Product design and development Research paper

product design research and development and strategies for product design and pricing research
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Dr.ThorasRyder,Hong Kong,Researcher
Published Date:07-07-2017
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Product design, research and develoPment a canadian manufacturing PersPectiveProduct Design, Research and Development: A Canadian Manufacturing Perspective For additional copies of this publication, please contact: Publishing and Depository Services Public Works and Government Services Canada Ottawa ON  K1A 0S5 Telephone (toll-free): 1-800-635-7943 (Canada and U.S.) Telephone (local): 613-941-5995 TTY: 1-800-465-7735 Fax (toll-free): 1-800-565-7757 (Canada and U.S.) Fax (local): 613-954-5779 Email: publicationstpsgc-pwgsc.gc.ca Website: www.publications.gc.ca This publication is available upon request in accessible formats. Contact: Multimedia Services Section Communications and Marketing Branch Industry Canada Room 441F, East Tower 235 Queen Street Ottawa ON  K1A 0H5 Telephone: 613-947-5177 Fax: 613-954-6436 Email: production.multimediaic.gc.ca This Publication is also available online at www.ic.gc.ca/productdesign. Permission to Reproduce Except as otherwise specifically noted, the information in this publication may be reproduced, in part or in whole and by any means, without charge or further permission from Industry Canada, provided that due diligence is exercised in ensuring the accuracy of the information reproduced; that Indus- try Canada is identified as the source institution; and that the reproduction is not presented as an official version of the information reproduced, nor as having been made in affiliation with, or with the endorsement of, Industry Canada. For permission to reproduce the information in this publication for commercial redistribution, please email droitdauteur.copyrighttpsgc-pwgsc.gc.ca. Cat. No: Iu44-60/2012 ISBN: 978-1-100-51673-8 IC registration : 60989 Aussi offert en français sous le titre Conception, recherche et développement de produits : Une perspective canadienne du secteur manufacturier. Printed on recycled P aPer: cover: 30% inside P ages: 30%Product design, research and develoPment a canadian manufacturing PersPectiveHighlights n today’s global marketplace, Canadian manufacturers’ ability to compete with firms around the world Iincreasingly depends on their capability to generate viable product ideas and translate them into commercial success. Product design, research and development (PDR&D) is essential to drive commercialization and growth in the Canadian manufacturing sector. To capitalize on current and future market opportunities, Canadian manufacturers are rethinking their PDR&D strategies. While keeping core PDR&D activities internal, many manufacturers are coordinating other business activities with supply chain partners, universities, and centres of excellence and forming strategic alliances and joint ventures. Manufacturers are being driven to implement open innovation by evolving customer requirements and increasing global competition; sharing knowledge and capacity enables manufacturers to commercialize quickly and reduce their product development risk. Industry Canada has partnered with Canadian Manufacturers and Exporters, the Institute for Product Development, the Design Exchange, the Association of Canadian Industrial Designers, and Montreal Living Lab to share strategic information on how Canadian manufacturers can leverage PDR&D to innovate and compete on a global stage. This report identifies best practices and trends, and provides insights into current and future industry needs.Key Findings •  The Canadian manufacturing sector is at the forefront of new product commercialization. •  Product design, research and development (PDR&D) is a cycle of continuous improvement over time that includes four stages: product idea generation; product selection; product development; and launch. •  In addition to research and development (R&D), core business activities such as industrial design, product engineering, testing, and market research are required to ensure product innovations are commercially successful. •  Substantial investment in PDR&D is being made with the aim of extending the market life of products through product extension strategies, which drive long-term profitability and future iterations of product development. •  An increasingly common method for manufacturers to develop new products is through open innovation with outside organizations, such as supply chain partners, research institutions, and centres of excellence. •  The majority of Canadian manufacturers perform R&D activities in Canada, regardless of head office location. •  Accessing new sources of product innovation outside the company, increasing design capacity, and accessing specialized skills from the global workforce and new markets are among the top drivers for conducting global PDR&D. •  Few Canadian manufacturers outsource R&D activity to providers in Canada or abroad. •  In Canada, between 2007 and 2009, more than twice as many Canadian manufacturing firms opened a new R&D facility or expanded capacity than those that reduced R&D capacity, with a greater percentage of large firms expanding compared to small and medium-sized manufacturers. •  An emerging trend in the Canadian manufacturing industry is the development and implementation of proactive intellectual property (IP) strategies, aligned