' Academy of Management Execulive, 2002, Vol, 16, No.

Organizational designs for R&D

Geiaidine DeSanctis, Jeiiiey T. Glass, and Jngiid Moiiis Ensing

Executive Overview
Research and development is becoming increasingly business-oriented, and corporate
reliance on new technology and innovation is greater than ever. How can R&D activities
be organized to yield the greatest value for the enterprise? A study of 14 leading
technology-intensive companies in six industries illustrates how three organizational
designs are being used to manage distributed, flexible R&D organizations: (I)
decentralized. (2) networked, and (3) integrated. Decentralized designs limit the role of a
central R&D group: they direct R&D resources more toward products and markets rather
than basic scientific activities. Networked designs push the boundaries of R&D outside
the confines of a central R&D group and the firm as a whole. Integrated models use
sophisticated communication linkages to tie centralized, science-based activities with the
business needs of the corporation. Within the three design approaches, there are design
variants, each with its positive and negative tradeoffs. We show how some designs for
R&D are more effective than others and provide suggestions for how companies in search
of an ideal organization design for R&D can select among possible configurations to
promote adaptive, value-oriented R&D organizations.

How can R&D activities be organized to yield the
greatest value for the enterprise? In an era when
corporate strategy and survival can depend
heavily on a firm's ability to innovate rapidly, with
maximum business impact and rigorous cost con-
trol, organization design issues have moved to the
foreground.' The dilemma is classic: how to simul-
taneously yield value from centralized and decen-
tralized forms of organizing; but the context is new:
a heightened pace of innovation, reduced product
life cycles, a global marketplace, growing reliance
on intellectual property rather than hard-core tech-
nologies, and the massive infusion of electronic
communication systems for creating and coordi-
nating knowledge work.^ Organizations are mov-
ing from reliance on hierarchy and rigidity of struc-
ture to new forms that are flatter, cross-functional,
and dynamic.
How can R&D activities be organized to
yield the greatest value for the
enterprise?
Within this context, R&D activities are increas-
ingly business-oriented and capital-intensive.
Firms seek to be both innovative and efficient.
55
global and local, disciplined and flexible. Master-
ing paradox is paramount.^ The head of R&D for
GlaxoSmithKline recently put the issue this way:
"We need to be big and small at the same time."^
More than ever, companies seek value from their
R&D initiatives. The potential payoffs from organ-
izing R&D effectively are enormous and the costs of
ineffective organization structures extremely high.
Executives confront a quandary: how to construct
an ideal organization design for R&D among a sea
of possible configurations.
Trends and Tensions
Historically R&D operations were centralized, and
this organization design persisted long after World
War II. Even as organizations grew, diversified,
and spread across the globe, R&D remained cen-
tralized for many companies. Well-documented
problems, however, arose out of centralized struc-
tures, among them weak links between R&D efforts
and meeting the needs of customers and product
lines. Product development cycles were perceived
to be too slow and R&D costs too high. R&D was
viewed as overly scientific and out of touch with
the business enterprise. By the late 1980s, most
large technology companies had decentralized
R&D operations, breaking down (though not neces-
56 Academy of Management Executive August

sarily eliminating) corporate laboratories and

moving R&D activities closer to business units.^ A Companies continually struggle with
move from a central R&D (CRD) design to a busi- how best to reconcile the competing
ness unit R&D (BU-R&D) design shifted the strategy pressures associated with organizing
of R&D away from one of hope toward one of ac- R&D around science versus organizing
tion—that is, from heavy emphasis on pure re- R&D around products or markets.
search to heavy emphasis on product development.^
Without doubt, R&D in technology companies
has become more business relevant. But organiza- Insights from Leading Companies
tion design choices for R&D are not without con-
We examined 14 leading technology companies
troversy. Classic tensions in R&D management
from six major industries with the goal of identify-
persist. (See Figure 1.) Companies continually ing the various organizational structures that firms
struggle with how best to reconcile the competing are using to arrange their R&D units. We sought
pressures associated with organizing R&D around out large, profitable, multinational firms with
science versus organizing R&D around products or strong, established reputations for technology
markets. Executives wish for the benefits of both leadership and significant R&D investments. All of
science and business-oriented R&D; however, de- the firms rely on technology to support their core
veloping both centralized and business-unit R&D business strategies, and all have been operational
groups is costly, and coordination needs become for at least 10 years. On average, the firms we
more complex as R&D activities spread throughout studied spend over $1.7 billion annually, or 8% of
the enterprise.'' The organization design dilemma revenue, on R&D. They employ over 122,000 people
is that decentralized structures and formal ac- and generate approximately $303,000 of sales an-
countability for R&D are more likely to bring more nually per employee. With one exception the com-
new products and incremental innovations, but panies have a history of maintaining large corpo-
major technology advancements are more likely rate laboratory facilities and attracting the best
when R&D is centralized and informal.^ These ten- scientists and engineers in their industries.^ We
sions are evident in industries as varied as chem- identified the dominant organization designs for
R&D in these firms. We compared and contrasted
icals, electronics, aerospace, communications, and
the firms on some basic financial parameters and
Pharmaceuticals. then documented in detail how centralization-
decentralization tradeoffs were managed via or-
ganization design. Because theorists emphasize
paradox in new organizational forms, we were es-
pecially interested in the structures used to meet
Central R8ED Business Unit R&D basic science and product development needs si-
(CRD) (BU-R&D) multaneously.^°
• Services the needs of the • Services the needs oi
corporation the market or product
line Organization Designs for R&D
• Permits long-range thinking • Pushes short-term
results
We observed that three general models are being
• Brings frame-breaking science • Develops technology in used today for design of R&D: (1) decentralized
lo product innovation response to business models, (2) networked models, and (3) integrated
needs models. Decentralized models place R&D close to
• Encourages risk taking • Promotes product or within BUs, limiting the role of any centralized
success R&D function. Networked models link BUs to R&D
• Attracts leading-edge scientists • Attracts business-savvy
and engineers technologists
sources inside and outside of the organization. Inte-
• Emphasizes research • Emphasizes grated models combine centralized with decentral-
development ized R&D structures and use special communication
• The balance of power within • The balance ol power mechanisms to tie these structures together. All of
the management structure within the management the models address current pressures to simulta-
tends toward centralization structure tends toward
neously meet the competing R&D goals of long-term
decentralization
research and short-term product development.
FIGURE 1 Figure 2 summarizes some basic financial and
Competing Organization Design Pressures related parameters and shows the dominant organ-
in R&D ization design associated with each of the firms in
2002 DeSanctis, Glass, and Ensing 57

