Interactive R&D Spend Analysis Tool

Presenting the “Interactive R&D Spend Analysis Tool”.  The motion chart, as used by Hans Rosling, is an extremely effective data visualization tool. I’m using the same to bring into perspective the business performance of technology companies.

As of now, the tool covers 27 companies spread across the following industries: Aero, Auto, Medical, Telecom, Consumer Electronics, Industrial/Heavy Equipment Manufacturers, ISV’s, Storage & Semiconductors.
I'll keep adding data points for other major companies to make this tool more effective.  Comment on the companies that you would like to see in this tool.

How to use the chart:    

Default settings: 

Y-axis plots the R&D Spend

X-axis plot the Net income

Size of the bubble indicates revenues

All figures are in USD Millions.

Data source: google finance & Annual Reports.

1.   Clicking the play button traces the movement of the companies since 2008.

For example, with the default settings you can see Toyota’s bubble running to the left indicating a sharp dip in profits.

2.   The smaller play button controls the speed of the playback. Scrolling it down makes the playback longer and easier to follow.

3.  You can select the Y-axis parameter by clicking the small arrow on the top of the axis label.  Similar selection can be done for the X-axis.

4.   The parameters for size and color of the bubble can be selected on the right side of the chart.

Play around and have fun.

In pursuit of growth

Did you know that 65 of the world’s largest companies (Fortune 500) are all more than $100B in revenues? I was more amazed to find that the top 3 companies (“Royal Dutch Shell”, Exxon Mobil, and Wal-Mart) are more than $400 Billion. Wow, that’s huge! I decided to do a quick analysis on the Top 200 and this is what I found:

1. 45% of the companies are in the range of $70B - $130B, with 99B as the overall Top 200 average revenue size.
2. Average profitability of Top 200 companies is 5.89%. 3. 112 (56%) companies have less than 5% profit margins.
3. 38 (19%) companies have profit margins of more than 10%.
4. Only 13 (6.5%) companies have a net profit margin of more than 20%.  (The minimum company size in the set here is $48 Billion).          Data Source: http://money.cnn.com/magazines/fortune/fortune500/

The chart clearly indicates that irrespective of the industry sector or economic factors some companies clearly break away from the “commoners” in terms of net profit margin achievement.. Another trend that can be spotted clearly is the move towards the right as companies grow larger and larger in size. For most of the companies more than $100 Billion, the margins are about 5%.
These stats raise a few questions:

1. Are companies inadvertently sacrificing profitability in search of growth? 2. How are those few companies managing a profit margin of more than 20%?

I think that companies, in pursuit of growth, add complexity exponentially to their businesses. Diversification into multiple industry segments, thousands of products and services with regional localizations, significant investments in Engineering and R&D, hundreds of global partners & vendors, global acquisitions etc. are some of the fall outs of the “growth pursuit” which make sustainability of profits extremely challenging. I believe that a “Portfolio” view to business management and operations brings the much needed discipline in execution and decision making. It is critical to effectively manage the

a. Portfolio of businesses

b. Portfolio of products / services

c. Portfolio of Programs / Projects

in an enterprise and deliver sustained profits to shareholders.
The following are 5 critical questions that business leaders must have answers to ensure that growth and profitability objectives and initiatives stay aligned:

Reference: EPMC

Portfolio Management helps you to answer these questions and helps organizations build a disciplined approach to sustained growth and profitability. I request readers to share their experiences & challenges with Portfolio Management @ chinmay.kale@hcl.com.

References:
1. Fortune 500 Rankings: http://money.cnn.com/magazines/fortune/fortune500/
2. Enterprise Portfolio Management Council : www.theepmc.org

Gary Hamel on the Future of Management

This is a beautiful presentation where Gary Hamel argues on the need for “management innovation”. 
   Video Summary

1. The way we manage organizations hasn’t changed much in the last 50 years.
2. Why do we need a “management change”
• we are the first generation to face an inflection point in the “pace of change”
• Exponential growth in CO2 emissions, # of internet connections, # of Data Storage devices,  # of mobile devices connected to web, genes we have sequenced …..
• Creative disruption is forcing forcing companies to innovate day in – day out
• Knowledge is becoming a commodity.  Companies must “CREATE” new knowledge to differentiate
3. Companies must become : ADAPTABLE, INNOVATIVE & ENGAGING to succeed.
4. Challenge “Management” dogma to be a management innovator
5. WEB: the operating system for innovation

Do you know the “Effectiveness” of your Research, Development & Engineering?

A couple of questions that have plagued most RD&E managers and decision makers are:

a)      How effective is my RD&E?

b)      What are the returns from my RD&E investments?

The Booz Global Innovation 1000 Survey points out that the top 20 R&D spenders of the world spent $128 billion in 2009 alone; an average of 8.3% when expressed as a % of sales.  Apparently there is no correlation between spending huge amount of money and financial success in the market place.  Apple, considered as one of the most innovative companies, spent 3.1% of sales on R&D and churned out phenomenally successful products while Microsoft spent almost 16% of its sales and wasn’t as successful.  

The point is that decision makers are essentially blind while navigating their R&D ship.  They are missing out on identifying the true levers within their RD&E function that are most critical towards achieving their business objectives.  Worse, they are possibly misdirecting available funds. 

RD&E Effectiveness can be expressed as a ratio of the value (in $) generated by RD&E over time to the RD&E investments ($). 

Stanley Black and Decker Inc.’s DeWalt division is a maker of power tools for professional contractors. They observed their customers (carpenters) in action and came out with a 12-inch miter saw. It was a best seller!  Google keeps coming with innovative products time and again. We all know how:  It allows engineers the freedom to work on projects of their choice for 10% of company time.  But does that mean any company that allows 10% of company time to its engineers be as innovative as Google? Unfortunately, NO!  Think about DeWalt again..many companies spend a fortune on “identifying consumer needs” but then does every product hit the sweet spot ? NO!   Dewalt did it because not only did it correctly identify the pain of its customers; it also channelized its resources and learning into engineering projects which delivered the exact product that the market always wanted.

The key to maximizing RD&E effectiveness is the capability to channelize diverse inputs into most relevant projects that produce outputs which deliver business results.  To be able to derive sustainable extraordinary returns from their RD&E investments, organizations should make an effort to

1. Establish the linkage between its strategy, projects, outputs and business targets
2. Determine the value created by RD&E : IP, Knowledge, products and services
3. Identify the high impact levers of effectiveness

(Blog also posted on: http://ers.hclblogs.com/author/chinmay-kale/)