with innovation and business strategies, which maximize the potential value from the information generated by the PDR&D process. •  Best-in-Class manufacturers are in a better position to protect IP resulting from their PDR&D initiatives and also invest in advanced PDR&D technologies and processes to effectively launch new products to market.Table of Contents Background ___________________________________________________________________________________________________ 1 Emerging Trends in Product Innovation _______________________________________________________________________ 2 Product Design, Research and Development Business Models ______________________________________________ 6 Canadian Investment in Research and Development Capacity _______________________________________________ 9 Intellectual Property Strategies _______________________________________________________________________________11 Best-in-Class Analysis — Intellectual Property ____________________________________________________________13 Advanced Technologies and Process Adoption _____________________________________________________________14 Best-in-Class Analysis —Advanced Technologies ________________________________________________________15 Final Remarks ________________________________________________________________________________________________16 Annex — Tables ______________________________________________________________________________________________17 References ___________________________________________________________________________________________________30 Table of Figures Figure 1 Product design, research and development process _____________________________________________ 1 Figure 2 Product design, research and development cash curve __________________________________________ 2 Figure 3 Manufacturers’ responses to increased competition by size of firm ______________________________ 3 Figure 4 Responses to increased competition, by industry ________________________________________________ 3 Figure 5 Introduction of new product innovations, by industry (2007 to 2009) ____________________________ 4 Figure 6 Involvement of outside organizations in the development of product innovations, by industry __ 5 Figure 7 Product design, research and development activity performed within the firm in Canada _______ 6 Figure 8 Research and development decisions made by or jointly with foreign parent ____________________ 6 Figure 9 Product design, research and development strategy _____________________________________________ 7 Figure 10 Top challenges of global product design, research and development____________________________ 7 Figure 11 Internal and outsourced research and development activities, by size of firm ___________________ 8 Figure 12 Internal and outsourced research and development activities, by industry_______________________ 8 Figure 13 Investment in product design, research and development facilities in Canada by size of firm (2007 to 2009) _____________________________________________________________________ 9 Figure 14 Investment in research and development facilities in Canada, by industry (2007 to 2009) _____10 Figure 15 Investment in research and development facilities in Canada (2007 to 2009) ___________________10 Figure 16 Investment in product design, research and development facilities outside of Canada, by size of firm (2007 to 2009) ____________________________________________________________________ 11 Figure 17 Intellectual property tools in the product design, research and development process __________11 Figure 18 Intellectual property protection as an obstacle to innovation, by industry _______________________13 Figure 19 Intellectual property violation as a significant obstacle to exporting by industry _________________ 13 Figure 20 Best-in-Class intellectual property practices _____________________________________________________14 Figure 21 Advanced computerized design and engineering technology adoption, by industry____________14 Figure 22 Best-in-Class global product design, research and development technologies and processes ___________________________________________________________________________________15 List of Tables Table 1: Examples of product innovation, by industry _____________________________________________________ 4A CAnAdiAn MAnuf ACturing PersPeCtive Background he extent to which Canadian manufacturers invest in product design, research and development (PDR&D) is a key determinant of their competitiveness, as PDR&D drives commercialization, export opportunities and growth. In 2008, the TCanadian manufacturing sector invested close to 39 billion in PDR&D activity to link ideas and concepts to the creation 1 of new and improved products. The PDR&D process is a cycle of continuous improvement over time with iterative feedback and recurring input from development team members as well as executives, sales and marketing groups, and production teams. The process involves four stages: product idea generation; product selection; product development; and launch (Figure 1). 