Towards a richer understanding of the Valley of Death

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UNIVERSITY OF GRONINGEN

Master Thesis

Towards a richer understanding of

the Valley of Death

A qualitative research on the gap between research and

new product development

Name:

Joris Verhees

Study:

MSc BA Strategic innovation management

Student number:

s3024849

Supervisors:

Dr. Biemans & Dr. Huizingh

Word count:

13651

Abstract

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Acknowledgement

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Table of content

1. INTRODUCTION ... 4

2. LITERATURE REVIEW ... 6

2.1.RESEARCH AND DEVELOPMENT FOR NEW TECHNOLOGIES ... 6

2.2.VALLEY OF DEATH ... 7

2.2.1. Where does the Valley of Death begin and end? ... 8

2.2.2. What causes the Valley of Death? ... 10

2.2.2.1. Lack of resources ... 10

2.2.2.2. Fuzzy front end ... 11

2.2.2.3. Disjuncture between research and commercialization ... 12

2.3.CONCLUSION ... 13 3. METHODOLOGY ... 14 3.1.RESEARCH DESIGN ... 14 3.2.DATA COLLECTION ... 14 3.3.DATA ANALYSIS ... 15 4. RESULTS ... 17 4.1.INTRODUCTION ... 17

4.2.PROCESS FROM APPLIED RESEARCH TO NPD ... 18

4.3.CAUSES OF THE VALLEY OF DEATH ... 21

4.3.1. Investments ... 21

4.3.1.1. Investments in basic and applied research ... 21

4.3.3.2. Research investment approaches ... 23

4.3.3.3. Investments in technology development ... 24

4.3.2. Organizational factors ... 26

4.3.2.1. Different cultures... 26

4.3.2.1. Communication difficulties ... 26

4.3.2.3. Required champions ... 27

4.4.FIRMS’ PERCEPTION OF THE VALLEY OF DEATH ... 27

5. DISCUSSION ... 29

5.1.BOUNDARIES OF THE VALLEY OF DEATH ... 29

5.2.RESOURCE GAP ... 29

5.3.SKILL AND INSTITUTIONAL GAP ... 30

5.4.RESEARCH AGENDA ... 30

6. CONCLUSION ... 32

6.1.MANAGERIAL IMPLICATIONS ... 32

6.2.LIMITATIONS ... 33

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1. Introduction

Governments directly support technology research and development (R&D) in order to improve the country’s economic competitiveness in the global economy. Governments worldwide spend 1-5% of their GDP on R&D, and average expenditures of countries on R&D are increasing every year (Sheehan, 2005). Therefore, it is important to understand the linkage between government’s support of technology research and the actual economic activity it generates.

The goal of publicly funded research, conducted by universities and research institutes, is to create new technologies. Subsequently, companies are assumed to adopt them and further develop them into new products, services and processes. Companies need technologies for their new product development (NPD) process. NPD is a key instrument for companies to maintain their competitive advantage. Most of new products are incremental improvements of previous products. In this case, companies use existing technologies and infrastructures to create new products rapidly. The process is relatively cheap and revenues are ensured through a market pull approach. Hence, it is easy to get management support for such activities. Next to incremental improvements, companies develop products based on complete new technologies. This contains higher risk, because development processes and market responses are uncertain. However, since these newly developed products are radically novel, they have the potential to result in high financial returns and strong market positions. Therefore, companies need to understand how technologies can be selected, developed and used for their NPD process.

Research shows that the willingness of companies to adopt technologies and further develop them is limited (Auerswald & Branscomb, 2003; Wessner, 2005; Frank et al., 1996; Jenkins & Mansur, 2011). This results in a gap, referred to as the Valley of Death. The left peak of the valley depicts the resources and activities poured into research, which leads to new technologies. The right peak of the valley shows the resources and activities poured into the development of new products. Markham (2002) composed a figure to illustrate this gap (see figure 1).

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Scholars investigated the variables that influence the expenditures in R&D projects (Osawa & Miyazaki, 2006), the sources of funding per activity from research to NPD (Ford et al., 2007; Auerswald & Branscomb, 2003) and the governmental policies regarding technology investments (Jenkins and Mansur, 2011). Besides, research is done regarding organizational factors that have impact on the transition from technology to NPD. Scholars elaborate on the required mix of scientific and commercial expertise (Barr et al., 2009; Markham 2002; Markham et al., 2010; Roberts et al., 2012) and organizational structures (Hudson & Khazragui, 2013).

