority of industry due to the perception
of high cost and a lack of understanding on how to
harness their power. However, it can be economical to
rent time and expert help at one of the growing number
of supercomputing facilities, including Edinburgh and
Strathclyde in Scotland.
Digital Prototyping
Digital or virtual prototyping reduces the time and cost to
get products to market by testing a concept thoroughly
on the computer before committing the design to
physical prototyping. Generally this is achieved by using
mechanical system plug-ins with CAD packages which
enable the virtual prototype to be tested under all kinds of
challenging conditions which can be difficult to undertake
in the lab. There are also benefits in product visualisation
which can assist communication across the product team
and with potential customers. Digital prototyping is now
becoming more affordable for SMEs.
Evolutionary Design
In evolutionary design, computer software makes small,
random modifications to existing designs and then
models the new design against various performance
criteria to determine if the evolution is useful or not. Of
course, the vast majority of changes will not be useful
but, by following many parallel paths through successive
iterations, a near-optimal solution can be found. The
concept of evolutionary design has existed for many years
but the exponential growth in computing power is making
it feasible for more and more complex problems.
Evolutionary design is not restricted to mechanical
or structural components – a variant is also used in
informatics, called evolutionary computation. This uses
an iterative process where the original code is subject
to mutation and cross-over (swapping branches of code)
to create a diversity of novel candidate solutions, which
are submitted to a selection process which uses various
quality criteria to choose the better candidates for the
next iteration. Typical applications include quantum
computing, game playing, sorting and searching. Genetic
programming is a branch of evolutionary computing
targeted at the automatic discovery of programs to solve a
given problem.
Putting it into Practice – NASA
NASA’s Space Technology 5 (ST5) mission required a
communications antenna with an exacting specification
in terms of performance and physical dimensions.
The antenna design evolved by starting with an initial
feedwire and then creating variants with wires specified
by running a special program NASA had written. This
evolutionary algorithm started with a population of
randomly generated antenna-constructions. Initial
designs all performed well below specification but the
Generative Design
Generative design is the use of sophisticated computer
algorithms to create complex designs with minimal
human input. It differs from evolutionary design in being
open-ended, so it is much more likely to discover truly
innovative solutions.
The process involves generating a wide variety of
designs automatically by computer algorithms within a
certain set of constraints, set by the engineer. The large
range of designs generated can then be modelled and
simulated to evaluate their performance against various
structural, thermal and mechanical criteria. As with
evolutionary design, the results are used to select the
better candidates and guide an iterative design generation
process until a near-optimal design is achieved.
Generative design is already popular in architectural
design where a visual programming language called
Grasshopper is widely used31. Unfortunately, CAD systems
do not yet have a fully automated suite of programs to
achieve this without heavy manual intervention, so it is
not yet widely used in engineering applications. However,
with ever-more powerful computing resources available,
it must only be a matter of time before more sophisticated
tools are brought to market.
higher-performing candidates were identified
and a new generation of antenna designs were
bred from them using random recombination and
mutation operators. After hundreds of generations
of evolution, the optimal solution was fabricated.
Compared to traditional design techniques, the
evolved antenna is superior in power consumption,
fabrication time and performance30.
Human Modelling in Product Design
The modelling and simulation of humans in product
design was originally driven by defence and safety critical
applications where it is not desirable to test prototype
designs with real people. Now, it is starting to become a
cost-effective way to test a wider range of products for
usability early in the design cycle. Recent advances in
3D gaming engines have influenced the development of
this technology but the key difference is that the humans
must be realistic in terms of strength and vulnerability.
Advances in informatics, where computer science meets
physics, biology and social science, will support such
developments. Current applications range from vehicle
ergonomics through production line design to end-of-
life disassembly of engineering structures. Companies
such as Siemens, Dassault and SantosHuman provide
digital humans who can be used in product simulation
environments. They can measure such things as the
stress, strain and fatigue on human bodies and the range
of movement of human limbs. Benefits can include
reduction of repetitive strain injuries or operator fatigue.
In future, models of disabled humans could improve
products for a wider range of people32.

30. Hornby (2007) Generative Representations for Computer-Automated Evolutionary Design

29. Additive Manufacturing KTN (2012) Shaping our National 31. www.grasshopper3d.com
Competency in Additive Manufacturing 32. Kenneth Wong “In Harms Ways” in Computer Graphics World Aug/Sep 2012