2 Figure 1 To begin the PDR&D process, manufacturers generate product ideas and evaluate whether they could be commercially viable. This step involves conducting extensive market research, scouting new technologies, and mapping potential emerging markets to assess customer needs. In the product selection stage, manufacturing firms further assess product ideas along with potential risks and financing options, and plan for product development to determine what resources are required to design and launch a product to market. Following this, industrial design, product evaluation, modelling, prototyping/testing, and refinement activities are completed in the development stage. Once a product has been successfully developed it is then integrated into production 2 processes, and ultimately the new product is then promoted and launched in the marketplace. At each stage of the process, manufacturers assess progress and realign their strategies to maximize the probability of success. In addition, customer feedback and refinement — a key component of the PDR&D process — feeds into manufacturers’ competitive intelligence and process revisions, and drives product extension strategies and new 2 product introductions. Research and development (R&D), which encompasses basic research, applied research and experimental development, is central to product innovation and signals a firm’s commitment to the generation and commercial application of new product 3 ideas. Core activities such as industrial design, product engineering, testing, and market research are also required to ensure 2 product innovations are commercially successful. To strengthen their competitiveness in the global market, Canadian manufacturers are rethinking their product innovation business models, investing in capacity, and implementing innovative tools and practices. An emerging strategy is global resource allocation, where product innovation is undertaken across geographical boundaries and PDR&D is coordinated with 1ProduCt design, reseArCh And develoPMent multiple stakeholders. As well, leading manufacturers are determining their products’ intellectual property (IP) status at each stage of the process and using IP tools such as industrial designs, trade secrets, patents and trademarks to maximize the 2 potential value of the information generated. This report provides insights on: •  Trends in product innovation •  Product design, research and development business models •  Canadian investment in R&D and engineering facilities •  Intellectual property strategies •  Advanced technologies and process adoption •  Best-in-Class analysis emerging t rends in Product innovation The competitive nature of the manufacturing industry, potential risks, and business ambitions all influence the innovation 4 business strategies undertaken by Canadian manufacturers. In general, companies pursue a mix of two product innovation strategies: the first is new product innovation, which is essential to push the boundaries of existing markets and to discover and pursue new opportunities in the global economy; the second involves substantial investment in R&D and product design to extend the market life of products through product extension strategies that drive long-term profitability and future iterations of product development (Figure 2). 5 Figure 2 Canadian manufacturers seek to introduce profitable product innovations by generating viable product ideas, securing start- up investments, effectively managing product development (time to market) and production scale-up (time to volume), and 5 developing product extension strategies. When designing new products, manufacturers weigh the benefits with the costs of reducing time to market (e.g., greater market share combined with higher development costs), and also consider the time required to reach volume production and deliver payback. Manufacturers must decide if and when to invest in product extension strategies to maximize revenue, and when to invest in the next generation of product introductions. A product innovation is the market introduction of a new or significantly improved good with respect to its capabilities, user-friendliness, components or sub-systems. Product innovations (new or improved) must be new to the enterprise, but they do not need to be new to its market. Product innovations could have been originally developed within the enterprise or by other enterprises. 2A CAnAdiAn MAnuf ACturing PersPeCtive Challenges manufacturers face include assessing these factors early on and re-evaluating decisions at each step of the process 5 to determine the likelihood that a product idea will generate payback, prior to investing significant time and resources. As competition increases, the most common response by Canadian manufacturers is to compete on price, often coupled with the use of enhanced cost reduction strategies. Manufacturers also react by improving product quality, introducing innovative products, and accelerating product introductions (first-to-market advantages) (Figure 3). These responses reflect Canadian 2 manufacturing firms’ focus on a mix of both new product development and product extension strategies. 6 Figure 3 Reliance on new product development and product extensions varies by manufacturing industry (Figure 4). For example, industrial electronics manufacturers focus more on new product development and speed to market to meet narrow market windows and short product lifecycles, whereas the aerospace industry concentrates its efforts on product extension (new features, higher quality, and lower cost) due to the high risk and complexity of new product development and long product 2 life cycles. 