Research about the Valley of Death is fragmented and confusion exists about what the Valley of Death really is. Firms use different definitions for the Valley of Death and show varied positions as to where the Valley of Death exists. The goal of this study is to provide clearness about the Valley of Death. This study creates consensus about the definition of the Valley of Death, where its boundaries are and what the underlying mechanisms are. Consensus between scholars is important in order to make further research more focused and effective. At the end, a research agenda is composed to provide some guidance. This research is conducted based on the following research question:

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2. Literature review

In this chapter, technology and types of research will be defined. Subsequently, literature about the Valley of Death will be analysed.

2.1. Research and development for new technologies

Technology

Technology is defined as knowledge intended for "use” (Capon & Glazer, 1987), also referred to as "know-how". Relating to companies, technology is the information required to produce a product or service. This definition distinguishes technologies from products. Products are the embodiment of technology. Technologies should also not be confused with innovations. Innovation is the commercialisation of inventions, whereas technology is an antecedent of innovation, but is in itself not concerned with commercialisation.

Research and development

Research and development (R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge and to come up with new applications of available knowledge. R&D may be conducted by firms, universities and institutions. In order to be classified as R&D, the activity must meet five criteria: novel, creative, uncertain, systematic and transferable and/or reproducible. A distinction can be made between three types of R&D: basic research, applied research and experimental development (Fransaci Manual, 2015).

Basic Research

Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of observable facts (Gulbrandsen & Kyvik, 2010). A distinction can be made between pure basic research and oriented basic research (Fransaci Manual, 2015). Pure basic research is not conducted for any specific application or use. This research is normally publicly funded and conducted in universities and non-profit research institutes. Oriented basic research has a certain direction for applications in mind, for example energy savings. Oriented basic research may also be done by business enterprises because possible applications are conceivable. Although companies have a direction in mind, the applications are not concrete or specified in oriented basic research.

Applied research

Contradictory to basic research, applied research is primarily directed towards a specific, practical aim or objective (Fransaci Manual, 2015). It uses available knowledge and extends it in order to solve actual problems. In the business enterprise sector, applied research is often the exploration of promising results of a basic research programme. Applied research gives operational form to ideas. The vision of the research moves from a long-term to a medium term perspective. The outcome of applied research is a technology from which the application is proven on a laboratory scale.

Technology development

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applied under new circumstances, with other materials and equipment. In order to make the technology usable for new product development, technology development is needed. Technology development can be divided into experimental development and pre-production development (Fransaci Manual, 2015). As long as technology development meets the R&D criteria novel, creative, uncertain, systematic and transferable and/or reproducible, it is classified as experimental development. The ‘D’ in R&D stands for experimental development. For instance, a product can potentially be developed with one of three existing technologies. The technologies are experimentally developed in order to make them ready for that specific product. After this experimental development, the technologies will be evaluated and the most suitable will be used for the NPD process. In some industries (e.g. aerospace, defence, semi-conductor) additional non-experimental technology development is needed to make the technology ready for production. Next to experimental development, some components have to be further developed, without having the criteria of R&D. The outcome of technology development are proven technologies on production scale. Subsequently, the technology can be used for NPD.

How to differentiate?

In order to clarify the differences between different types of R&D, an example from the Frascati Manual (2015) will be used. The manual presents the following example on how the boundaries should be drawn in the natural science:

The study of a given class of polymerisation reactions under various conditions is basic research. The attempt to optimise one of these reactions with respect to the production of polymers with given physical or mechanical properties (making it of particular utility) is applied research. Experimental development then consists of “scaling up” the process that has been optimised at the laboratory level and investigating and evaluating possible methods of producing the polymer as well as products to be made from it (p.

53).

The different types of R&D often overlap and are interrelated. New solutions often require basic research as well as applied research and can be conducted by the same person. Moreover, Gulbrandsen & Kyvik (2010) show in their research that the terms for different types of research are open to interpretation, which makes the distinction blurred. Stokes (1997) has also made criticism of the definitions of R&D. He argues that the transition from long term basic research to medium-short term applied research or experimental development is not as linear as generally assumed. Feedback from applied or experimental development can result in new basic research. Therefore, different types of R&D have to be seen within a dynamic perspective.