20 21
Value Engineering
Value can be defined as the ratio of function to cost.
Value Engineering (VE) seeks to optimise the value of a
product or service by first systematically analysing its
desired functionality. By understanding exactly what
job it is required to do, and avoiding jumping to any
conclusions about how the product or service should
be structured or delivered, it is possible to remove any
non-core functionality and find the optimal trade-off
between quality, performance and price. VE began in the
defence industry but is now used in many industries, all
using the same structured methodology33. The use of
value engineering is mandated by the US government for
its contracts, and return on investment of greater than
10X is often reported34. It is clear that value engineering
can also be a valuable tool in pursuing the agenda of
frugal innovation discussed previously.
Recording Usage of Real Products
The fact that many products and services today are
connected to the internet gives companies an opportunity
to upload real usage information from their customers.
This allows them to determine which features are used
most often and how they are used. Companies like Apple,
Microsoft and Google collate this information and use it to
improve their next product updates. However, even devices
which are not internet connected, but have electronic
control systems, such as car engines, can record such
data and upload it when serviced. Of course, there is no
point in doing this unless an effective means can be found
to interpret all this information. Off-the-shelf tools are
available from a range of companies including Software
Statistics Service and PreEmptive Solutions. Such vendors
typically provide modules for integration into product code
to gather the statistics and tools to enable the data to be
analysed. Alternatively, free open source solutions are
available from Warefeed, for example.
33. SAVE International (2007) VALUE METHDOLOGY STANDARD and BODY OF KNOWLEDGE
34. Institute for Defence Analyses (2012) DOD Value Engineering Program
35. Industrial Technologies Program (2007) Stage-Gate Innovation Management Guidelines
22
INNOVATION PROCESSES
There are many approaches designed to improve the
process of innovation, aiming to find better solutions and
get them to market faster. Many of these are centred
around collaboration where companies and individuals,
with diverse knowledge and experience across the
supply chain, can work together to produce marketable
innovation.
Phase Gate Model
The Phase Gate or Stage Gate® model of innovation
management is well established in a number of
industries, such as defence, semiconductors and energy,
where R&D investments tend to be very high. This
approach places a number of decision points, called
gates, into the project flow where the progress of the
programme is formally evaluated against a number of
predetermined criteria. Funding will not be released for
the next phase of development unless the project passes
this review, which may require some remedial action.
This approach can introduce delays into the project but
the disciplined and robust approach it encourages helps
to avoid flawed development projects getting to market35.
Lean Product Development
There is a trend towards applying lean manufacturing
principles (simplifying, streamlining and standardisation
of processes) to the product development process in
manufacturing industries. In parallel, in the software
industry, there has been a similar shift from the
established phase-gate model of development, which
features a series of formal project reviews, to a faster
moving, more flexible and iterative “probe and learn”
style, called Agile.
Lean Product Development
Development Team
Kick-off Alpha Beta
End User
Product Vision Proof of Vision
Validation
Customer
These philosophies are being formalised and adopted
by a broader range of technology industries under the
banner of Lean Product Development36. The benefits
are significant for companies who adopt the philosophy
wholeheartedly: increases in productivity in excess of 50%
are reported with products brought to market typically
25% faster 37.
There are several key elements in a lean product
development programme:
• Streamlining of processes to remove waiting
time by coordinating resources across all
departments and ensuring that everyone
has easy access to the information they need
when they need it, while avoiding supplying
superfluous information which will waste time
or dilute the pertinent facts.
• Removal of any wasted effort: activities which
do not provide direct value to the customer
are stopped. Processes are automated
where possible using the latest IT; a product
portfolio management system is implemented
to ensure that less profitable product
programmes are stopped early, freeing up
resources for the higher priority programmes.
36. Jaruzelski, Holman, Daud (2011) Next-Generation Product Development
37. Aberdeen Group (2007) The Lean Product Development Benchmark Report
• Standardisation of work processes and
interfaces to increase efficiency and reduce
information incompatibility, software
incompatibility and communications failure.
To avoid delays and confusion, changes to
Full
standard procedures are only tolerated where
Release
there is a clear benefit.
Continuous
Improvement • Early validation of designs through frequent
touch-points with customers throughout the
development cycle. This includes internal
customers such as manufacturing and
marketing as well as selected end users.
The goal is to get a minimum viable product
into the hands of early adopters as early as
possible and develop it further based on their
feedback. This will reduce time to market
by avoiding the development of rarely used
features and by identifying problems early.
It also means a failing project can be killed
early. Digital prototyping or 3D printing can be
helpful in achieving early validation of physical
products.
• The ‘lean culture’ is embraced across the
organisation, including ancillary functions
such as finance, marketing, procurement,
operations and manufacturing as well as core
R&D.
The principles of lean product development are already
embedded in many larger companies, but smaller
companies are currently less likely to use it. As
companies grow, it is important that they recognise the