6 Figure 4 Meanwhile, motor vehicle and motor vehicle parts manufacturers focus on product extensions in areas such as vehicle efficiency through platform and component improvements, weight reductions, and cost reduction through design and process optimization. Pharmaceutical manufacturers’ product extension strategies include developing drug delivery system variants 7 and new combinations for improved efficacy. In some industries, such as fabricated metal manufacturing, where product differentiation is based largely on price, firms focus their R&D and engineering resources on increasing efficiency of production 2 processes to reduce costs. Small = 20-99 employees; medium = 100-499 employees; and large = at least 500 employees. 3ProduCt design, reseArCh And develoPMent In terms of new product commercialization, the Canadian manufacturing sector is at the forefront. Between 2007 and 2009, 43 percent of Canadian manufacturers introduced new product innovations, compared to 13 percent of all other industries. In addition, nearly as many manufacturers (22%) introduced new service innovations to complement their product offerings 6 compared to firms in other industries (25%). Canadian aerospace manufacturers are developing new and improved products in many areas such as advanced aircraft structures (fuselage and wing components, horizontal and vertical stabilizers, and subassemblies), avionic systems, and critical engine systems and components. The chemical industry also invests in PDR&D to formulate biochemical and green products, 2 and speciality chemicals developed on a customer basis (Figure 5). 6 Figure 5 Motor vehicle parts manufacturers focus new product development efforts in areas such as advanced powertrain components, lightweight and bio-materials, and thermoplastic composites and parts. Meanwhile, motor vehicle manufacturers put effort towards developing chassis and body sub-systems, fuel cell technology and hybrid electric technology. The industrial electronics industry places significant focus on new product development, with over 60 percent of firms introducing new 6 products between 2007 and 2009. In this industry, manufacturers are designing electrical systems and hardware for products such as carrier-grade telecommunications equipment, embedded microprocessors, and digital signal processing equipment. In addition, some manufacturers offer mechanical, structural and thermal design solutions for enclosures that encompass a wide range of plastic, metal and other material technologies (Table 1). 2 Table 1: Examples of product innovation, by industry industry Product extension new Product innovation Motor Vehicle • Product testing and r&d to improve noise, vibration and harshness• next-generation engines, transmissions and drivelines design • r&d and engineering to optimize designs to achieve cost and • Hybrid electric vehicle technology development weight targets and improve functionality • new platform development • Fuel cell technology Motor Vehicle Parts• cost reduction through process innovation and developing state-• advanced powertrain components (energy-efficient engines, of-the-art production systems transmissions and drivelines) • Product testing to improve durability, operational performance and • thermoplastic composites and parts strength • lightweight and bio-materials to improve efficiency and environmental impact “All other industries” includes: agriculture, forestry, fishing and hunting; mining, quarrying, and oil and gas extraction; utilities; construction; wholesale trade; retail trade; transportation and warehousing; information and cultural industries; finance and insurance; real estate and rental and leasing; professional, scientific and technical services; management of companies and enterprises; and administrative and support, waste management and remediation services. 4A CAnAdiAn MAnuf ACturing PersPeCtive 2 Table 1: Examples of product innovation, by industry (cont.) industry Product extension new Product innovation Aerospace• composite and lightweight components • new major platforms development • Platform extensions for multiple purposes • advanced engine and subsystems development • noise pollution and fuel efficiency• avionics development • optimizing maintenance tasks and improved aesthetics • enhanced cost reduction strategies for extremely low-volume, • electrical and hardware design for products such as large high- Industrial Electronics high-mix manufacturing speed, carrier-grade telecommunications equipment, embedded microprocessors • Multiple platforms for different industry applications, such as telecommunications, aerospace, defence, automotive and • Mechanical, structural and thermal design solutions for enclosures consumer electronics that encompass a wide range of plastic, metal and other material technologies Pharmaceutical• Product extension through the introduction of drug delivery system • development of new pharmaceutical products through drug variants (prolonged release formulations) candidate selection, pre-clinical and phase i (first human administration), phase ii (target population) and phase iii (large • new combinations with other drugs for improved efficacy and new sample of up to several thousand patients) clinical trials indications An increasingly common method for manufacturers to develop product innovations is through open innovation. In Canada, 6 24 percent of manufacturers stated that product innovations were mainly developed with the support of outside organizations, such as supply chain partners and research institutions. Evolving customer requirements and increasing global competition are driving manufacturers to look for partners to share knowledge and capacity, allowing them to innovate more quickly and to 8 share product development risks (Figure 6). 