Firm's Percent
Organization Design Annual R&D Annual Total Firm's Percent of Industry of Industry Value
Company' for R&D Expenditures^ Revenue^ Employees R&D Expenditures Revenue Ratio*

F DECENTRALIZED 2279 33900 251900 37.04% 13.70% 01.47

E DECENTRALIZED 3524 23200 234000 5.96% 3.53% 02.53
A DECENTRALIZED 394 15128 70400 7.92% 11.61% 20.81
B DECENTRALIZED 92 2363 150000 0.34% 1.41% 27.92
Average 1572 18648 176575 12.82% 7.56% 13.18
L NETWORK 3648 30147 i41600 6.17% 4.59% 05.25
P NETWORK 1308 39150 lGlOOO 16.51% 18.67% 11.20
C NETWORK 1020 8458 15000 1.73% 1.29% 49.72
Average 1992 25918 85867 8.14% 8.18% 22.06
G INTEGRATED 1930 100469 293000 31.37% 40.60% 04.42
I INTEGRATED 5046 81667 291067 8.54% 12.43% 05.00
M INTEGRATED 1297 8648 31800 16.37% 4.12% 07.92
T INTEGRATED 2674 26273 64500 4.53% 4.00% 13.70
D INTEGRATED 807 18441 39029 10.18% 8.80% 22.13
X INTEGRATED 701 4809 25000 2.56% 2.87% 44.75
H INTEGRATED 35 1300 2000 0.41% 0.18% 216.19
Average 1784 34515 106628 10.57% 10.44% 44.87
Overall 1768 28140 122164 10.69% 9.13% 30.93
Average

' Companies E, L, C, T, and I are in the information and electronics industry. Companies P, D, and M are in the chemicals industry.
Companies F and G are in the machinery and equipment industry. Companies B and X are in the medical/pharmaceuticals industry.
Company A is in aerospace, and Company H is in the industrial materials industry.
^Millions of U.S. dollars.
^Millions of U.S. dollars.
" The ratio is calculated as ((Firm's % of Industry Revenue/Firm's % of Industry R&D)' l,000,000)/total employees. The larger the ratio,
the more revenue the firm generates Irom R&D expenditures, relative to industry averages and controlling for firm size.