need to bring in more formalised development processes
but without stifling productivity through bureaucracy.
Lean product development may offer the best balance
but it must be recognised that in safety critical or high
integrity applications, the more established phase-gate
approach is likely to be more appropriate, albeit with
frequent customer engagement and testing in carefully
controlled environments.
23
De-Risking Innovation
Increased global competition increases the pressure to
get to market fast but this can mean higher risk as the
market research, R&D and product launch phases are all
compressed. There are a number of approaches which
seek to address this challenge38:
• 24-hour development teams can be set-up by
companies with global operations to ensure
the fastest product development timescales.
Of course, excellent collaboration tools will be
required.
• The use of lean product development
methodologies with frequent customer
feedback means that poorly scoped products
are less likely.
• Softer product launches: more beta trials with
early adopters or limited-geography launches
mean that any defects in the product can be
detected and rectified before there is too much
product in the field.
Intrapreneurship
Organisations with stiff hierarchies and centralised
control will struggle to compete in the dynamic markets
of the 21st century. Instead, they need to give sufficient
autonomy and resources to staff with the creativity and
leadership skills to address new opportunities by moving
rapidly and this is particularly true in R&D. Such people
with an entrepreneurial skill set operating in a corporate
environment are often known as “intrapreneurs”.
They tend to be outward focused, energetic individuals
with a long-term perspective, who are able to deal
with uncertainty and take risks. Key to the success of
intrapreneurs is the development of an open and informal
management culture in the company which will not
conflict head-on with the intrapreneurial style and this
requires the buy-in of all the management team to the
concept39.
38. Arthur D. Little (2011) The Future of Innovation Management: The Next 10 Years
39. Menzel, Krauss, Ulijn, Weggeman (2006) Developing characteristics of an
intrapreneurship-supportive culture
40. University of Cambridge IfM (2009) Briefing: Creating an environment for open innovation
24
OPEN INNOVATION
In the past, all R&D was undertaken in-house and
firewalls were established to prevent leakage of ideas. The
pace and cost of innovation today is making such practices
unsustainable, so smart companies are learning to share
ideas and intellectual property (IP) with carefully selected
partners40. The scope of this open innovation section
includes collaboratively generating new product ideas,
solving technical problems beyond the competence of the
host organisation and the co-development of particularly
challenging technologies. Open innovation encompasses
a range of business models that combine internal and
external R&D resources through partnering, licensing
and joint ventures. As such, open innovation requires a
complete redrafting of the innovation process to embrace
co-operation with other companies and organisations.
Trends
Potential benefits include faster time to market, lower
R&D costs and access to complementary ideas and At present, only around 8% of R&D organisations regard
expertise. open innovation as critical to their success and these
are likely to be larger companies in industries with a
high R&D intensity41. However, the clear trend is for
Open innovation can take many forms open innovation to become mainstream, reaching SMEs
and sectors with lower R&D intensities. It will often be
Joint delivered through lean product development techniques
Co-creation Research
Centres (discussed above) which suit open innovation better
than traditional phase-gate methodologies. The need
to leverage R&D spending will lead to more vertical
User IP from
Innovation Universities alliances, horizontal alliances and cross-industry
partnerships. Universities, facing reduced public funding,
Open will seek to work more closely with industry. The open
Innovation
Crowd Secondary
innovation process will be professionalised and the focus
Sourcing Patent Market will broaden from products to services while strategies for
intellectual property will shift from protection to producing
tradable goods42.
Micro Open
Tasking Source
Outsourcing
41. Grueber (2011) Global R&D Funding Forecast: Engaging the Global
Researcher
42. Gassmann, Enkel, Chesbrough (2010) The future of open innovation
25
Implementation
Organisations interested in adopting open innovation
first need to evaluate if their culture, organisation and
processes are amenable to the approach43. A prerequisite
to open innovation is to develop a good network of
contacts, through participation in industry events, online
forums etc. This can represent a significant investment
in time, but is far more effective than cold-calling
potential partners. Also, it is best to network with people
beyond the usual group of your suppliers, competitors
and customers. Big breakthroughs often come when
established ideas and technologies cross into new
domains, which require conversations between people
with diverse backgrounds and knowledge.
Open Innovation can be very useful for SMEs who have
limited internal R&D resources. However, it is more
likely to work for SMEs when they are partnering with
organisations of similar size and ambition, capable of
moving at the same speed and with similar expectations.
It can be challenging for an SME to work with a large
corporation where decision mechanisms move slowly
and are hard to influence44. However, where SMEs have
developed technology but lack the resources to exploit
it in the global market, they should consider either
licensing the technology to a multinational or coming
to an agreement to market the technology through a
strong international partner. Innoget45 is an example of an
online platform where organisations who have developed
technology can market it to find potential licensees or
partners.
It is important that R&D output is modular, well
documented and conforms to widely accepted standards.
This will minimise the effort required to port it from one
organisation to another.
43. Wagner, Piller (2012) Increasing innovative capacity: is your
company ready to benefit from open innovation processes?