2.2. Valley of Death

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enough along to form the basis for a business plan.’ Ford et al. (1996) argue that the Valley of Death is located ‘where a welfare-maximizing process fades and a private profit-maximizing process steps to the forefront’. Markham (2002) composed a figure that shows the availability of resources through different levels of development (see figure 1). Scholars have noticed that in between those peaks there is a lack of resources, skills and structure (Auerswald & Branscomb, 2003; Wessner, 2005; Markham et al., 2010; Jenkins & Mansur, 2011). The Valley of Death results in unused potential, since technologies are not further developed and exploited. Yet, this is not perceived as a problem by companies when they are still doing great in their competitive environment. However, seizing those opportunities could significantly increase the competitive position of firms. On top of that, governments would like to see their funding in basic research result in economic growth and public welfare (Auerswald & Branscomb, 2003). Therefore, there is common understanding in the literature that the Valley of Death is a problem that should be addressed. However, there is no universal view on where the Valley of Death starts, where it ends and what the underlying causes are. In order to create consensus, the literature will be analysed and in the end a definition of the Valley of Death will be composed.

2.2.1. Where does the Valley of Death begin and end?

Scholars mention that the Valley of Death is concerned with turning inventions into innovations (Jenkins and Mansur, 2011; Auerswald & Branscomb, 2003; Ford et al., 2007; Markham, 2002; Markham et al., 2010; Wessner, 2005; Barr et al., 2009; Roberts et al., 2012; Osawa & Miyazaki, 2006; Hudson & Khazragui, 2013; Frank et al., 1996). Due to these broad terms, confusion exists about where the Valley of Death exactly starts and where it ends. Papers that elaborate on the Valley of Death are analysed and their definitions and descriptions are compared. Scholars use different areas for the Valley of Death. Figure 2 shows the boundaries of the Valley of Death according to the different papers.

Research New product development Product launch Success as a business ←---→

Jenkins and Mansur (2011), Auerswald & Branscomb (2003), Ford et al. (2007), Markham (2002), Markham et al. (2010), Wessner (2005) ←--- ---→ Barr et al. (2009) Roberts et al. (2012) ←--- --- ---→

Osawa & Miyazaki (2006) Hudson & Khazragui (2013) Frank et al. (1996)

Figure 2. Boundaries of the Valley of Death

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Other scholars argue that the valley of death is crossed if the returns of a project have exceeded the breakeven point and it can therefore be seen as a successful business (Osawa & Miyazaki, 2006; Hudson & Khazragui, 2013; Frank et al., 1996). However, the problems that the papers discuss are mostly directed to the phase where research comes to an end and formal NPD has not started yet. As Markham (2010) mention in his research: “The Valley of Death is the gap between the formal roles, activities, and resources poured into research and the existing formal NPD roles, activities, processes, and resources that lead toward commercialization.”

Starting point

Scholars often refer to the end of research as the starting point of the Valley of Death (Hudson & Khazragui, 2013; Roberts et al., 2012). Research results in new technologies that are proven by functional prototypes (Auerswald & Branscomb, 2003; Frank et al., 1996; Markham, 2002). Wessner (2005) and Ford et al. (2007) stressed that at that point federally funded research, that aims to increase welfare, comes to an end and moves into private profit-maximising funding. Related to the different types of research, scholars do not specify whether the Valley of Death starts after basic research or applied research. On top of that, they do not elaborate on who conducts the research. Scholars mention ‘research’, but do not make a distinction if it is conducted by universities, research institutes or business enterprises.

Ending point

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2.2.2. What causes the Valley of Death?

A distinction can be made between two different literature flows of articles. On the one hand, literature stresses the availability of resources in the Valley of Death. On the other hand, literature elaborates on organizing the Valley of Death. An overview of articles in these two literature flows is given in table 1. Literature suggests that resources and, in a complementary fashion, a supportive organised environment are needed to bridge the Valley of Death. Articles that focus on the resources elaborate on the considerations business enterprises make when they decide to invest in new technologies. If it is not interesting for investors to invest in this area, this will lead to a lack of resources and consequently an increase in unexploited potential. However, having sufficient resources by itself is not enough to drive technologies through the Valley of Death. Skilled organizations are needed to give the right direction to these projects.

Paper about the Valley of Death Topic of interest

Availability of resources

Jenkins and Mansur (2011) Investment decisions in the Valley of Death and government interventions

Auerswald & Branscomb (2003) Sources of funding in different activities concerned with the transition from invention to innovation

Ford et al. (2007) Investment decisions in the Valley of Death

Wessner (2005) Investment decisions in the Valley of Death and government interventions

Frank et al. (1996) Investment decisions in the Valley of Death and government interventions

Osawa & Miyazaki (2006) Variables that influence the expenditures in R&D projects

Organizational factors

Barr et al. (2009) Skilled people Markham (2002) Informal roles Markham et al. (2010) Informal roles

Roberts et al. (2012) Translational research, skilled people Hudson & Khazragui (2013) Translational research, collaboration

Table 1: Papers about the Valley of Death

2.2.2.1. Lack of resources

High investments of governments in basic research result in many technologies. Subsequently, it is the task of the private industry to invest in these technologies and use them to create new products or improve existing products. However, literature shows that these investments are not very attractive due to the risk that comes with information asymmetry and long development times.

