At our consumer electronics firm the R&D team spend a lot of time and money on blue-sky projects, most of which seem like a waste of money to me. How should I evaluate them?
Acting as a business partner and working more closely with the R&D team will help to identify waste, opportunities for efficiency and weigh up their potential value to the business.
Given that up to 90 per cent of a product's costs get locked in at the design stage, any R&D team operating without the close support of their management accountant is at risk of wasting money.
CIMA's research has found that unfortunately only a minority of accountants have much contact with the designers in their business. Done well, R&D adds value, facilitates new product development and improves aesthetics.
It enables product differentiation, brings competitive advantage and can reduce the complexity of products, leading to cost savings and bigger profit margins. Measuring this can be difficult, because it can involve quantifying hard to measure factors, such as new customer reach or better engagement with existing customers.
But it is the management accountant's duty to provide information to support decision-making. We are trained to cope with uncertain information, to be forward looking, and to analyse quantitative and qualitative data to provide analysis to support decision-making.
As Louise Ross wrote in her CIMA white paper 'Beyond Enthusiasm'‚"the finance community have done it before, evaluating investments in advanced manufacturing technology, evaluating the return on marketing initiatives and valuing hard to isolate intangibles such as brand and intellectual capital".
Useful performance measures include: Costs of development, overheads and resources. Product life expectancy, life cycle, market share. Customer feedback, technical support and speed of response. ROI, profit margin and contribution to total revenue. Speed of delivery to market, number of new products developed.
Work with your R&D colleagues by advising them on the cost implications and assisting them with target costing and value engineering.
Inventing is never a simple process. My workshop is the graveyard of a thousand projects.
I never throw anything away and quite often I'll be working on one project, think of something and realise it is perfect for something else I was thinking about two years ago.
Projects spring back to life. That's how it works. I think the real question here is how you get the best out of inventors. The first thing to do is to make sure they are motivated.
Money is only part of the equation, but it is important nevertheless. If you were to offer a percentage of any profits generated by their discoveries you might find them suddenly producing marketable products.
It should be worth the investment. Just remember my motto: 'Art is pleasure, invention is treasure' Recognition is also vital. Inventors are used to getting screwed over.
When Christopher Cockerell invented the hovercraft they didn't even invite him to the official launch and he couldn't afford to take his family on the first hovercraft. He was treated appallingly.
What managers don't realise is how much inventors love to be praised and appreciated. Guarantee them that when the products go to market they will have their name on all the publicity material.
Don't knock anything they do. I never laugh at ideas. Show me a perpetual motion machine and I'll examine it. Maybe I'll find a motor configuration that would work in a hairdryer.
You should also realise that everyone is an inventor. We all are. You don't want to stand at arm's length, watching your R&D team.
Get stuck in! Come up with ideas. Then you'll know what they are working on and whether they are on the right track. And you might just come up with a revolutionary idea yourself.
Trevor Baylis OBE invented the wind-up radio, now commonplace across the developing world. He is the founder of Trevor Baylis Brands, which helps inventors patent and market their ideas.
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