44. Lindegaard (2011) Making Open Innovation Work
45. www.innoget.com
IP issues should be considered at an early stage, as this is
the most common impediment to success. This is why 3M,
for example, will only accept patented ideas in their open
innovation / crowdsourcing programme as this leads to a
straightforward licensing model with clear IP ownership.
In addition, it filters out ideas with a poor IP foundation,
as all the due diligence has effectively been done in the
patenting process. 3M’s approach saves a lot of time but
it can mean many good ideas never reach them. Other
companies, such as Procter & Gamble, have used an
innovation challenge approach to encourage a flow of
proposals from potential partners. This generates a lot
of responses of variable quality so P&G use a mediation
organisation to filter the responses, deal with IP issues
and coach the respondents to fine-tune their proposals.
The key is to have a clearly written, focused challenge to
minimise irrelevant responses.
Trust is essential in open innovation but it must be backed
by clear contracts to avoid costly legal wrangling down the
line46. It is also important to consider what would happen
if your partner were to go out of business, be acquired by
another company or simply lose interest in the project.
Legal contracts should cover these potential pitfalls.
Putting it into Practice – Design LED and Enterprise
Europe Network
Design LED develops and manufactures incredibly
thin light emitting diodes (LEDs). This technology can
be used in a very wide range of applications but the
challenge was to find the right international partners
to exploit its potential. So, Design LED engaged with
Co-Creation
Working with partners across the supply chain at an early
stage of the innovation process offers the best chance
to develop products or services which will not only offer
innovative solutions but also a ready market. Firstly,
it means understanding your customer’s, supplier’s or
partner’s business inside out so you can appreciate how
you could help them to reduce costs or add value. It then
requires close team working so that all the parties have a
stake in the solution developed.
Co-creation is becoming common practice among large
corporations but is rarer among SMEs. IP ownership can
be an issue so it is essential to develop an agreement
at the beginning of the process. Suppliers will generally
want to market products resulting from co-creation to
other customers, while their co-creation customer may
wish exclusivity in some cases. In other cases, co-creation
customers will be happy to see the product marketed
more widely if this will lead to economies of scale and
lower prices.
Enterprise Europe Network Scotland and has since
seen its overseas profile rise with 80 expressions of
interest from potential partners over the past three
years. The company has also embarked on a number
of technical and commercial collaborations with
partner organisations introduced by EEN.
NESTA has pioneered an approach to open innovation
called ‘jam’ and piloted it with a number of blue chip
companies47. This is a cooperative process involving
selected customers and suppliers across the value chain.
The process is managed by an independent facilitator
called a “Catalyst”. It begins with an open brief with initial
ideas being brainstormed in workshops. The best ideas
are developed further with online tools. The process ends
with solid business plans being pitched by collaborative
teams (across the value chain) and these might be taken
forward as joint ventures or other partnerships. This
approach works best in areas like service innovation
where IP ownership is less critical.
Collaborative approaches will be facilitated by better
online tools for knowledge activation and applied
creativity48. These will include web-based chat and
conferencing tools, collaborative writing tools, workflow
automation systems, document management and
group decision support systems to enable the team
to select the optimal solutions at each stage of the
development. Next generation systems will employ
informatics to automatically document work without
teams having to explicitly record their actions, whether
they are collaborating physically or virtually. For example,
technology will be developed which can record and minute
discussions in a meeting, understand context to a basic
level and index key words for cross-referencing. This suite
of services will be packaged into a unified platform.
User Innovation
A small but significant percentage of end users have
always taken a hands-on approach to innovation to meet
their own specific needs49. For example, in industrial
instrumentation, control and process equipment, users
frequently modify or enhance off-the-shelf products,
generally without the involvement of the companies
providing the original equipment. NESTA estimates that
approximately 15% of companies do this50. Similarly,
in certain consumer markets, such as automotive,
computing and sports equipment, sophisticated users
adapt standard products to meet their particular needs.
User innovation can often manifest itself in using
technology for applications which were not envisaged
when the technology was brought to market. Users with
advanced technical skills may even create new products
using catalogue parts, off-the-shelf materials and some
semi-skilled machining or assembly work. A NESTA
survey suggests that up to 8% of consumers do this.
The trend in user innovation is expected to increase in
coming years for the following reasons:
• The growth in online forums and social
networks is making it easier for user-
innovators to exchange ideas and collaborate
with each other51. Research suggests most
are enthusiastic about sharing ideas except
when they fear they could lose a significant
competitive advantage.
• The advent of 3D printing at reasonable costs
is likely to encourage user innovation in
hardware due to the ease of prototyping.
• In software, the growing library of open source
code and free or low-cost development tools
makes it practical for hobbyist coders to craft
sophisticated applications.
User innovation can be profitably adopted by companies
but this will require a systematic way of observing and
understanding user innovation, and then feeding this
knowledge back into the product development cycle.