6 Figure 6 The degree of collaboration varies by industry. For example, many pharmaceutical firms (42%) develop new products with input from external organizations such as other pharmaceutical companies, research laboratories, and universities. Several aerospace and automotive parts manufacturers develop new products with external involvement. In these industries, firms make use of centres of excellence, university research partnerships and research institutes, and also work with other firms 2 within the supply chain to leverage PDR&D efforts. Open innovation within the context of PDR&D enables Canadian manufacturers to more easily gain and integrate needed product knowledge from external partners and to effectively introduce products with greater commercial potential. In order to do so, Canadian manufacturers first identify which partners (customers, suppliers, and competitors) to collaborate with in an open innovation process, and then design methods and tools to collect and effectively integrate information into their 9 PDR&D processes. Open innovation includes sourcing and integrating external knowledge of customers, suppliers, universities and research organizations, and competitors, as well as gaining revenue from un-commercialized IP portfolios. 5ProduCt design, reseArCh And develoPMent Product design, research and development Business models Intensified global competition is driving Canadian manufacturers to adapt their business processes and activities to effectively develop commercially viable products. This includes revising their business models in order to better access and manage 10 multidisciplinary and globally distributed knowledge that has increased the complexity of PDR&D. The majority of Canadian manufacturers perform R&D activities in Canada, regardless of head office location. In addition, a high percentage of manufacturers perform product engineering activities in Canada (80%), with no substantial difference between Canadian-owned and foreign-based firms (Figure 7). This is, to a certain extent, due to the fact that these activities are linked to 2 the later stages of product development closer to production, which is the core business operation of manufacturers. 6 Figure 7 Despite the fact that PDR&D business models vary across industries and firms, some of the most influential factors that affect manufacturers’ decisions to perform these activities in a specific location are similar. Access to talent and embedded knowledge, innovative environments (e.g., clusters), financial incentives, general operating costs, proximity to other core 11 business operations and customers, and level of IP protection are several examples. However, Canadian manufacturing firms generally make decisions related to R&D focus on a per-project basis, and units within the same company compete for product 2 design mandates. The degree of foreign parent involvement in R&D decisions differs by industry and is closely linked to the level of foreign ownership (Figure 8). For many manufacturers, R&D decisions for new product mandates are primarily made by the global head office. Conversely, product extension decisions mostly occur at the plant level where R&D and engineering activities that 2 focus on enhanced cost reduction are mainly performed. The higher level of foreign parent involvement in the pharmaceutical industry reflects the need for central coordination of long-term drug development conducted in treatment-specific R&D and 2 production facilities around the globe. 6 Figure 8 6A CAnAdiAn MAnuf ACturing PersPeCtive While keeping core PDR&D activities internal, global manufacturers coordinate PDR&D efforts between business units 12 and supply chain partners, and form strategic alliances and joint ventures. Global manufacturers invest in PDR&D activities in multiple countries, set up cooperation agreements and technological alliances, and outsource PDR&D activities to 13 service providers. When a manufacturer integrates a global PDR&D strategy into its overall business planning, production, operations, logistics and marketing implications must be considered to assess the potential benefits and costs of internalizing or outsourcing 14 specific PDR&D tasks. Manufacturers can then develop their deployment strategies to determine the mix of options to pursue 2 (Figure 9). Typically, manufacturers centre their deployment strategies around their main production activity. 2,14 Figure 9 Accessing new sources of product innovation outside the company, increasing design capacity, and accessing specialized skills from the global workforce and new markets are among the top drivers for conducting global PDR&D. Large manufacturers also typically leverage local expertise or capabilities to adjust product offerings to comply with local requirements or 2 customer preference. It should be noted that gaining the full benefits of a global PDR&D strategy in an efficient and cost-effective way can be challenging. North American manufacturers must manage the impact of changes across dispersed teams and ensure quality standards of design are maintained, while retaining company knowledge of product design decisions and protecting 15 IP (Figure 10). 