FIGURE 2
Organization Design, Size, and Financial Measures for the 14 Companies

our study. The integrated model is the most popu-
lar, and this is probably due to its many advan-
tages relative to the other design types, as we
shall discuss below. Note that there is no dominant
organization design type as a function of industry.
For example, firms in the information and electron-
ics industry fall across the three organization de-
sign categories.
The data in Figure 2 reflect a few general pat-
terns. Firms that adopt the decentralized approach
to organization design have smaller R&D budgets,
generate less revenue, and employ more people
than firms adopting the other two organization de-
sign models. Firms that adopt the network organi-
zation design are smaller, relatively speaking, in
terms of number of employees, and spend more on
R&D than firms using the decentralized and inte-
grated models. Firms using the integrated design
are mid-range in the size of their R&D budgets and
number of employees, yet they generate the high-
est corporate revenue, on average. To account for
variations in R&D budgets and revenue across in-
dustries, we calculated for each firm its percent-
age of overall industry R&D expenditures and its
percent of industry revenue." So, for example.
firms using the decentralized designs spend an
average of 12.8% of their industry's R&D budget,
yet generate only 7.6% of industry revenue. In con-
trast, firms using integrated designs expend about
10.5% of industry R&D budgets and generate about
the same portion of industry revenue.
As a simple measure of each firm's ability to
generate value from R&D within its industry, we
divided each firm's percent of industry revenue by
its percent of industry R&D expenditures. To ac-
count for firm size, we then divided the result by
the firm's number of employees.'^ The larger this
ratio, the more revenue the iirm generates from
R&D expenditures, relative to industry averages
and controlling for firm size. The data in Figure 2
are displayed in order of increasing values of this
ratio for each organization design type. On aver-
age, integrated designs are associated with
greater value generation from R&D, but it is impor-
tant to note that there is wide variation in value
ratios within each design category. Looking across
the three right-hand columns of Figure 2, it seems
that integrated and network designs are associ-
ated with lower cost and greater value generation
from R&D relative to decentralized designs. The
58 Academy of Management Execufive
variation between companies within each organi-
zation design category, however, suggests that
specific implementation of the models varies
across firms. Value generation is possible within
each organization design approach, perhaps de-
pending on the specific ways in which firms apply
the models. With the data in Figure 2 as a back-
drop, we can now look more deeply into the organ-
ization designs of the 14 companies.
Integrated and network designs are
associated with lower cost and greater
value generation irom R&D relative to
decentralized designs.
(1) Decentralized Models
Four of the fourteen firms maintain a decentralized
approach to R&D management, though their strat-
egies and approaches to decentralization suggest
three forms. (See Figure 3). Companies A and B
adopt the first form, whereas companies F and E
use the second and third forms, respectively. Note
that companies A and B are more successful in
Chief Technology
Olficer
NoCRD
BU 1
R&D
BU2
R&D
BU2
R&D
BU2
R&D
Dispersed
FIGURE 3
Decentralized Models for R&D Organization Design
August
their use of the decentralized approach—in terms
of achieving value relative to their industries. (See
the value ratios in Figure 2.)
Decentralized designs hold in common the fact
that they limit the role of a central R&D group. In
the purest form of decentralization, there is no cen-
tiai R&D at all. All R&D activity takes place within
the BUs. R&D groups across BUs may or may not be
coordinated through a central office, such as the
Chief Technology Officer. This purely decentral-
ized approach puts R&D close to the customer or
product and is consistent with what Miles and
Snow labeled a defender strategy.'^ Scientific and
engineering expertise is directed toward the spe-
cific product and/or market domains of the busi-
ness, and any innovation effort tends to be highly
targeted. If R&D budgets are held relatively low,
monies can be directed toward projects with high
payoff, thus yielding value from R&D activities.
Despite these advantages, there is little learning
or leveraging of R&D capabilities across the enter-
prise as a whole, because the R&D group of one
business unit is not likely to interact with the R&D
groups of other BUs. Research support for firm-
wide strategic initiatives is difficult if not impos-
Segmented CRD
CRD
BU 1 BU 1 R&D
BU2 BU 2 R&D
BU3 BU 3 R&D
BU4 BU 4 R&D
Figure Legend
= person
( I = department or division
= cross-functional team
= computer system
2002 DeSanctis. Glass, and Ensing
sible. Economies of scale from R&D spending are
not available, since laboratories and scientists are
duplicated and not shared across the enterprise.
Companies E and F have attempted to overcome
some of the downsides of the no-CRD approach but
with mixed success. Company F adopts a seg-
mented CRD model in which R&D personnel asso-
ciated with specific markets or products are con-
solidated into a central location but operate
independently of one another. CRD is essentially a
shell operation, a physical location and/or logisti-
cal unit for managing R&D personnel and related
resources. The major advantage of the segmented
model over the no-CRD model is that it increases
possibilities for knowledge transfer across the
R&D groups of the various BUs. Co-location can
facilitate informal collaboration and joint problem-
solving. Further, this model offers cost advantages.
Scientists and engineers in co-located laboratories
can be managed together, thus streamlining hir-
ing, training, and other personnel costs. On the
other hand, co-located BU-R&D groups risk becom-
ing out of touch with the BUs that they were de-
signed to serve.
Company F is not achieving high value from its
segmented model, perhaps because the firm's R&D
strategy is not consistent with its organization de-
sign. Company F is pursuing what Miles and Snow
would call a prospector strategy; the firm is very
aggressive with regard to searching for opportuni-
ties beyond immediate customer and product
lines, and the BU-R&D groups are having trouble
staying aligned with BU needs due to their distant
location from them. R&D expenses are very high
relative to industry averages, and value from R&D
expenses is difficult to achieve. Like the no-CRD
approach, a segmented model may be better used
with a defender approach to R&D strategy, since in
the segmented model R&D remains organized
along product or market-oriented lines.
The dispersed mode! for R&D management scat-
ters R&D throughout the enterprise, anywhere and
everywhere there is deemed to be opportunity and
business need. Company E in our sample exempli-
fies this model. BUs that need and can afford R&D
create R&D groups. Some BUs may have more than
one R&D group. Other BUs may have no R&D.
Cross-unit product-strategy groups form on an as-
needed basis to develop and/or support new tech-
nologies. In the dispersed model, there may or may
not be a CRD. Where a CRD exists, its role is not so
much to coordinate R&D efforts as it is to take on
special projects that fulfill particular product-
development needs that cannot be met inside of
the BUs. In Company E there is no central coordi-
nation or control unit for R&D. Rather, there is
59
continual (though not monitored or required) infor-
mal information exchange among the many, diffuse
R&D activities. Informal information exchange oc-
curs via electronic discussion groups, seminars, and
workshops made available to technical employees.
The dispersed model for R&D
management scatters R&D throughout
the enterprise, anywhere and
everywhere there is deemed to be
opportunity and business need.
The advantage of the dispersed approach is that
it fosters a culture of product innovation and ex-
perimentation. The model fits a prospector ap-
proach to R&D strategy. As one manager in Com-
pany E put it, "New product ideas come from
anywhere and everywhere." The problem, of
course, is that ensuring adequate information ex-
change is difficult when operations are scattered,
and good ideas and research resources can be
squandered in the fray. Recognizing this potential
weakness. Company E has established an "ideas
database" into which technology development
ideas from throughout the enterprise can be placed
for later use by others. Still, the reliance on an
information system to integrate R&D information,
without an organizational unit or other authority
role, is problematic. The dispersed model risks be-
coming decentralization run amuck, and although
value through growth may be achieved in the long
run, it is an extremely expensive approach to or-
ganization design.
(2) Networked Models
Much is written today extolling the value of the
so-called network organization design in which
the walls of corporate divisions or BUs—or indeed
the organization itself—are opened, allowing fluid
exchange of information across corporate and BU
boundaries.''^ For R&D, networked models facili-
tate transactions-on-demand in which R&D re-
sources are applied when and where they are
needed, regardless of where the technical capabil-
ities lie^whether inside a CRD, inside a BU, or
outside of the organization. Networked models are
compatible with the prospector approach to R&D
strategy, as they deliberately aim to link basic
technology developments to business needs. Firms
adopting a networked approach create and nurture
a set of relationships to link basic technology
sources to business demands. As business needs
change, new relationships are established, and so
60 Academy of Management Executive August