47. NESTA (2010) Open Innovation from Marginal to Mainstream

48. Sorli and Stokic (2011) Future Trends In Product/Process Innovation
49. MIT Sloan Management Review (2011) The User Innovation
46. Glassman, Walton (2010) Open Innovation’s Common Issues Revolution: Interview with Eric von Hippel
and Potential Roadblocks 50. NESTA (2010) Measuring user innovation in the UK
26
51. Jespersen (2011) Online Channels And Innovation:
Are Users Being Empowered And Involved?
27
This may be as simple as observing how people are
actually modifying and using the product and then
adapting the product to better support the observed
applications. Some companies will be more proactive in
identifying and engaging in relevant online communities,
though they must be careful to manage expectations.
In some cases, it may be possible to supply development
tools to lead users to help them experiment and to
organise events where makers can show their innovations
with other user innovators and the host company. Then,
the company could offer to take the most interesting
prototypes into production so that the wider community
can access the benefits. This is likely to be welcomed
in hardware, where only economies of scale can yield
reliable products at a reasonable price. Provided the
innovators are recognised, consulted and provided with
some rewards (e.g. free production models) they are
likely to be cooperative52.
Crowdsourcing
In the R&D context, crowdsourcing is the outsourcing
of innovation tasks to a large external talent pool. This
concept is well developed in software (e.g. Linux) but can
be applied to all kinds of innovation. The external input
comes from individuals rather than companies and some
form of online platform is generally used to reach them,
capture their inputs and manage the process. All IPR
generated must belong to the crowdsourcing company
rather than the crowd, so care must be taken in setting
up the process.
Crowdsourcing can work in a number of different ways.
Selective crowdsourcing centres on a competition seeking
expert responses with substantial prizes for the best
ideas. One example would be the Saltire Prize offering
£10M for outstanding innovation in marine energy. There
are a number of third party crowdsourcing platforms
including Spigit, Innocentive, Brightidea, Napkins Lab,
Hype.de, IdeaBounty, Lithium and Salesforce. They
generally have a large pool of well-qualified potential
problem solvers and act as a middleman to post the
challenge and pay out the reward if the company decides
to adopt a proposal. Alternatively, companies could adopt
a more basic approach and simply post their challenge on
LinkedIn communities, Knowledge Transfer Networks etc.
52. Leadbeater (2006) The User Innovation Revolution
28
Using a Crowdsourcing Platform Crowdsourcing offers some unique benefits:
• More cost-effective than conventional
Company seeking solution outsourcing – you only pay for what you like.
• Access to creative minds beyond the resources
1. Formulate 2. Propose selected 2. Choose
problem solutions best of a single company. This is particularly
useful if looking for breakthrough solutions
Crowdsourcing Platform or innovation outside a company’s normal
capabilities. Nokia, for example, recently
solicited ideas on mobile power using both
internal and external crowdsourcing. The
Continuous
Improvement external ideas were perceived as higher quality
Large, diverse talent pool despite the number of in-house experts, due to
their ability to think outside the box53.
Scientists Engineers Inventors Academics
There are several difficulties associated with So far, crowdsourcing has been discussed as a way of
crowdsourcing innovation: solving specific problems but it can also be used in an
Sometimes, a complex problem will need a team of people • Unless the platform is specialised, there is alternative business model to source all of a company’s
with complementary expertise to solve. There are now a tendency for crowdsourcing platforms to innovation. For example, Quirky are a new consumer
platforms, such as Idea Connection, which can facilitate attract enthusiastic amateurs rather than products company who source their innovation from
the creation of a number of teams of diversified experts to skilled professionals due to the long odds freelance inventors54. They solicit ideas from the
work in competition with each other to create solutions. of submitting an idea that wins the prize. innovation community and select the best ones for
Other platform providers, such as Presans, proactively However, if the solution might be more about evaluation. They then use their innovation community to
engage individuals who may have alternative approaches inspiration than perspiration, it could be a good provide input including market research and fine tuning
to solving the problem. Both approaches lead to fewer, method for both parties. of the product features. 3D printing is then used to make
higher quality proposals but are more expensive to run prototypes. Ideas that are selected for production will
due to the hands-on approach. • The challenge needs to carefully worded return the inventor a royalty and even provides a small
and presented, as there is no opportunity to cut to those members of the community who contributed
discuss the challenge as with conventional ideas to the product development. The costs of taking the
outsourcing. It also has to be written to product to market are borne by Quirky, so the inventor
generate enthusiasm among the target group. needs no capital except a $10 fee to submit an idea. Of
course, the challenge for Quirky is to find the real gems
• If the challenge leads to a large number of
among the thousands of ideas submitted to them.
responses, it will require a lot of time to filter
and judge the best entries, so it may not be Crowdsourcing is still at an immature stage of
cost effective. Again, careful writing of the development, yet it has shown great potential. Ten
challenge can reduce this risk. years from now, it is likely to be a key element of many
companies’ R&D processes, providing a source of ideas
• It can be difficult to transfer crowdsourced
and linked to more conventional processes for turning the
innovation into the company’s R&D processes
ideas into products. Over this time period, a few third-
unless careful consideration has been given at
party crowd-sourcing platforms will become predominant
the start, with buy-in from all stakeholders.
due to the large number of quality problem-solvers they
attract and the maturity of their systems for rewarding
them. These third-party platforms will enable relatively
small companies to access high-quality blue-sky thinking.
53. Erkinheimo, Harjanne (2011) Idea Crowdsourcing at
Nokia - 12 months wiser 54. www.quirky.com
29
University IP
Under financial pressure, universities and other public-
funded research labs are becoming more proactive
in marketing their IP to industry and the processes
for licensing their technology are becoming more
streamlined. However, there is considerable scope for
misunderstanding between private and public sector
bodies with diverse objectives, so achieving an effective
working partnership requires investing time to achieve a
good mutual understanding55. Whilst most IP is offered
on a royalty basis, some universities now offer some of
their IP for free. This has been pioneered by the University
of Glasgow’s Easy Access IP programme56. Although the
licence is free, usually the university will often benefit
from consultancy work associated with the IP transfer and
will gain recognition from funding bodies for supporting
industrial innovation.
Putting it into Practice – Weir and University of Strathclyde
Weir identified collaboration with the University of
Strathclyde as a critical opportunity to develop ‘blue sky’
technologies for all its markets and add value to the
existing innovation efforts taking place across the Group.
This led to the establishment of the Weir Advanced
Research Centre (WARC), where senior Weir engineers
work side-by-side with leading engineering academics
to develop product solutions and core technology
propositions which can be leveraged across the Group.
55. EIRMA, EUA, EARTO, ProTon (2009) Responsible Partnering: Joining
forces in a world of open innovation
56. University of Glasgow (2012) Easy Access IP
30
Joint Research Centres
In many cases it is not easy to directly connect university
research with industrial exploitation. Further technology
development is often required to bridge the gap before the
technology is ready for industrialisation. Pre-commercial
research is an area where companies with complementary
