People solutions for R&D. (The Human Side).

Sibson Consulting and the Industrial Research Institute (publisher of Research * Technology Management) have conducted a study of 114 R&D organizations contained within major U.S. industrial companies. The survey focused on people issues and solutions that are unique to R&D. The survey

Top R&D Issues

Nearly one out of three participants in the study, which was completed in January 2002, cited getting more innovation from employees as their top human capital concern. Employee turnover was the primary concern of R&D leaders two years ago. While turnover is still a concern, cited by 11 percent of respondents, most R&D leaders are focusing their attention primarily on retaining individuals with key skills rather than on retaining mass numbers of R&D professionals (see chart, next page).

These results show a dramatic shift in the R&D world over the last few years. During the economic boom of the late 1990s many companies were expanding their operations to keep up with demand and growth. The number one human capital concern for R&D organizations then was how to attract and retain top talent in order to support this growth. Now, R&D organizations have seen the full effects of the economic downturn and are experiencing a slowing of growth or reduction in their workforce. In fact, nearly 50 percent of reporting organizations cited that their organizations reduced R&D professional headcount in the last fiscal year.

Survey findings provide further evidence that U.S.-based organizations are experiencing a widening gap in cultivating innovative employees. While nearly 70 percent of survey participants think they have a work culture that encourages innovation and 80 percent of respondents believe they retain almost all of their top performers, only 25 percent actually express that their organizations have enough technical/scientific R&D employees with leading-edge skills. Companies may think that they have established a work environment that supports innovative employees, but they still do not have enough ways to attract top talent and keep employee skills up to date.

The skill gap is occurring across industries. Eighty-two percent of survey respondents reported that they would need more scientific/technical professional talent in the next 2-3 years and 66 percent believed that they would need professional R&D talent with significantly different skill sets over the same time period. As R&D organizations look at upgrading their R&D talent, they will need to ensure that their recruitment and retention strategies reinforce the rewards that are most valued by R&D professionals.

What R&D Professionals Value

Several key survey findings indicate how much the R&D world and workforce differ from other types of organizations. Productivity and cost reduction reign as the people priorities in other functions such as sales and operations. However, in R&D labs, issues such as innovation, leading-edge skills, discovery and collegiality are the drivers of success through people.

For example, a performance measurement system that drives the right behaviors for sales people may be just the wrong system for scientific staff that must focus on managing complex, long-term projects and continually upgrading skills and knowledge. R&D organizations, therefore, require different approaches for structuring jobs, rewards and the work environment for technical/ scientific employees.

Respondents indicated that R&D professionals value the "work itself" more than other rewards. This was the most prevalent response for attracting (36 percent of respondents) and retaining (43 percent of respondents) R&D professionals. Additionally, R&D leaders believe that providing R&D professionals an environment where they can work in teams is the most effective method for obtaining high performance from R&D talent (30 percent of respondents).

R&D leaders also indicated that R&D professionals:

* Tend to stay if an organization provides long-term career opportunities (20 percent of respondents cited this as the most effective factor for retention); having a clear technical ladder for R&D talent is especially important.

* Consider a unique work culture to be another important factor in attracting (14 percent of respondents) and retaining (13 percent of respondents) R&D talent.

* Are not attracted or retained solely by cash compensation; only 2 percent of respondents cited cash compensation as the most effective factor in attracting R&D talent and 7 percent cited this as the most effective factor in retaining talent.

* Value a culture of high performance (24 percent) and setting stretch goals (16 percent) as additional methods for creating an effective R&D workforce.

The traditional stereotype is that R&D professionals would prefer to work in isolation, tackling problems by themselves. However, R&D professionals seem to be attracted to organizations that allow them to use their creativity in a cross-functional team environment. They want to work in a place where the culture is unique and encourages high performance. Those types of factors--creative environment, high level of teamwork and a culture of performance--are what drive performance in R&D.

