Building an R&D Strategy for Modern Times

Software business execs have a ton on their plates these days, a fact that’s as obvious as “The Princess Bride is the greatest movie of all time.”

The world is moving quickly, and when there’s not a new InfoSec risk, or development framework issue, there are new competitors beating down the door. Some things do remain the same — keeping strategy top of mind is more essential now than ever. And like Stretch Armstrong in the hands of a bored 9 year old, you’re getting pulled in every direction as a business leader. 

Those exact same forces are also acting on your business and R&D strategy. 

R&D is the innovation driver for software companies. With an average R&D spend of over 15% of revenue for software companies, it often comes in as the highest expenditure. But with all of that involvement, R&D can still be a total black box (ie: you know it works, but just not how it works).

Having a high-functioning R&D program can be what makes a company. Lacking one can break a company. Your products, apps, solutions, and platforms are the backbone of your business and must be able to support the strategic direction you’ve chosen. 

At Modularis, we’ve worked with a lot of software companies over the last 20+ years, and I’ve  seen a few recurring challenges and trends from successful companies that prevent them from grasping a truly effective, efficient, and productive R&D strategy.

Challenges to Successful R&D Strategy

Competing priorities within the business and R&D organization. 

Mature R&D programs include unavoidable tasks like managing technical debt and infrastructure challenges. Mix in the often conflicting pressures of multiple product owners, enterprise customers, international markets, and security and risk management, not to mention the competition, and it can become quite overwhelming. 

Even within a product team, enhancements that improve usability, address technical debt, or increase performance can compete with a new feature. 

And none of this has yet taken the overarching business initiatives into account. 

Competing priorities with no method for stack ranking can pose a significant risk to the effectiveness of your R&D teams. Business objectives change often, and as new initiatives are introduced, it can be a challenge to balance those with an existing list of priorities.

Disconnect between R&D and the customer.

R&D organizations are forward-looking, with focus on building “what’s next” for the company and industry. Some isolation between R&D and the customer is expected, and actually positive when considering bias in design. But there’s a fine line, and more often than not, engineers have too little exposure to customers.

This is a common problem I see among organizations of all sizes — the gap between the R&D org and customers is too wide. Customers are feeling the pain points of today that should lead to R&D innovation tomorrow. If R&D is listening and aware. The failure to identify and capture those customer pain points can result in missed opportunities in the best case, and a fundamental misalignment in R&D strategy in the worst case. Or of course if all you’re doing is fire-fighting, cause you to fail to have a strategy at all. 

Lack of success metrics.

I can’t tell you the number of times I’ve seen decisions made that were completely baseless in their motive. Even on projects with outcomes clearly measured, the often-lengthy period between initial investment and finished product gets distorted. The common denominator: success metrics are pushed to the wayside.

Businesses track success metrics for adoption, retention, sales, churn, and a basket of others. Yet such metrics fail to be used within R&D organizations. Businesses often miss out on low-hanging fruit by failing to implement these metrics. And you know damn well that getting a “percent complete” out of your team tells you exactly nothing.

How to Build a R&D Strategy for Modern Times

Manage R&D like a business.

If you want an R&D strategy that leaves your org running like a well-oiled machine, step one is to gain more insight into the day-to-day operations and profitability. Would a company strategy not include cost and revenue projections, cost-benefit analyses, and capital investment analysis/net value projections?

Those same concepts can be taken to R&D.

Understanding the complexity/value scale of a large project, mixed with projections for revenue growth, can help you build metrics to better define the probability of success. When each initiative is tied to a metric like revenue growth, adoption rate, or churn reduction, you have a baseline for tracking R&D performance — as it’s felt by the business.

Understanding your churn, and how to increase adoption, can lead to better bottom line growth. You can learn to incorporate cost-cutting measures into your architecture like reusable components — all organized and prioritized on roadmaps.

Remember, R&D is your biggest investment. Treat it like one! Measure your return in quantifiable impact on your top and bottom lines.

Know your Innovation Fraction.