there is flexibility in R&D ventures. We observed
three networked models. (See Figure 4.)
The internal-maiket model relies on informal in-
teraction between CRD and BUs whereby BUs
scout for relevant projects within CRD, and CRD
groups, in turn, seek BU sponsors for basic science
initiatives. Specific CRD groups are not necessar-
ily designated to work with specific BUs; rather,
linkages are developed depending on how a re-
search group's technology or expertise can be ap-
plied to the BU. In Company L, where we observed
this model in action, no single person within CRD
is assigned to manage CRD-BU relationships; the
incentives for all of the researchers are designed to
encourage proactive, targeted relationships with
BUs. In turn, BUs are free to approach researchers
in CRD with requests for technical assistance or
full-blown research projects. Project milestones
and costs are negotiated to meet the specific needs
at hand. Extensive CRD-BU interaction is promoted
via face-to-face meetings, regular visits to project
teams, job rotation between CRD and BUs, confer-
ences and discussion groups around research ar-
eas, and various social functions. Ongoing inter-
action between BU and CRD personnel increases the
likelihood of successful initiatives. An incentive
structure can also be used to reward employees who
take initiative to cross the BU-CRD boundary.
The acquisition model is based on forming R&D
relationships with entities outside the firm. Tech-
nologies are imported in accordance with the
firm's strategy and specific needs, and then inte-
grated into the firm's existing product-develop-
ment efforts inside BUs. The acquisition model in-
cludes the purchasing of technology in the
broadest sense, whether research data or methods,
R&D staff, or even entire organizations surround-
ing the technology. Several companies in our sam-
ple use the acquisition approach on a limited basis
to acquire risky, cutting-edge technologies from
small and start-up firms. Only one company we
studied—Company C—uses acquisition as its
dominant organization design. The acquisition ap-
proach allows it to keep its R&D costs relatively
low and its value ratio high as acquisitions sub-
stitute for a corporate CRD function, transferring
external R&D resources to BUs as they are needed.
The advantage of this outreach model is that it
reduces the internal need for scientific staff and
laboratories and, more importantly, facilitates
rapid fulfillment of specific R&D needs. It also re-
duces the risk of R&D investments since acquisi-
tions can be made after desired technology devel-
opment milestones have been achieved. On the
other hand, identifying and developing external
relationships require special business and legal

Internal-Market Model Acquisition Model

(Company 1]

R&D done in acquisitions

Extended-Enterprise Model

Figure Legend

University R e s e a r c h ^ C D = P^'^™
I [ = department or division
= external entity