Information asymmetry

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commercial rather than scientific (Ford et al., 2007). When the investment opportunities are concerned with technical knowledge, investors have insufficient skills to quantify them (Auerswald & Branscomb, 2003), therefore investors will demand a high premium on their funding. The greater the information asymmetry, the higher the risk premium (Ford et al., 2007).

Governments have taken some actions to remove this information asymmetry, so that basic research is better adopted by the private sector. Examples are awards to highlight technologies with high potential to investors (Wessner, 2005) and regional innovation clusters to connect researchers with market players and stimulate information exchange (Jenkins and Mansur, 2011).

Long development times with uncertain performance

Technology development is often concerned with long development times, especially in certain sectors, like the pharmaceutical and energy sector (Jenkins and Mansur, 2011). Technology development has been recognized as an uncertain process, with uncertain outcomes. In addition, markets and available technologies can change during the development (Auerswald & Branscomb, 2003). In fast changing environments, it is incredibly difficult to make a prediction what the world looks like in 5 years. Besides, product life cycles are becoming shorter and companies are forced to quickly introduce new products (Auerswald & Branscomb, 2003). Even if the technologies and market changed the way companies expected, the question remains: how much of that value will the innovative firm be able to capture? The first mover advantage is not a guarantee for long term market success. Firms weigh opportunities for value creation and value capture against risks and anticipated costs (Ford et al., 2007). Due to those risks and uncertainties, getting funded for technology development is extraordinarily difficult. On top of that, firms are reluctant to invest in opportunities that challenge existing ways of doing business (Auerswald & Branscomb, 2003). 2.2.2.2. Fuzzy front end

In the front end of NPD, ideas are created and elaborated. In order to bridge the Valley of Death, ideas that are based on new technologies have to be adopted and further developed. As mentioned before, the front end of NPD is often perceived as fuzzy. Nevertheless, the ability to influence outcomes is the highest in the front end (Khurana & Rosenthal, 1998) and it gives the greatest time-savings for the least expense (Reid and de Brentani, 2004). However, research about this topic is limited and companies still struggle with organizing the fuzzy front end (Reid and de Brentani, 2004).

Formality of structure

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focused on the following considerations: business vision, technical feasibility, customer, focus, schedule, resources, and coordination (Khurana & Rosenthal, 1998). Reid and de Brentani (2004) agree by arguing that incremental innovations can be fostered by a formal structure imposed by the management. They argue that for radical innovations, individuals are needed that link corporate-level and individual-level knowledge with new information from their environment.

Supportive organizational culture

In order to support individuals to create useful ideas for the company, a supportive organizational culture is needed. Khurana & Rosenthal (1998) highlight the importance of a holistic approach, where linkages are created between business strategy and product development, projects and portfolios, techniques and markets, and core teFirm 3 and executives. Similarly, Reid and de Brentani (2004) argue that environmental, individual and organizational levels must be telescoped together.

Thus, for radical innovations individuals and their environment seem to play a decisive role. For that reason, Markham (2002) investigated the importance of informal roles. He highlighted the importance of a champion, who needs to drive the project through the Valley of Death. The champion is the person who recognizes potential in a technology and pursues the development of it. He need the skills to convince the management to provide resources and the intrinsic motivation to fight through the rebuttals (Markham et al. 2010).

2.2.2.3. Disjuncture between research and commercialization

In the transition from research to commercialisation, two different types of persons are involved. Technologist at the one hand, and commercialization personnel at the other hand. Technologists know what is scientifically interesting, technically feasible and fundamentally novel. They find value in discovery and pushing the frontiers of knowledge and strive for a good reputation by publishing in prestigious journals (Auerswald & Branscomb, 2003). Commercialization personnel know the process of bringing products to the market and are mainly interested in profitable returns (Markham, 2002).

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results of clinical studies into new research and treatment approaches. For translational research, people are necessary who are skilled at collaborating effectively with scientists and engineers as well as with financial managers and venture capitalists (Barr et al., 2009). Barr et al. (2009) introduced a new way of education, called COT education. COT education is based on technology-product-market combinations, which argues that a technology results in multiple products that can be exploited in multiple markets. People are needed who have skills to come up with those linkages through investigation. Furthermore, innovation cannot be seen as a linear process from research to NPD. Researchers need the feedback from commercialising parties in order to see how it works out in practice (Hudson & Khazragui, 2013). In addition, commercial partners can initiate research. So, the relationship between researchers and commercialisation personnel should be seen as non-linear and iterative.