capabilities as well as potential competitors can
collaborate to develop platform technologies, sharing
the costs between them. Later, they can take these
platform technologies in-house to develop commercial
applications. The UK-wide Catapult Centres and the
Scottish Funding Council’s Innovation Centres are recent
examples where a number of companies can work
alongside academics on core research programmes, with
clear agreements on IP ownership and exploitation in place.
The Weir Group is funding the WARC with an
initial investment of £1.9 million over three years
and continuing investment thereafter. The WARC
broadens and extends the University’s relationship
with the Weir Group by developing parallel
knowledge exchange activities that are beyond the
scope of their initial research agreements, further
enhancing this company relationship57.
57. University of Strathclyde (2012) Weir Advanced Research Centre
Open Source In general, however, open source hardware is lagging
far behind software and it will be years before it has
Open source is a cooperative venture: many developers
a significant impact on industry. This may be because
can contribute to and access a shared IP pool. There is no
suitable business models for hardware open source
charge to access this IP but users have to sign some form
have not been found. There are also certain challenges
of “copyleft” licence which obliges licensees to provide any
which need to be taken into account when applying open
improvements or modifications they make to the rest of
source to physical design59. First, the design should be
the community under the same free licensing terms. This
modular and the modules should correspond to certain
ensures continuous growth in the quality and quantity of
skill sets. This will facilitate easier allocation of work
IP in the shared pool.
to suitably qualified providers. Second, tools should be
Open source is primarily associated with software selected which are either open source or widely used.
where it is now a mature mechanism but there are also The IP situation is likely to be more complex than for
open cores available for integrated circuits and some software, and some patented IP may have to be used,
electronics. The concept could be applied to many more which is acceptable as long as such IP can be licensed
branches of engineering, especially in this era of digital with minimal fuss at reasonable rates. Finally, the means
prototyping, and there are early signs of an emerging open of physical production needs to be considered at an early
source market in mechanical engineering. For example, point, as access needs to be open and costs reasonable.
the RepRap 3D printer58 has attracted a lot of attention.
There are also a number of sites aimed at hobbyists
or lab technicians, such as Thingiverse, while Open
Source Technology offers some robust designs including
bulldozers and wind-turbines, which could be very useful
in developing economies.
58. www.reprap.org
59. Raasch (2011) Product Development In Open Design Communities:
A Process Perspective
31
Patent Markets
Until recently, patents rarely changed hands but there
is now a fast growing market for patents aided by an
infrastructure of auctioneers and aggregators60 and this is
facilitating a more open approach to R&D.
One reason is that many large corporations have
developed and patented good technology which they then
choose not to exploit, usually because it does not fit their
current strategic focus. For example, Procter and Gamble
used fewer than 10% of its patents in its own products.
Increasingly, corporations like P&G seek to get some
return from this research investment by licensing it, and
SMEs should consider the possibilities61. For example,
Pyreos is a successful Scottish start-up based on IP
originally developed by Siemens.
On the other hand, large corporations often seek to
strengthen their position in certain markets by acquiring
IP, either because they wish to use it directly, or simply
for defensive purposes i.e. to create a ‘patent thicket’ to
prevent others from operating in that area. One route to
acquire IP is to acquire small companies with relevant
patents. This is increasingly becoming an exit model
for innovative start-ups and venture capitalists often
encourage (and fund) companies to patent their IP early.
This secondary market is facilitated by the internet which
allows patents to be identified quickly. For example,
espacenet provides a free worldwide patent search
engine62.
60. Chesbrough (2006) Emerging Secondary Markets for Intellectual
Property: US and Japan Comparisons
61. Vanhaverbeke (2012) OPEN INNOVATION IN SMEs: How can small
companies and start-ups benefit from open innovation strategies?
62. www.epo.org/searching/free/espacenet.html
32
Outsourcing
There are a number of reasons why it may make sense to
outsource R&D:
1. Short term need for additional R&D resources.
2. Specialist skill is required that is outside the company’s
core competence.
3. A product has to be reengineered, or a new product
developed, for a foreign market where familiarity with
local regulations and cultural preferences is important.
4. To take advantage of lower costs in emerging
economies, usually in Asia.
While the first three in the list will always be good reasons
to outsource, the fourth has not become as common
as originally predicted. In principal, there is a strong
pool of low-cost R&D resource in China and India which
companies in high-wage economies could exploit. For
example, companies such as Innominds in India provide
a range of software-related outsourcing services. In
addition, many multinationals have opened R&D centres
in these regions, but results have been mixed and there
is no strong trend for European companies to increase
R&D outsourcing to Asia. While Asian R&D centres often
excel in creating products for their own markets, there
is less evidence that they are cost-effective in producing
solutions for European or American clients due to cultural
differences and communication issues. Also, while the
cost of the R&D staff may be lower, there is a higher
overhead and risk in managing this work remotely.
It is no surprise then, that EU research indicates that
most companies prefer to outsource R&D in their
own country. For those companies looking globally for
outsourcing suppliers, the USA is by far the favoured
location, despite high labour rates, with India second and
China a distant third63. Nonetheless, this suggests that a
small but significant number of companies are putting in
the time and effort to developing a strong relationship with
a selected R&D partner in Asia. This will typically take
longer than a US or EU partner, and the first projects may
not be great successes, but in time a good understanding
can develop.
Online Outsourcing
There are now online platforms like Zombal or
programmingbids.com which act as market places where
companies can post small R&D projects they wish to
sub-contract. A growing number of freelance scientists,
engineers and software developers can bid for the work if
interested. Payments are often held by the platform until
the work is completed, providing security for both parties.
63.European Commission (2012) EU Survey on R&D Investment
Business Trends
33
Microtasking
This involves breaking a project down into thousands
of short tasks that can each be completed quickly by
someone with the relevant expertise. Some microtasks
require no specific expertise, just generic human
capabilities that are hard to automate effectively such as
reading handwriting. The challenges are to break down
any job into the microtasks and to ensure the quality of
each microtask. Quality can be controlled automatically by
assigning the same task to two independent contributors
and checking they produce consistent results.
So far, little use has been made of microtasking for
R&D itself. However, it can be useful for certain product
development tasks such as adding metadata to content.
This has been called content crowdsourcing or integrative
crowdsourcing as it draws snippets of information from a
very large pool to essentially populate a database.
Microtasking can sometimes be useful for scientific
research including pattern recognition and creative
problem solving where machines are not always
effective. The best way to engage people in this kind of
microtasking may be through gamification rather than
payment. Gartner have forecast that gamification will be
employed by 50% of companies that manage research and
innovation by 201564.
64. Gartner (2012) Gartner Says By 2015, More Than 50 Percent of
Organizations That Manage Innovation Processes Will Gamify Those
Processes