The most important thing to understand about investing in software R&D is that it’s just like any other investment — what matters is risk and return.

Risk is easy to understand when it comes to software R&D. After all, you’ve seen plenty of projects fail or fail to thrive.

Understanding your return, however, comes down to knowing your Innovation Fraction.  Very simply, your Innovation Fraction is the percentage of your ongoing investment in R&D that produces innovation vs the fraction that goes towards maintenance. This is something that is pretty easy to compute and estimate.

The unfortunate reality is that most software businesses have an Innovation Fraction of around 20%. That means only 20 cents out of every dollar spent on R&D results in innovation that can be monetized and fuel growth. High-functioning R&D programs should have an Innovation Fraction of approximately 80% or higher.

Create a framework for communication and collaboration.

The game of telephone is a comedic tragedy for software teams. By the time a business requirement gets from a sales prospecting note down to a development engineer, it’s transformed from a loveable little Mogwi into a menacing looking gremlin. 

Successful R&D organizations win at the communication game. They have the right cadences, controls, and touch-points in place to make sure the appropriate parties are up to speed. 

Over-communication is a start. Including your development and UX teams on more customer-facing correspondence can be a needed conversation starter. It’s crucial to refine this into a framework to ensure collaboration is continuously happening between your teams.

Invest in movers and shakers.

This one is simple. R&D teams are composed of brilliant people, and it’s about giving them the tools to do what they love. Hire great people, invest in their continued growth, give them the freedom to expand their capabilities, and get the heck out of the way. 

Your internal training and incentives program should be aligned with your company’s strategic direction. Some engineers may want to expand their languages or go full-stack. Others want to grow into people-management positions, while some want to pick up a completely new discipline or learn about architecture, platform and framework design, and construction.

Businesses can significantly reduce turnover and recruiting costs by training and promoting from within. By aligning your training incentives to the long-term needs of the business, you can achieve efficiency and provide long-term benefits for your employees.

Capitalize on the right tools and technology.

This isn’t to say you have to start responding to every cold call you receive for products and services. There are, however, useful tools that are becoming available for every nook, cranny, and niche of product development. If you can articulate your problem, the overwhelming chances are there’s a solution for it. 

Twice a year we whiteboard our largest problems and identify potential solutions. Sometimes those solutions are better implemented with the help of a tool, service, or partner.

Testing your R&D Strategy

Evaluate your balance of flexibility and commitment.

Sometimes in R&D you want a sailboat, not a Carnival cruise ship. The ability to go with the wind, but still be able to change course quickly when needed, is paramount. However, striking that balance of commitment to flexibility vs. commitment of long-term goals should always stay top of mind. 

Successful R&D strategies can evaluate this balance often and assess how they might affect your ability to deliver on goals. I’m willing to bet that if you adopt this approach you’ll start to see greater clarity across the board.

Take a 30,000 foot view of your strategy.

Just as the business is required to do this, R&D organizations may sometimes have to take a step back. A high-level view can help you understand your competitive positioning. How well do you know your product and offering? Are you the cheapest, best value, best quality, only player in town, or best for a specific niche? What’s your Innovation Fraction? If your entire team can’t answer this, from Sales to R&D, you need to adjust your strategy.

Assessing Your R&D Strategy

At Modularis, we see R&D departments of all shapes and sizes. The truth is that there’s no one-size-fits-all approach for an R&D strategy. There are, however, actionable steps you can take to establish a more effective, efficient, and productive strategy that fits your business.

As a way to help businesses take the first step, we designed the Technology 360 Self Assessment. This self-guided assessment helps you develop a deeper understanding of software R&D so you can get the most out of your team and deliver more value to your customers.

Next, see how all of our thinking, leadership, and innovation come together in PlatformPlusTM, the world’s most efficient development platform. I’m confident in saying it’s everything you need to help your R&D team de-risk and accelerate software development. 

And finally, give me a call or shoot me an email to schedule a consultation to see how Modularis can help you get back on track.