2.3. Conclusion

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3. Methodology

In this section, the methodology of this research is described in order to give answer to the research question: How does the process from research to new product development look like and what causes the Valley of Death?

3.1. Research design

The goal of this research is to map the transition from research to product development and get aricher understanding of corresponding difficulties. Besides, this paper aims to put an end to ambiguities about the Valley of Death and to create consensus. The literature about the Valley of Death is scattered and far from mature. Therefore a qualitative research approach is chosen to build new theory. Qualitative techniques are used to provide a description and understanding of a situation or behaviour (Pope & Mays, 1995). The Valley of Death is a problem that is relevant to both universities and companies as well as governments. In this research, the perspective of companies is investigated because they are assumed to adopt the technologies and further develop them.

3.2. Data collection

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to be stopped if they were losing their story into technical details. Economical R&D managers were better in explaining the processes between different department and the allocation of resources. For the interviews, a semi-structured approach was used. This rather open approach allows the research to evolve during the investigation and to follow new leads (Maxwell, 2012). The starting question was: ‘How would you describe the process from research to new product development?’ When the process was clear, the focused shifted to difficulties that companies experience within that process. If interesting topics arrived, regarding to the Valley of Death, further questions were asked to dive deeper.

# Business name Sector Size (# of employees)

1 Firm 1 Medical equipment >10.000

2 Firm 2 Chemicals >10.000

3 Firm 3 Semiconductors 1000-5000

4 Firm 4 Flowmeters 200-500

5 Firm 5 Food processing 1000-5000

6 Firm 6 Automation technology >10.000 7 Firm 7 Semiconductors >10.000 8 Firm 8 Medical equipment 1000-5000

9 Firm 9 Semiconductors 1000-5000

10 Firm 10 Food production 1000-5000

Table 2: Interviewed Companies

The interviews were conducted live or over telephone, and lasted between 50 and 90 minutes, with an average of 60 minutes. Before every interview, participants were asked for permission to record the conversation. All interviewees gave permission, except for one. Next to taping the conversations, notes were made to write down the key parts. These notes were both useful during the interview for asking further questions and afterwards for analysing the results. In the interview without permission to record, notes were made extensively. Immediately after every interview, taped conversations were transformed into transcripts. These transcripts were subsequently analysed. The notes of the interview without permission to record were used to make a summary of the interview. The summary was made directly after the interview to make sure the information was still fresh in mind.

Due to the immediate analysation of the data, overlap exist between data collection and analysis. This gives the freedom to make adjustments during the data collection process (Eisenhard, 1989). After every interview, participants were asked if they are willing to cooperate in a second contact moment. When all the interview were conducted and transcript were analysed, the companies that agreed to cooperate a second time were contacted. This resulted in a second call with Firm 10, Firm 2, Firm 5, Firm 7 and Firm 3. These calls last between 10 and 40 minutes, with an average of 25 minutes. In these second calls, all information of previous interviews was used to ask the right questions in order to delve deeper in some topics. This gives the research a more iterative character, which improves the outcome of the research.

3.3. Data analysis

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4. Results

4.1. Introduction

In the next section, the results from the interviews are presented. Firstly, the research to NPD transition is illustrated in a simplified figure and the codes related to the causes of the Valley of Death are introduced. Secondly, the activities between research and NPD are discussed more extensively and a more detailed figure of these intermediate activities is presented. Thirdly, investment decisions of companies are discussed in order to get a better understanding of the resource gap. Fourthly, difficulties in organizing the transition from research to NPD are discussed in order to get a better understanding of the skill and institutional gap. Lastly, the perception of companies on the Valley of Death is discussed. In figure 3, the transition from research to NPD is shown in a simplified manner. Oriented basic and applied research is conducted to discover new technologies. Research can be conducted in collaboration with external parties as well as within a companies’ own research department. Subsequently, business units adopt technologies and further developed them in order to make them ready for new product development.

Figure 3: Research to NPD transition Feedback loops exist between different activities. For example, if there are problems in technology development, additional applied research might be necessary. Furthermore, different activities of the process can be conducted simultaneously. For example, next to applied research, a researcher can do oriented basic research to get a better understanding of a certain topic. However, in general these activities happen chronological from left to right, as illustrated in the figure.

