A new era for industrial R&D in Japan

Hiroshi Odawara and André Rocha, both partners in McKinsey’s Japan's office, address the company-level factors that may be hampering the success of industrial R&D in Japan, and where Japanese companies have the opportunity to close gaps between their current R&D practices and those of today’s highest-performing global R&D organizations.

What does R&D look like today, and where are the biggest opportunities for the future?

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Hiroshi Odawara: In Japan, R&D has been developing on the basis of optimizing technology.

Motorcycles, cars, cameras, medical equipment, all these things are products of a process of integrating technologies. All these products are produced by drawing up a detailed plan, combining complex modules, and optimizing them.

Japan used to be highly competitive in this field. But looking at the recent situation of Japan’s R&D, it can be said that it is not so highly competitive anymore. Actually, development has become less efficient, so for example, if we look at the number of new patents, it can be said that Japan is lagging behind China.

Currently, 3 percent of Japan’s GDP is invested in R&D but regrettably, this huge investment is not efficiently utilized. But I’m convinced that Japan has great potential. In effect, international best practices and new methods, for example the use of digital tools, and the creation of ecosystems in collaboration with other companies for addressing difficult issues, thanks to these approaches Japan’s R&D will be able to achieve significant results, I think.

However, in order to make this happen, we must not just blindly implement these approaches. It is necessary to consider these many best practices, especially development processes and R&D personnel, the type of personnel to be developed.

We must take a deeper look at these fields and think about what we should focus on.

What will it take for Japanese firms to achieve R&D excellence moving forward.

André Rocha: From our many discussions and interviews with major Japanese companies, we identified several main challenges that may hamper the success of Japan’s R&D organizations and their ability to reach the level of other top performing global R&D units.

So let me briefly talk about three of those challenges. The first one has to do with digital and analytics. Digitizing an R&D organization, bringing digital solutions to facilitate the work of engineers, and applying advanced analytics to solve engineering design or quality problems is a significant challenge in its own right.

It’s of course a technology challenge, but it’s even more a challenge related to managing the change. Related to having R&D engineers adopting new digital processes or working methods or systematically acquiring and using data to support decision-making.

The second challenge is around R&D agility and speed. Historically, most Japanese R&D organizations have emphasized hierarchy and detailed planning before execution and the evidence we have from other places in the world shows that these behaviors can really undermine product development rather than support it. The companies that focus more on fast actuations and rapid prototyping have taken much of the lead from competitors that are still seeking perfection before releasing new products.

And then adding to this while Japanese R&D organizations tend to be very strong in each individual function or competence area, they often find it very hard to collaborate well across those functions and this leads to a significant impact on how fast they’re able to move.

The third big challenge is related to engineering talent. Japan’s talent crisis is looming, we have an aging population, we have an estimated shortage of almost a quarter-million skilled IT professionals. We have an exponential demand for some capabilities such as software engineering or project management.

You also have the fact that Japan ranks only 20th among the OECD countries when it comes to attractiveness for highly skilled talent.

So Japanese companies need to focus on transforming their employee value proposition, which means not only providing good compensation and rewards but providing also an exciting work environment, inspiring leaders and a stimulating and purposeful job.

And this is what will make engineering talent want to stay with the company.

What should CTOs and R&D leaders be thinking about if they want to remain competitive in the future?

Hiroshi Odawara: According to our research, by utilizing these kinds of best practices, it would be possible to increase efficiency by 30 percent and make a difference of 1 to 2 trillion yen. By devoting this sum of money to R&D, I think it will be possible to achieve significant results.

I believe the future of Japan’s R&D is very bright. But management’s strong will to actively introduce new approaches and a culture open to these new methods will be necessary to achieve it.

André Rocha: Chief Technology Offices and Heads of R&D can start by answering questions like:

Which facts and hard data do we use to define our R&D portfolio? What are the top five issues slowing down our R&D projects, or How many R&D tasks have we already optimized with digital and analytics?

It’s important that they can answer these and other questions so that they are able to drive their engineering organizations to become truly world-class.

Japanese companies used to lead the world in research product development and Innovation. We strongly believe that they can regain that leadership position if they take the right set of actions.

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