Putting it into Practice – Fold It
Medical research requires the 3D shapes of millions of
potentially useful proteins to be evaluated, a task which
is beyond current computing technology. Humans,
however, are good at this, even with no medical
knowledge. As such, it is well suited to microtasking
Crowdsourced Software Testing
There is a growing expectation for software to be reliable
yet at the same time the diversity of environments
(hardware, operating systems, browsers, languages)
in which the software must operate is expanding.
This makes it challenging to test pre-release software
effectively at a reasonable cost. To address this need,
65. Sridharan (2012) Community Innovation:
Crowdsourcing in software testing
34
and www.fold.it is a website set up to facilitate this.
The site appeals to people who like to solve puzzles
and aid medical research at the same time – no
payment is made.
a number of crowdsourced software testing companies
offer platforms which can provide test professionals
matching a certain profile, using various devices and
test scenarios, backed up by forums where bugs can
be discussed. Outsourcing software testing can have
additional benefits: the testers are truly independent
and hold none of the inherent assumptions or biases
that make rigorous testing more difficult in-house65.
HOW CAN WE HELP?
Scotland is a country that is proud to have a broad-based
R&D structure which – with enthusiastic support from a
forward-looking Scottish Government and its agencies
such as Scottish Enterprise – promises to flourish in the
years to come.
This commitment to encouraging innovation with
practical, financial and political assistance is a key factor
in realising Scotland’s R&D potential.
Support to develop Scotland’s position as a global centre
of excellence in research and development is available to
businesses and organisations of all sizes and across every
sector.
Any ambitious company or entrepreneurial individual who
needs support and advice on how to bring their bright ideas
to market can speak to us for free R&D and innovation
advice. We can help firm up your business case, signpost
how your proposals can graduate from the drawing board
into reality, or even how adopting a low carbon approach
can enhance your product’s chances of success.
If you are about to undertake any R&D activities and would like to
find out more about how Scottish Enterprise can help you please
get in touch to talk to one of our advisors on 0845 607 8787
Alternatively visit www.scottish-enterprise.com for further
information about our innovation services.
35
Grants and funding are available to those organisations
which are committed to pioneering new technologies but
need additional resources in order to make progress.
Many businesses not only need funding, but require the
input or expertise of like-minded companies to bring their
ideas to life. While Scotland has a thriving and diverse
business base, it may be the right collaborator for your
company lies overseas.
We can help match you with your business partner
and network with companies all over Europe which
are interested in creating partnerships with innovative
Scottish outfits at every stage of the R&D process.
We can also offer support to help you ensure your
intellectual property is protected and help you develop
a strategy to make the most of these assets.
Scotland has talent, ingenuity and ambition to spare.
Your ideas and innovations demonstrate that we remain
one of the most intellectually vibrant countries in the
world.
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Additive Manufacturing KTN 2012 Shaping our National Competency in Additive Manufacturing Jaruzelsji, Dehoff 2007 The Global Innovation 1000