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Initial codes Focused codes

Investments Investments in Research

Research investment approaches

Investments in technology development Organizational factors Different cultures

Communication difficulties Required champions

4.2. Process from applied research to NPD

In this section, the activities related to technology development (see figure 3) are discussed. In figure 4, the process is shown from a new technology that results from applied research to the development of a new product. The process is largely similar to the stage gate model of Cooper (1994). However, some important adjustments have to be made if the ideas for new products or processes contain a technology that is new to the firm. The new technology has to be developed in house or bought, before the product development process can start. Once the technology is developed, it can potentially be used for multiple new products.

The process starts with scanning markets and technologies. Technologies can be the result of companies own research or external research. Later, research is described in more detail. Subsequently, technology-market combinations have to be made. Regarding the linkages between technologies and markets, a distinction should be made between long and short term technology development. In some industries, technology development takes up to five years. In that case, market demands and technology trends can change significantly. Therefore, firms need to have groups of applications in mind. They have to develop technologies that enable them to serve the market in five years. Technology development for those firms is more concerned with serving groups of customers in various markets rather than serving specific customers. If technology development only takes a short time, it is more intended to fill a technology gap for certain products that are about to be developed. In that case, more specific customers are already in mind. Conversations with customers and market intelligence reports are used to map the customer needs. Ideas, based on technology-market combinations, are proposed and discussed in internal meetings. Next to creating ideas internally, it is possible to make use of online communities. With those communities, companies can get a better understanding what technologies are available for an application, and vice versa, what applications are possible with a certain technology.

‘The process usually starts with the input of our customers, which is based on our current product portfolio. They request improvements of existing products or the creation of new products to serve patients that cannot be helped yet.’ – Firm 1

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‘Various online communities exist where I ask the question: which applications are conceivable with this technology? Or the other way around: which technology can I use for his application? This often leads to interesting opportunities I had not thought of.’ – Firm 3

Subsequently, the potential of the idea needs to be showed through a preliminary investigation from both a technical and a business perspective. Employees with promising ideas can show the potential in multiple ways. For instance, they can conduct an experiment internally or show external sources.

‘Showing that the technology works for that application can be done for example by a small experiment, by showing a video or by using literature’ – Firm 5

After that, a feasibility study is conducted. In the feasibility study a complete plan is made for technology development. In this phase, the firm investigates the technology, relates the technology to the company and scans the environment. After the feasibility study the company needs to have a clear comprehensive view in order to make the decision whether to invest in the opportunity and whether to make it or buy it. The most important part of the feasibility study is the business case, where the costs and revenues of the technology are projected. Later in this chapter, the business case is described in more detail. If the company decides to ‘buy’ the technology, the feasibility study for the new product can be started. If the company decides to ‘make’ the technology, the technology moves into development or applied research, dependent on its status. If the technology is novel and not proven yet on lab scale, it moves to applied research. If technologies are proven, they are developed in the business units. Technology development is an uncertain process. Given the fact that the technology is proven on lab scale does not guarantee that the technology will work on a large scale. Besides, during technology development, markets and technology trends can change. Therefore, markets and technologies trends need to be scanned during the whole process, as illustrated in figure 4. For that reason, companies have continuous contact with targeted customers, to map their needs and to benchmark the technology. Simultaneously, executive management monitors the projects and makes the decision whether to continue or not. These ongoing activities are indicated in figure 4 by arrows.

‘When you are developing a technology, you simultaneously talk with customers. If you show your technology to them, you get immediate feedback. You get an idea how revolutionary this is for the customer. You have to benchmark your technology versus the outside world.’ – Firm 3

‘There are formal gates and milestones, where the teams have to show their future plans to the management team. Then the decision is made how to continue or possibly to stop the project.’ – Firm 8

‘Every quarter we adjust our business case and present it to the executive management’ – Firm 3

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products, existing work processes have to be changed and possibly new equipment and factories have to be build. These are big investments and companies have limited resources. Therefore, even though there are many applications possible with the new technology, the company will only develop the most promising new products.

In addition, a product is usually based on multiple technologies. In the NPD feasibility study it is examined which additional technologies are needed for the new product. If a technology is not in house yet, a technology feasibility study has to be made for that technology with corresponding make or buy decision. Naturally, when companies start expensive technology development, they already examine which technologies are needed for the most promising new products, in order to prevent unforeseen costs and risks.

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4.3. Causes of the Valley of Death

In this section, topics are discussed that are related to the causes of the Valley of Death. Firstly, companies’ investment decisions are discussed in order to get a better understanding of the resource gap. Secondly, organizational factors are discussed in order to understand the institutional and skills gap for large firms.