Corporate R&D
Partnerships

FIGURE 4
Networked Models lor R&D Organization Design
2002 DeSancfis, Glass, and Ensing
skills. Further, the company is dependent on a
vibrant external marketplace to meet its internal
R&D needs.
The exfended-enferprise model pushes the net-
work notion further to include formation of R&D
relationships with a wide set of internal and exter-
nal partners. For example, CRD may form alli-
ances or joint R&D ventures with government lab-
oratories, universities, or other companies; the
R&D department of one BU may form an agreement
to support the R&D needs of another BU; or the CRD
may work with university laboratories to supply
specific R&D needs of several BUs. The idea is to
form R&D relationships that meet H&D needs, no
matter where the R&D source might be located.
CRD may broker these relationships for the BUs,
but BUs are not bounded by CRD and can form
relationships with external parties or with one an-
other on an as-needed basis.
There has been a general trend among technol-
ogy companies toward external sourcing of R&D
from universities, start-ups, private labs, alliances,
and so on.'^ Among the firms we studied. Company
P is using the extended enterprise as its dominant
organization design for R&D. Many others practice
external sourcing on a limited basis, relying more
heavily on internal CRD and/or BU-R&D resources.
The findings from our interviews suggest that
the extended-enterprise model requires organiza-
tional incentives that foster coordination and col-
laboration efforts across organizational bound-
aries. For example, both BU and CRD staff should
feel free to identify and create research contracts
or partnerships without concern for turf wars when
dealing with a common external lab or research
site.
There has been a general trend among
technology companies toward external
sourcing of R&D from universities, start-
ups, private labs, alliances, and so on.
In addition, effective external partnerships re-
quire recognition of parties' common and differing
needs, and the ability to coordinate technology
plans and negotiate conflicts as they arise. Sophis-
ticated legal, technical, and business skills are
needed to manage a wider range of relationships
than in the internal market or acquisition models.
But the payoff can be high for companies that are
able to manage a multitude of ventures. The ex-
tended-enterprise approach is particularly attrac-
tive for simultaneous support of basic scientific
research along with fast-paced growth; and rela-
61
tionships can be scaled back in times of economic
downturn.
In a sense, networked models replace the tradi-
tional, centralized CRD organization with modern
twists: either an open CRD or location of basic
scientific activities outside of firm boundaries.
Successful implementation of networked models
requires a host of corporate capabilities—monitor-
ing and support of the internal and/or external
R&D marketplace, careful review and selection of
available technologies, and strong internal social-
ization and leadership skills to broker relation-
ships. R&D success is dependent on the network of
relationships. Networked models offer high poten-
tial value, but they are tricky to implement, espe-
cially as dominant organization designs.
(3) Integrated Models
Integrated organization designs for R&D incorpo-
rate both short-term product development initia-
tives and basic science initiatives with long-run
potential. Integrated models practice a "mixed
mode" strategy for innovation, and CRD takes on a
key governance role in implementing this strategy.
The strong governance role of CRD differentiates
firms with integrated organization designs from
companies with dominantly decentralized or net-
worked models. CRD is not necessarily large in
size, but it takes on an R&D leadership role for the
corporation. CRD serves as an important hotbed of
scientific energy and as a hub in the wheel of R&D
efforts throughout the enterprise. There is a strong
philosophy that "technology belongs to the corpo-
ration, not the business units." The goal of CRD is
to help BUs "steal freely," as one manager in our
study put it, by developing cross-unit technology
platforms and meaningful information sharing in
order to "look for exploitations and assure that the
company will not be blindsided by new technology
developments." CRD may have some laboratories
that are isolated to pursue basic research, but CRD
as a unit is anything but isolated. It has vibrant
ties to the BUs. CRD links BUs with one another,
and it links firm R&D efforts with the company's
overall, strategic goals.
Among integrated models, the typical CRD in-
cludes dedicated research project teams, laborato-
ries, and functional support groups. Some com-
panies have only central R&D facilities (e.g..
Companies G, I, M, T, and X), whereas others also
have BU-R&D groups (e.g.. Company D and Com-
pany H.) Both approaches can be effective. For
example. Companies X and H are yielding great
value from R&D, yet they have different balances
of BU and CRD resources for R&D. Company X has
62 Academy of Management Execufive August

a large CRD unit with many laboratories and func-
tional groups. CRD is responsible for supporting
the R&D needs of the corporation and promoting
new product development, both short term and
long term; almost no R&D is conducted inside of
BUs. In contrast. Company H conducts R&D ven-
tures largely within specific BUs or via cross-BU
R&D projects rather than inside CRD. The CRD unit
has no laboratories, but it does have a visible,
prestigious group of managers and scientists who
set leadership direction and facilitate firm-wide
scientific support for R&D ventures. In both Com-
pany X and Company H, CRD is directly funded by
the corporation and not from a "tax" or charge-
back system to BUs on a project basis.
Within the integrated-design approach, the
choice of whether to develop CRD as a large or
small entity is secondary to the decision of how to
coordinate extensive corporate-wide R&D efforts.
We observed two general approaches to structur-
ing interaction between CRD and the BUs. (See
Figure 5.) Team-based coordination involves for-
mal mediating groups that consist of BU and CRD
personnel. For example. Company H has standing
tech teams and tech services groups that include
BU members and CRD members organized around
specific types of technology. Usually these teams
include members from multiple BUs. As other ex-
amples. Company M has joint BU/CRD groups as-
sociated with each major product line, and Com-
pany X creates ad hoc project teams with CRD
personnel to address specific BU research needs.
Liaison-based coordination occurs when manag-
ers within CRD are given designated responsibil-
ity for linking CRD to the BUs. As an example.
Company G appoints relationship managers
within CRD to serve as the interface between CRD
and BUs. There is one designated relationship
manager per BU. These relationship managers
have no line responsibility, but they are provided
with enormous implicit authority by reporting to
the head of CRD. They are an integral part of the
strategic planning for CRD, and each relationship
manager is evaluated in part by the success of
joint CRD-BU projects. Relationship managers who
have been transferred to CRD from a BU view the
position as a rotation that is good both for the BU
and CRD. Other relationship managers have been
long-time CRD researchers who are virell informed
about corporate R&D capabilities.
Regardless of whether teams or individual liai-
sons serve to mediate CRD-BU relationships, as
they work with a particular BU on technical issues
these facilitators become knowledgeable about
R&D strategy and specific BU needs. This outcome
encourages a high probability of matching BU
needs to CRD capabilities and R&D activities to
corporate strategic directions.
Along with a formal coordination structure, con-
stant communication is a cultural imperative in
firms adopting integrated organization designs.
Most firms that we studied use R&D information
systems that are accessible by both BUs and CRD.
The information collected for these systems may