15 Figure 10 7ProduCt design, reseArCh And develoPMent To meet these challenges, manufacturers assess a number of factors when developing their global PDR&D strategies. Among these considerations are the type of management and project planning systems in place, the sophistication of the information and communication technology environment (a reliable information system is required so that design information is secure and accessible from any location), the level of process modularity (method to split development work to be distributed globally), the degree of product modularity (design of subsystems that can be completed by teams in different locations and then integrated into a final product), the firms’ collaborative culture (ability of design teams in different time zones and with different cultural 14 practices and languages to work together efficiently) and the IP protection strategy adopted. Overall, Canadian manufacturers internalize core R&D activities to maintain ownership over project directions, timelines and 2 outcomes, but leverage external expertise or capability for specialized functions. In Canada, the majority of manufacturers (70%) conduct R&D activities in-house regardless of the size of firm (Figure 11). 6 Figure 11 Large manufacturers outsource R&D activities to partners located in Canada and abroad at a similar level (10%). Medium- sized and small Canadian manufacturers with a limited global footprint tend to favour local business partners in their R&D outsourcing strategies. Outside of Canada, more than twice as many large Canadian manufacturers (30%) perform R&D activities compared to medium-sized firms (14%) and small firms (5%) (Figure 11). For product engineering activities, 6 manufacturers adopt a similar pattern. With more than 90 percent of firms with more than 250 employees conducting R&D in Canada, the aerospace and industrial electronics industries have the highest percentages of manufacturers developing their products in-house in Canada (Figure 12). 6 Figure 12 Small = 20-99 employees; medium = 100-499 employees; and large = at least 500 employees. 8A CAnAdiAn MAnuf ACturing PersPeCtive In the aerospace and automotive industries, original equipment manufacturers (OEMs) increasingly specify overall system requirements and then delegate to their suppliers the responsibility to engineer and design a component or sub- system. Typically, advanced R&D for strategic components such as hybrid powertrain systems or composite wings is 2 performed internally. canadian investment in research and development capacity Research and development has become increasingly mobile over the past decade, with large multinational firms creating global 16 R&D networks to adapt products to local markets, acquire assets and gain knowledge. Manufacturers’ decisions to invest in R&D and product engineering facilities are complex. When deciding to expand capacity in Canada or abroad, firms weigh several strategic factors, such as the skilled workforce of a region, IP protection, culture and regulatory environment, market 16 size and growth potential, presence of clusters, suppliers and centres of excellence, and the need to access foreign markets. Large multinational manufacturers are establishing R&D and product engineering facilities in multiple locations worldwide. Firms generally invest in two types of global R&D: adaptive and asset-seeking. Adaptive R&D aims to adjust product offerings to local market conditions; it tends to be closely related to production activities and is required to ensure that products meet customers’ needs and that time to market is minimized. Asset-seeking R&D investment aims to acquire strategic assets such as new technologies and to gain access to expertise. With this type of investment, manufacturers generally consider supply- 16 related factors in locating R&D facilities. In Canada, between 2007 and 2009, more than twice as many Canadian manufacturing firms opened a new R&D facility or expanded capacity than those that reduced R&D capacity, with a greater percentage of large firms expanding compared to small and medium-sized manufacturers (Figure 13). 6 Figure 13 Investment in R&D facilities and capacity in Canada varies by manufacturing industry. For example, 22 percent of motor vehicle manufacturers opened R&D facilities between 2007 and 2009, with some firms focusing on powertrain dynamometer 2 research, fuel cell testing, and R&D on a broad range of advanced production and prototype engine technologies. Conversely, the evolving business model in the auto parts manufacturing industry has led to some firms focusing more on a build-to-print 2 business model (Figure 14). Small = 20-99 employees; medium = 100-499 employees; and large = at least 500 employees. 9ProduCt design, reseArCh And develoPMent 6 Figure 14 Firms in the aerospace industry have increased R&D capacity almost solely through organic expansion, while firms in the pharmaceutical manufacturing industry have expanded R&D capacity to focus on new drug discoveries. Industrial electronics manufacturers are expanding R&D capacity — in many cases with university collaboration — to focus on the development of next generation electronics such as micro-electromechanical systems for silicon chips and electrical and hardware design for 2 products such as carrier-grade telecommunications equipment and embedded microprocessors. From 2007 to 2009, a greater percentage of manufacturers opened new R&D facilities or expanded capacity than those that reduced R&D capacity, regardless of head office location. Meanwhile, a greater percentage of manufacturers with Canadian head offices expanded R&D capacity compared to their foreign counterparts (Figure 15). 