HR Views

The study also looked at similarities and differences between the views of the business leaders of R&D units and their Human Resource counterparts within the same organization. The results indicated that both groups tended to see the same human capital priorities in many cases. Strong majorities in both groups agreed overwhelmingly, for example, that their organization would need more talent during the next three years, that line management is accountable for strengthening the talent pool and that their organization provides higher rewards for top performers than average performers. However, HR leaders were consistently more sanguine about the degree to which problems were being addressed than were their business leader counterparts. They were more positive on every measure. On some measures, the differences were stark:

* Some 71 percent of HR leaders believed that the organization "has the information it needs to manage talent like a product or financial asset," but only 29 percent of R&D business leaders agreed.

* Most HR leaders (76 percent) believed that the organization "has unique attributes that make it a magnet for the best talent," while only 45 percent of business leaders agreed.

* Nearly half (47 percent) of HR managers agreed that the organization "has enough professional technical/ scientific R&D employees with leading-edge skills," yet only 16 percent of R&D leaders agreed.

These differences in viewpoint indicate that the leaders of R&D units are much less convinced than are HR leaders that human capital issues are being addressed adequately.

Implications for R&D Companies

The survey results suggest several ways in which organizations can begin to address their talent gaps. We recommend that R&D organizations consider the following four approaches:

1. Create a distinctive employee value proposition for R&D to develop a work environment in which R&D talent can thrive.--An employee value proposition is what employees receive from a company in return for their services (for example, some companies emphasize highly challenging work, while others emphasize higher pay). Those organizations that have value propositions that emphasize the work itself and the unique work culture are at distinct advantage. R&D organizations need to find out what their employees value and then engineer the work experience to fit with employee values and drive innovation.

2. Look for opportunities to tie career advancement to leading-edge skills development and demonstration.--The old-style technical career ladder that was based on time in job or role is being replaced with new career systems that foster skills development and innovation. The idea of having a parallel track that allows scientists and engineers to advance without having to go into management is alive and well, since R&D professionals place a value on advancing without needing to give up their craft. But today the career track is based on demonstrated skill rather than automatic micro-advancement as in the past.

3. Form effective teams.--The work environment also plays a large role in producing a high-performing R&D workforce. As the survey indicates, teamwork is becoming more important in driving performance. Those organizations that can form effective and efficient teams may be better positioned to get the desired level of innovation they need, and reach it faster, to be successful.

4. Revise recognition systems for R&D staff.--Recognition systems for scientific/technical staff should be shaped to reinforce discovery, invention, collaboration. and other drivers of innovation rather than reinforcing cost reduction, customer satisfaction and other factors common in recognition and reward programs. Additionally, the nature of rewards may differ for scientific/ technical staff. Where other types of staff may be motivated by short-term cash rewards, scientists place more value in longer-term rewards such as stock options, increased discretion in technical decisions, increased budget, new tools, educational opportunities, and receiving recognition for presentations at important professional meetings.

In conclusion, R&D organizations that are successful at providing professional employees with stimulating career opportunities, rewards systems that foster creative thinking, and team-oriented work environments will be well positioned to produce higher levels of innovation in their workforce and a corresponding higher return on the R&D investment.

R&D leaders surveyed want more innovation.

Getting More Innovation                          30%
Recruiting the Best Talent                       19%
Getting People Focused on the Right Things       17%
Turnover of Top Performers                       11%
Gettig More Productivity                          8%
Upgrading Skill Sets                              6%
Other                                             4%
Removing Poor Performers                          3%
Reducing People Costs                             2%

Note: Table made from bar graph.

Jim Kochanski is a senior vice president with Sibson Consulting, a division of The Segal Company, in Raleigh, North Carolina. jkochanski@segalco.com

Paul Mastropolo was a consultant with Sibson when this article was written, and Gerry Ledford is a senior vice president with Sibson Consulting. gledford@segalco.com

Their article is adapted with permission from "Human Capital Issues in R&D," originally printed in Perspectives, a publication of Sibson Consulting, a division of The Segal Company.