Team-based coordination Liaison-based coordination

Cross-unit
technology teams Relationship
f R&D information support system J managers I R&D information support system J

Figure Legend
^ ^ = person
I = department or division
. = cross-functional team
I = computer system

FIGURE 5
Integrated Models
2002 DeSanctis, Glass, and Ensing 63

include market intelligence, technology discussion

databases, information on competitors' R&D initi-
atives, research data, R&D project tracking sys-
tems, and so on. Though it may be tempting for
companies to rely on these systems in place of
more traditional forms of communication, we
found that the most successful firms rely as
heavily on people-based communication mecha-
nisms as on computer-based systems. For exam-
ple. Companies D, G, H, and I use R&D information
systems support, but they take care to design and
support mediating groups and managers for
knowledge transfer. Further, they promote a cul-
ture of communication via multiple methods, such
as bulletins, conferences, and discussion groups.
Information systems are used to support the R&D
organization design, but they do not replace it.
Along with a formal coordination
structure, constant communication is a
cultural imperative in firms adopting
integrated organization designs.
A Value-Driven Approach
Figure 6 summarizes the major advantages, dis-
advantages, strategy, and other implementation
guidelines for the three major models of R&D organ-
ization design. Reviewing these models, we find
that there is no "one best" organization design.
Indeed, a host of factors might dictate the specific
model implemented by any given firm, such as
firm goals, resources, existing infrastructure, mar-

Organization Preferred R&D To implement tor

Design Advantages Disadvantages Strategy success . . .
DECENTRALIZED • Supports a business Difficult to share Defender: • Use when R&D needs
orientation in R8ED knowledge or leverage Innovation is are decidedly different
• Focuses R&D efforts on R&D capabilities across targeted toward across business units
current customers the enterprise improving • Avoid this approach if a
needs Research support for lirm- existing products prospector strategy is to
• Short-term benefits from wide strategic initiatives or searching for he pursued
R&D investments are is diificull new technologies • Keep R&D expenditures
emphasized Economies of scale in within specific low through careful
R&D facilities, personnel, product or market targeting of projects
etc., are difficult to lines within business units
achieve
NETWORK Can be used to support Requires business, legal, Prospector: new • Use to support growth in
basic scientific research and social skills for product and new markets or new
at lower cost than developing effective market product ventures
traditional CHD relationships between opportunities are • Troll for value
Effective matching parties in the network aggressively opportunities that lie
process puts research Network dependencies are pursued; outside of the firm
resources when and created, thus increasing exploration of (acquisition or extended-
where they are needed risk if parties withdraw or new technologies enterprise models)
Relationships are do not meet commitments is wide in scope • Invest in skills and
flexible and can be Tends to be more costly if processes to support
expanded or reduced as network reaches only effective management of
research or business inside the firm (internal relationships
needs change market model)
INTEGRATED Mixed mode of business Requires cross-functional Analyzer: a mixed • Invest in coordination
and science orientation teams or designated mode approach structures and
in R&D relationship managers to to strategy, with communication
Supports both short- coordinate CRD-BU targeted R&D for mechanisms to link CRD
and long-term R&D relationships some products or with BUs
projects CRD can be high relative markets and • Empower CRD with a
Helps link R&D to the to most decentralized and aggressive governance role for R&D
strategic direction o( network models pursuit of new • Build a reputation for
the technology-based opportunities in R&D excellence that is
iirm other areas recognized inside and
outside the firm