Appbackr 2012 Company Website Jaruzelski, Holman, Daud 2011 Next-Generation Product Development

Applied Marketing Science Inc 2012 Sample Cases (Voice of the Customer) Jespersen 2011 Online Channels And Innovation: Are Users Being Empowered And Involved?

ARM Holdings plc 2012 Company Overview Johnson, Christensen, Kagermann 2008 Reinventing your Business Model in Harvard Business review

Arthur D. Little 2011 The Future of Innovation Management: The Next 10 Years Karlsson 2010 COLLABORATIVE IDEA MANAGEMENT - Using the creativity of crowds to drive innovation

Chesbrough 2006 Emerging Secondary Markets for Intellectual Property: US and Japan Comparisons Kenneth Wong 2012 “In Harms Ways” in Computer Graphics World Aug/Sep 2012

Cooper, Dreher 2010 VOICE-OF-CUSTOMER METHODS: WHAT IS THE BEST SOURCE OF NEW-PRODUCT IDEAS? Kickstarter 2012 Pebble: e-paper watch for iPhone and Android

Edget 2011 Latest Research: New Product Success, Failure and Kill Rates Leadbeater 2006 The User Innovation Revolution

EIRMA, EUA, EARTO, ProTon 2009 Responsible Partnering: Joining forces in a world of open innovation Lindegaard 2011 Making Open Innovation Work

Ellen McArthur Foundation 2012 In depth – Washing Machines Macintosh School of Architecture 2012 Zero Energy Mass Customised Housing Graduate Course

Erkinheimo, Harjanne 2011 Idea Crowdsourcing at Nokia – 12 months wiser Marketing Week 2011 B2B brands build extra marketing muscle

European Commission 2012 EU Survey on R&D Investment Business Trends McKee, Voorhees & Sease, PLC 2011 Intellectual Property and Company Valuations

European Patent Office 2012 Espacenet access Menzel, Krauss, Ulijn, Weggeman 2006 Developing characteristics of an intrapreneurship-supportive culture

Garcia 2011 The relevance of marketing in the success of innovations Merges 2012 Secondary Patent Markets: A Possible Role for Startups

Gartner 2012 Gartner Says By 2015, More Than 50 Percent of Organizations That Manage Innovation Nesta 2010 Open innovation: From marginal to mainstream
Processes Will Gamify Those Processes
Nesta (Bound, Thronton) 2012 OUR FRUGAL FUTURE: LESSONS FROM INDIA’S INNOVATION SYSTEM
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Nesta (Collins, Pierrakis) 2012 The Venture Crowd: Crowdfunding equity investment into business
Glassman, Walton 2010 Open Innovation’s Common Issues and Potential Roadblocks
Nesta (von Hippel, de Jong, Sinozic. 2012 Measuring user innovation in the UK: The importance of product creation by users
growthbusiness.co.uk 2011 Raising Equity its Own Way
Osterwalder, Pigneur 2012 Business Model Generation website
Grueber 2011 Global R&D Funding Forecast: Engaging the Global Researcher
Piller 2010 Mass Customisation: A Strategy for Customer-centric Enterprises
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Prahalad 2011 Bottom of the Pyramid as a Source of Breakthrough Innovations
Hughes, Mina for CIHE 2012 The UK R&D Landscape
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36 37
Author Year Title

Rebrand 2012 2012 Rebrand 100 - Cisco

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Roussel, Saad, Erickson 1991 Third-Generation R&D Management (Arthur D. Little)

Sandia Labs 1997 Fundamentals of Technology Roadmapping

SAVE International 2007 VALUE METHDOLOGY STANDARD

and BODY OF KNOWLEDGE

Schenk, Guittard 2011 TOWARDS A CHARACTERIZATION OF CROWDSOURCING PRACTICES

Sorli, Stokic 2010 FUTURE TRENDS IN PRODUCT/PROCESS INNOVATION

Soukhoroukova, Spann, Skiera 2011 Sourcing, Filtering, and Evaluating New Product Ideas: An Empirical Exploration of the
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Sridharan 2012 Community Innovation: Crowdsourcing in software testing

Sydney Morning Herald 2012 Craig from Coogee rivals Angry Birds: a victory for the ‘common man’

Tate 2012 The 20% Doctrine

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von Hippel 2011 The User Innovation Revolution: Interview with Eric von Hippel

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38 39
 If you require this publication in an alternative format
and/or language please contact the Scottish Enterprise
Helpline on 0845 607 8787 to discuss your needs.
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