4.3.1. Investments

Businesses have to find a balance between the short, mid and long term. Research and technology development concerns the long and medium term, while management goals of a listed company are mainly short term. Therefore, resources for R&D are limited and carefully distributed. In this section, investments in research and technology will be discussed.

4.3.1.1. Investments in basic and applied research

As figure 3 shows, oriented basic research and applied research is conducted to create new technologies. Companies try to make sure that technologies are usable for business units. The process of investments in research is illustrated in figure 5. Research starts with screening the environment. On the one hand, firms screen the technology trends, and on the other hand the market trends. In this phase, firms do not need to have specific customers in mind, but more a direction or a group of customers. Firms follow market trends to ensure they are operating in the right direction.

‘Our investments in technologies are driven by market trends in the food industry. For example, the ‘free from dairy’ and ‘free from sugar’ trend.’– Firm 10

In order to identify technology and market trends, companies use their network. Their contact with universities, research institutes, firms and customers helps them to be aware of the environment.

‘Since its inception 35 years ago, the firm has a close relationship with a research institute. If they spot a technology that might be interesting for us, they call us.’ – Firm 4

On top of that, companies compose marketing intelligence reports, visit congresses, instruct employees to read professional journals and buy research reports. Through those activities, companies discover multiple technologies that may be interesting to investigate or develop. Subsequently, the state of the technology depends if it moves to research or technology development. If the technology is already proven on lab scale, it moves to business units. If the research on a technology is limited and more applicable for the long term, it is moved to research.

In order to ensure a fit between research and business units, it is important that the research agenda is aligned with the strategy of the business units. Business units have to communicate their needs for technological solutions. They have to highlight which technical problems they face, and what type of products customers want. By doing that, companies ensures the connection between research and business units.

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Companies have limited resources. They have to consider which technologies are best aligned with the strategy of the firm and will be the most profitable. According to the budget, companies compose a technology portfolio for research and technology development. Subsequently, applied research, and sometimes oriented basic research, is conducted. Applied research builds on the fundamental knowledge of basic research. For example, Firm 10 had the desire to make their products creamier. They used applied research to investigate how enzymes could be adapted to make products creamier. However, before doing that, they first wanted to know: what is creaminess? And where does it come from? In order to get a richer understanding of creaminess, they first conduct oriented basic research. After that, researchers were more capable to conduct applied research.

Figure 5: Research process

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financially. They need to have researchers cooperating in the research, in that way they can absorb the knowledge and give the research direction.

‘We do just a little bit fundamental research. Therefore we have a few scientists employed, who can make the translation from research to practice. This enables us to absorb the knowledge of universities.’ – Firm 5

4.3.3.2. Research investment approaches

There are several options to invest in research. In figure 6, these options are scaled on capital intensity. Basically, the higher the investment, the more power the firm has to guide the research and to use the results. Therefore, a distinction can be made between two different research approaches: the passive research approach and the proactive research approach. The proactive research approach is concerned with high investments and high influence. The passive research approach is concerned with low investments and little influence in the research. These two approaches, with corresponding research options, will be described in further detail in this section.

Low investments High investments Suggest academic research Sponsor universities EU Consortia Contract research Collaborations in research Own research department

Figure 6: Research options

Passive research approach

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have exclusive access to that knowledge. For that reason, companies make strategic investments.

‘Function as a sponsor in research groups is generally done for generic technology, like sensors. This technology is very wide applicable, also in other sectors.’ – Firm 5

‘We have exclusive access if we pay the whole research, we do that for technologies that are

not capital intensive but enable us to differentiate.’ – Firm 7

Proactive research approach

Companies with a proactive research approach invest, in addition to the passive options, in completely paid contract research, collaborations in research and/or they have their own research department. If companies pay the whole contract research, they get exclusive access to the results. Next to that, collaborations in research take place with other commercial parties. When companies have a shared interest in a technology, they propose collaboration and initiate a project. Another way for companies to collaborate in research is to make use of the facilities of a research institutes. Companies pay to use the facilities and have their own researchers to conduct research.

‘10% of our research budget is for scanning the environment. The other 90% is for initiating research projects.’ – Firm 10

Some companies have their own research department, which is the research form with the highest investments and the highest influence. The management has full control over the research projects. The external environment is used as input, but companies are not dependent on them.

The choice to use a proactive research approach is dependent on the corresponding costs, which differs per industry. For instance, in the semi-conductor costs are rising quickly. For that reason, firms may decide to shift from a proactive research approach to a more passive research approach.