FIGURE 6
Summary of Advantages, Disadvantages, Strategy, and Implementation Guidelines for the
Organization Design Models
64 Academy of Management Executive
ket opportunities, and so on. Most important is that
executives recognize the tradeoffs associated with
the design choices they make and take steps to
realize specific design advantages and overcome
potential disadvantages. We synthesized the at-
tributes of effective R&D management from across
the three design types found in our sample to sug-
gest the general recommendations for organiza-
tion design that follow.
(1) Strategic Mechanisms
Regardless of the specific corporate strategy, val-
ue-driven companies adopt practices to link R&D
ventures and progress with the corporation's stra-
tegic goals. In Company H, for example, R&D ap-
pointments are considered important and given an
elite status. Company D has established an intel-
lectual property department with intellectual asset
managers who undertake valuation analysis for
each R&D project. The value of the technology to
the market and/or to the firm is assessed as a
project is approved and as funding is renewed.
Company M uses information systems to bring
R&D progress and updated technical information
to customers. Company A has a chief growth offi-
cer who scouts for high-potential projects from BU-
R&D units and then advocates them for executive-
level sponsorship
(2) Executive-Level Attention
To extract value from whatever organization de-
sign is implemented, the executive level of the firm
devotes significant attention to R&D. This attention
feeds downward and outward into all R&D opera-
tions. Executive involvement can be very heavy,
such as in Company G where R&D projects of $1M
or more require executive council approval. In
some companies a corporate executive council de-
termines all R&D initiatives. The CRD director may
also be the chief technology officer and serve on an
executive council (e.g.. Company G) or even on the
company's board of directors {e.g.. Company P).
Executive appointments and ongoing involvement
in R&D reflect the recognition that nearly every
aspect of the company is technology-based. In
Company H the CEO sends out weekly reports
prepared by R&D, adding comments and stressing
the importance of various R&D activities to every-
one in the company. As one executive put it, "Re-
search is the basis of our business, not something
we do on the side."
August
(3) An Entrepreneurial. Communications-Oriented
Culture
Value-driven organizations engage in continual
interaction between the BUs and R&D groups. They
not only create relationship managers, project
teams, R&D information systems, and so on; they
use these mechanisms constantly. This constant
level of communication contributes to a sense of
partnership between general managers and R&D
managers and reinforces the importance of inno-
vation as a value in the firm. In this way, the
managerial matrix between BUs and R&D operates
well beyond the reporting structure and deep
within the company.
This constant level of communication
contributes to a sense of partnership
between general managers and R&D
managers and reinforces the importance
of innovation as a value in the firm.
(4) Putting Sharing Where It Matters
Value-driven firms overcome the isolation of
R&D from the rest of the company by promoting
sharing where it matters, rather than haphaz-
ardly or everywhere. For example, teams are cre-
ated where the payoff is likely to be greatest, and
chief technology officers or relationship manag-
ers target high-probability projects. Most impor-
tantly, formalities are replaced by expedited re-
view procedures and ad hoc methods of selecting
people for projects and getting work done with
the highest level of excellence possible. For ex-
ample. Company G has replaced elaborate
methods for selecting and managing projects
with the use of simple evaluative spreadsheets
and project milestones that can be specified rap-
idly, usually within a few hours. Company D has
replaced pacing of project requests with R&D
requests on demand—whenever there is a need.
One manager referred to this approach as a
"pick-up basketball game" as opposed to the
"formal league games" typical of previous years.
(5) Externally-Oriented R&D
Value comes from using capabilities both inside
and outside of R&D, and both inside and outside of
the firm, to create new technology-based options.
Value-driven R&D organizations look for scientific
and business opportunities outside traditional
R&D walls—to individuals, groups, companies.
2002 DeSanctis. Glass, and Ensing
and information systems both inside and outside
the firm. Technology found in the marketplace
might be the basis of a new product line, provide
incremental development, or fill in the missing
piece of an ongoing R&D effort. Though specific
laboratories and projects may operate in isolation
from time to time, BU-R&D and CRD operations are
run with business objectives in mind, and manag-
ers are customer or product oriented. They recog-
nize the need for collaboration and engage in on-
going scouting for new ideas and opportunities.
(6) Willingness to Mix and Match Structures
Varying R&D needs across a business enterprise
can require different degrees of CRD and/or BU-
R&D attention, or different types of teams to coor-
dinate R&D efforts. Dynamic economic conditions,
corporate consolidations, or moves to spin off or
acquire businesses likewise put pressure on R&D
organizations to be flexible in their organization
designs and use different structural or communi-
cation mechanisms as R&D demands change. Val-
ue-driven companies meet these challenges by
recognizing that there is no one-size-fits-all ap-
proach to organization design; they maintain a
coherent overall structure for R&D but vary the
specific design attributes as needed. As one exam-
ple. Company P in our study relies on an extended
enterprise model as its dominant organization de-
sign but complements this with use of joint
CRD/BU R&D teams for technology transfer. Both
technologists and general managers are willing to
use different R&D structures for different products
or at different periods in time.
Achieving Value from R&D
To conclude, organization design does not directly
determine corporate success, but it is one critical
factor that comes into play in determining whether
companies are able to yield value from their R&D
spending. Both science-oriented companies and
business-driven companies can use new organiza-
tional forms to yield value. The integrated model is
an excellent starting point for most firms as it
accommodates both product development and ba-
sic science initiatives. From there, organizing R&D
for value means pursuing centralized and decen-
tralized R&D activities that collectively facilitate
the firm's overall strategic objectives.
To design mechanisms to accommodate scien-
tific and business units in the firm, executives can
review the range of possible organization design
options and identify the advantages and disad-
vantages of each model in light of organizational
65
resources and goals. They can then take steps to
implement the kinds of structural, communication,
and other mechanisms we have described to break
down organizational boundaries and satisfy re-
search and development needs when and where
they arise. The result is an adaptive and progres-
sive model of organizing for R&D directed toward
achieving value for the enterprise.
Acknowledgment
Gerardine DeSanctis would like to Ihank INSEAD lor sponsor-
ing her sabbatical leave during which this article was
completed.
Endnotes
' Daft, R. L., & Lewin. A. Y. 1993. Where are the theories for the
"new" organizational forms? Organization Science, 4(4): i-vi;
and DeSanctis, G., & Fulk, J. (Eds.). 1999. Shaping organizafion
form: Communication, connection, and community. Newbury
Park, CA: Sage.
^ Drucker. P. F. 1999. Knowledge-worker productivity: The big-
gest challenge. California Management Review, 41(2): 79-94;
and Doz, Y.. Santos, J., & Williamson, P. 2001. From global to
metanational: How companies win in the knowledge economy.
Boston: Harvard Business School Press.
'^ Child, J., & McGrath, R. G. 2001. Organizations unfettered:
Organizational form in an information-Intense economy. Acad-
emy of Management Journal, 44(6): 1135-1148.
•* Dyer, G. GSK considers spinning ofl its research units. Com-
panies & Markets. Financiai Times. 25 January 2002, 15.
^Jankowski, J. E. 1998. R&D foundation for innovation, fle-
search Technology Management. 41 (March-April): 20: and Lar-
son, C. F. 1998. Industrial R&D in 2008. Research Technology
Management. 41(November-December): 19-24.
^ In this paper we use the term Business Unit (BU) to refer
generically to any product, customer, or other business-oriented
group within the organization. Central R&D (CRD) refers to any
stand-alone R&D group that reports to corporate headquarters
rather than to a business unit. Business Unit R&D (BU-R&D)
reiers to any R&D group that reports to a product, customer, or
other business-oriented unit.
' Birkinshaw, I.. & Hagstrom, P. (Eds.). 2000. The flexible firm:
Capability management in networked organizations. New York:
Oxford University Press; Kreiner, K., & Schultz, M. 1993. Informal
collaboration in R&D: The formation oi networks across organi-
zafions. Organization Studies. 14(2): 189-205; and Kuemmerle,
W. 1997. Building effective R&D capabilities abroad. Harvard
Business Review (March-April): 61ff.
^ Etflie, I. E., Bridges, W. P., & O'Keeie, R. D. 1984. Organiza-
tion strategy and structural differences ior radical versus incre-
mental innovation. Managemenf Science. 30 (June): 682-695:
and Van den Bulte, C. & Moenaert, R. K. 1998. The effects of R&D
team co-location on communication patterns among R&D, mar-
keting, and manulacturing. Management Science. 44(11):
S1-S18.
^ The exception is Company C. We conducted in-depth inter-
views with key informants in each company. We also reviewed
documents and reports made available to us by the companies
and by publicly available sources such as annual reports, in-
dustry publications, and SEC filings. The companies partici-
pated in our study with the understanding that they would not
be identified by name.
66 Academy ol Management Executive August

