Enhancing R&D through Financial Management.

• Author: Sinnett, William M.
• Position: Financial Management - Interview

In an interview accounting professor and consultant Jonathan Schiff relates findings from a study looking at the impact of cost management when applied to corporate research and development.

Can research and development (R&D) performance be enhanced by aggressive financial management methods? Some believe it can. In December 2001, the Consortium for Advanced Manufacturing-International (CAM-I) published "Enhancing Research and Development Productivity Through Aggressive Financial Management," a study prepared by Jonathan B. Schiff and Allen I. Schiff. The study is based on field research conducted by the Schiffs to show how aggressive financial and cost management practices could be applied to R&D organizations to enhance productivity and performance. In the following Q&A, Jonathan Schiff details some of the findings.

Q Not much has been written about the role of financial management in R&D. What made you see the significance of such a project?

Schiff: We had already done a lot of work with finance organizations in the business partnering space, where finance had learned to help create a competitive advantage with its support of the manufacturing and engineering functions, and more recently, sales and marketing activities. R&D represents a new frontier of opportunity for finance people with respect to business partnering, but for many it poses the challenge of uncharted waters. To a significant extent, R&D represents a key link in the value chain. More importantly, R&D -- although often not a large percentage of revenue -- is the engine of future cash flow, market penetration and, often, brand equity. Merger and acquisition strategies alone cannot deliver positive results reliably.

We know that R&D is under enormous pressure to become better aligned with the marketplace. This means not only producing more patents, but also producing patents that will drive new products and/or services that meet customers' needs. Since one of CAM-I's goals is helping companies improve productivity, this project fit.

Q Three case study companies are in the report, representing three different industries: diversifield manufacturing, high-tech defense and global pharmaceuticals. What did they hope to gain by participating?

Schiff: These companies saw an opportunity to learn, both from us and from each other. With their identities held in confidence, there was little downside and great upside opportunity to share and learn. They had the desire to learn, but they...