6 Figure 15 In addition to investing in PDR&D capacity in Canada, close to 10 percent of large manufacturing firms obtained R&D and engineering capacity internationally through mergers and acquisitions during the 2007-2009 period (Figure 16). Organic investment is generally chosen for adaptive R&D that is closely linked to production. Mergers and acquisitions are a common 2 method of expansion and technology sourcing, asset-augmenting R&D, and footprint expansion. Small = 20-99 employees; medium = 100-499 employees; and large = at least 500 employees. 10A CAnAdiAn MAnuf ACturing PersPeCtive 6 Figure 16 In terms of international investment in R&D capacity, manufacturers consider many factors. For example, with high-growth opportunities in emerging economies, some manufacturers invest in R&D capacity to support global product platforms and 17 local product requirements. intellectual Property strategies Product design, research and development generates information that is vital for commercial success, and that information needs to be managed and protected effectively. Canadian manufacturers are developing and implementing proactive IP strategies, aligned with innovation and business strategies, to maximize the potential value from the information generated 2 by the PDR&D process. Addressing IP considerations from the initial stages of PDR&D, continuously assessing the product’s IP status, and determining what IP tools are most appropriate at each stage are key elements to an effective IP strategy (Figure 17). Equally important in IP strategies is defining how product information (e.g., specifications, design data, embedded 2 technologies) is protected, both internally and in teams that involve external partners. 18 Figure 17 11ProduCt design, reseArCh And develoPMent During the product idea generation stage of the PDR&D process, treating initial concepts and related information as trade 19 18 secrets is a key protection tool utilized by Canadian manufacturers until other IP tools may be used. In addition, trade secrets play an important role for product specifications and related information — including technologies and manufacturing 20 processes — which firms often decide to keep confidential throughout a product’s life cycle. In general, secrecy is a major 21 element of a firm’s IP strategy and is often considered more important than formal IP tools such as patents. Confidentiality agreements (non-disclosure agreements) that specify penalties for non-compliance are another important measure to protect trade secrets covering product specifications that result from PDR&D performed both within the firm and in an open 2 innovation process. Manufacturers use multiple sources to generate product ideas. One source is global IP databases that provide information on what products competitors are developing. IP databases can also yield technical details of a previously developed technology 18 or manufacturing process that is relevant to a product under development. IP databases are helpful for manufacturers to assess the risks of potential infringement on other organizations’ IP rights from the idea generation phase through to the end of the PDR&D process. In the product development stage, Canadian manufacturers utilize many IP tools to protect the increasing amount of product information generated and to facilitate collaboration with partners. For example, many manufacturers register industrial designs in the product development stage to protect the visual features of products and extend the protection afforded by patents. 18 Additionally, industrial design protection is well adapted to redesigns performed in the context of product extensions. When performing PDR&D in open innovation partnerships, manufacturing firms specify IP ownership at the onset of projects and use confidentiality agreements to facilitate collaboration and maximize the potential value of R&D investment. An emerging trend within an R&D partnership with universities, service providers or suppliers is to assign the IP rights of the business application of the technology to the user (e.g., a manufacturer), while the developer (e.g., a university) retains the IP rights to the specific technology. This includes the rights to commercialize the product for clients who are not competing with the user, notably in technological applications in other industries. The increase in open innovation partnerships is also changing 8 firms’ willingness to commercialize IP by licensing, assigning or acquiring IP rights to technologies. Assessing IP portfolios for 22 potential revenues through licensing or assigning IP rights is another element of a proactive IP strategy. Marketing considerations are also an integral part of a firm’s IP strategy. In the early stages of developing the visual and textual elements of a new product’s brand (i.e., logos, product names and slogans), a proactive approach includes assessing whether those elements may be registered and used as trademarks by examining available trademark information. Trademarks help support a firm’s marketing strategy by differentiating its products from its competitors while leveraging the product’s 18 established name beyond the length of its patent coverage. Equally important in the early stages of product innovation is the assessment of the availability, and the subsequent registration, of Internet domain names related to a product’s branding 2 elements to help maximize the advertising footprint. Finally, firms generally