'° Child & McGrath, op. cit.; and Heydebrand, W. V. 1989. New "'For example, see Ebers, M. (Ed.). 1997. The formation oi
organizational forms. WorJc and Occupations, 16(3): 323-357. inter-organizational networks. Oxford: Oxford University Press;
" Industry figures are based on data provided by the Office and Birkinshaw & Hagstrom, op. cit.
ol Technology Policy of the U.S. Department of Commerce and '^ See R&D trends forecast for 2001. a report published by the
the Division of Science Resources Studies in the Directorate for Industrial Research Institute, November 2000, htfp.V/www.irinc.
Social, Behavioral, and Economic Sciences ol the National Sci- or g I web I.
ence Foundation. See U.S. Corporate R&D: Volume 1; Top 500
Firms in H&D by Industry Category, September 1999; and U.S. Gerardine DeSanctis is the
Corporate R&D Investment, October 2001. Thomas F. Keller Professor of
'^ To aid interpretation of the value ratio, we multiplied each Management in the Fuqua
ratio by $1,000,000. which is the denomination of the revenue School oi Business at Duke Uni-
and R&D budget numbers shown in Figure 2. versity, Durham, North Caro-
'^ Miles and Snow outlined four types oi corporate strategy lina. Her interests are in the
for innovation: reactors, defenders, analyzers, and prospectors. general area of organization
See Figure 6 for definitions. Miles, R., & Snow, C. 1978. Organi- design, especially the growing
zafionai strategy, structure, and process. New York: McGraw- role of information technology
Hill. This framework is widely used in research on corporate in new forms of organizing. She
strategy. For example, see Forte, M., Hoffman, J. J., Lamont, B. T., holds a Ph.D. degree in busi-
& Brockmann, E. N. 2000. Organizational form and environment: ness administration from Texas
An analysis oi between-form and within-form responses to Tech University. Contact: gd@
environmental change. Sirafegic Management Journal. 21(7): mail.duke.edu.
753-773.

Jeffrey T. Glass is the Joseph F. Ingrid Morris Ensing is a doc-

Toot, Jr. Professor of Engineer- toral student in management at
ing and Co-Director of The In- the Fuqua School of Business,
stitute for the Integration oi Duke University. She holds an
Managemenf and Engineering MBA from Kellogg Graduate
at Case Western Reserve Uni- School, Northwestern Univer-
versity. He received his Ph.D. in sity, with majors in organiza-
materials science and engi- tional behavior and strategy.
neering from the University of She also holds a BA with honors
Virginia and his Global Execu- in economics from Claremont
tive MBA from Duke University. McKenna College. Her areas of
Contact: jfg4@po.cwru.edu. research include organiza-
tional structure, organizational
learning, and knowledge man-
agement. Contact: icm@maiJ.
duke.edu.