seek IP protection for geographic areas where they plan to sell their products. Ensuring that available IP protection tools are applied according to a firm’s own strategy by the time the product is launched is crucial to protect and leverage the investment made in the PDR&D process. After the product is launched, monitoring the IP environment and taking action when infringement occurs is another element of a firm’s IP strategy to help retain its 2 competitive advantage. Even though firms in the industrial electronics and the pharmaceutical manufacturing industries rely on multiple IP protection tools, the use of patents dominates both industries. Industrial electronics firms typically rely on a large number of patents, 23 whereas pharmaceutical firms tend to rely on fewer, but potentially extremely valuable, patents. In both industries, patents are often subject to challenges by competing firms. The cost of such challenges may be seen as an obstacle to innovation by some pharmaceutical firms and, to a lesser extent, industrial electronics manufacturing firms (Figure 18). However, 55 percent of Canadian manufacturers that indicated IP protection as an obstacle to innovation were able to implement successful 6 mitigating measures. Trade secrets are usually formulas, patterns, compilations, devices, processes, codes, and data that are specific to its owner, that give a firm a business advantage over a competitor, and that are kept secret or confidential. 19 A patent gives the right to exclude others from making, using or selling an invention. 12A CAnAdiAn MAnuf ACturing PersPeCtive 6 Figure 18 6 When pursuing export markets, 16 percent of Canadian manufacturing firms indicate that IP violation is a significant obstacle. For pharmaceutical and aerospace manufacturers, this issue is particularly critical (Figure 19). For instance, counterfeit 2 replacement aerospace parts entering the supply chain are significant concerns for maintenance operations. 6 Figure 19 In response to potential IP violations, some firms rely on speed to market instead of formally registering IP to leverage the competitive advantage of new product innovation and product extensions. Costs and requirements of multi-jurisdiction IP 2 registration and, more importantly, the defence of IP are barriers for manufacturers exporting new products. Best-in-class analysis — intellectual Property Protecting design specifications is an important aspect of safeguarding product information generated during product innovation performed both within a firm and in open innovation partnerships. Overall, Best-in-Class (BiC) firms are in a better position to protect IP resulting from their PDR&D initiatives. In open innovation partnerships, BiC firms are more likely to limit the information (e.g., product specifications and design data) shared with external partners to the level required for the portion of the product those partners are developing (Figure 20). BiC firms are the top 20% performers in the following three metrics: percentage of products launched/delivered on time; increase in product revenue since engaging in a global PDR&D initiative; and decrease in PDR&D costs. Laggards represent the bottom 30% of firms benchmarked to the same metrics. 13ProduCt design, reseArCh And develoPMent 24 Figure 20 Another solution is to ensure that the level of access to product design specifications (whether a user can view the specifications) is defined according to functional roles in the enterprise. BiC firms are twice as likely to implement such a 24 solution, compared to laggards. BiC firms also distinguish themselves by the implementation of defined standards for providing product design data to other business units. For example, sharing the visual representation of a product design 24 instead of a complete data file is a measure implemented by BiC firms. advanced t echnologies and Process adoption In response to competitive pressures, Canadian manufacturers are seeking to reduce development time for new products while implementing extension strategies for their current products through a combination of new features and cost reductions. To that 24 end, firms are optimizing product innovation by implementing new processes and adopting new technologies. The adoption rates of advanced computerized design and engineering technologies between small, medium-sized and large Canadian manufacturing firms do not differ substantially (41%, 45% and 50%, respectively); however, specific advanced technology applications do vary by industry. For example, motor vehicle manufacturers are adopting computer assisted 2 engineering tools that enable simulation and virtual testing as part of their Virtual Product Development strategies. In general, more than 60 percent of firms in the motor vehicle and industrial electronics industries use advanced computerized design and engineering technologies (Figure 21). 6 Figure 21 Rapid prototyping techniques are also being used to accelerate the product innovation process. Firms are using additive manufacturing methods such as 3D printing to produce prototypes suitable for aerodynamic testing purposes in a significantly 25 shorter time frame, since the need for tooling is eliminated. Small = 20-99 employees; medium = 100-499 employees; and large = at least 500 employees. Advanced technologies are new technologies that perform a new function or improve some function significantly more than commonly used technologies in the industry or by competitors. 14