‘Moore’s law states that every two years the same computing power, can be embodied in a 2 times smaller product. However, the law does not mention that the costs to develop it, are also 2 times higher’. - Firm 7

‘We work more and more in a co-model. One of our employees calls this: inspiration and transpiration. We give the ‘inspiration’ and foundries have the ‘transpiration’ to develop the technology’ – Firm 7

‘In the past we did the research by ourselves and used external parties as input. Nowadays, we are more scanning and directing.’ – Firm 10

4.3.3.3. Investments in technology development

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‘A lab setting and a factory setting are two different worlds. Doing a reaction in a test tube or in a reactor of 70 cubic meters, is totally different in terms of robustness and speed.’- Firm 10

Firm are more willing to invest in technologies that are close to current NPD, because it is cheaper and easier to obtain financial returns rapidly. New technologies often challenge existing business lines and require new equipment. Moreover, projected revenues arise far away in the future, which makes returns on investments uncertain. Besides, it is difficult to forecast what the cost price of the materials needed for the technology will be. Because of the uncertainty, companies invest limited in technology development. The size of investments and the development duration differ per sector. The lack of resources exist mainly in sectors where technology development is concerned with high investment and long development times. In those sectors, investments in technology development concern the most risk. Due to associated risks, sunk costs have to be avoided as much as possible.

‘During this phase, we use, what I call, Mickey Mouse Technology. We try to be creative with existing machinery to experiment with the new technology.’ – Firm 3

In the feasibility study a business case has to be composed for every technology. In the business case, firms need to have an indication what the eventual production costs will be with that technology, in order to make it a profitable opportunity. However, it is difficult to forecast what the cost price of the materials needed for the technology will be. At the moment of idea generation, the materials may be way more expensive than after a few years, when the materials are more common.

´You need to have an indication what the eventual cost price of the product will be. Sometimes materials needed for that technology are 10 times more expensive than the materials that we use now. That is because those materials are rarely used. If they get more common, their cost prices will greatly decrease.´- Firm 8

In order to forecast the financial performance of a technology, a business case is composed for the most promising and realisable applications. The technology could be used for more applications, though changing products, working processes and equipment costs money. Therefore, only the most promising and realisable applications are selected and used for the forecast.

‘You select around three applications that you really want to realise with the technology, and you create a business case for them. In our case we did that for yoghurt, butter and cheese. If we wanted, we could also come up with 20 applications.’ – Firm 10

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harder to make the forecast. However, the creation of new products and entering new markets have the potential of high financial performance. Therefore, companies make a risk/reward consideration.

Business cases of technologies are compared. The executive management creates a technology portfolio based on these business cases and the strategy of the firm.

“In the business case we estimate sales volumes and corresponding returns on investment. Then the management considers how the technology fits within the big picture of the company. They compose a technology portfolio each year. The technology is subsequently part of that portfolio or not.” – Firm 3

Companies are often divided in different business units, with their own resources and financial reports. A new technology can be applicable on different business units of the firm. However, in some cases, one specific business unit has to take the initiative to invest in the technology with its resources. They are often reluctant, because they have to show good short term financial numbers. As a result, the technology remains undeveloped.

4.3.2. Organizational factors

4.3.2.1. Different cultures

Researchers are different types of persons than product developers, which results in incoherence. On the one hand, researchers strive for new knowledge and focus on what is scientifically interesting. On the other hand, product developers are interested in creating products that meet customer demands and result in high financial returns. Even within the same company, there is a different culture in R&D than in the business units. In the separate departments, people work in a different way, are different archetypes and have different priorities. Different priorities seem strange within the same company. However, also within commercial companies, researchers are mostly interested in gaining new knowledge about a certain topic. Their interest in increased returns for the company is limited.

´People look different, listen different. People have different backgrounds. Other priorities.´ – Firm 9

´Researchers are often idealists that contend for their subject. They don’t care if the company sells 26 or 23 ton.’ – Firm 10

‘At the moment I have about 20 publications and 25 patents on my name.´ – Firm 10

4.3.2.1. Communication difficulties

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as well as commercial minded people working on R&D on the same projects. Firm 9 made a change in their organization to cope with this problem. They created overlap in their R&D and product development departments by letting employees work on both sides.

´At every knowledge transfer, knowledge will be lost. We need to structure it better and write down knowledge. Otherwise, you have the risk that you forget things. Then you have figured out in R&D that it works and it is feasible, but in the production tool you face problems. In that case, it is thrown back to R&D, and a lot must be researched again.´ – Firm 9

‘You start with a relatively small team, which has knowledge about all the ins and outs of the technology. When more people are added to the team, they have to be educated by the core team.’ – Firm 3

‘7 years ago I got comments that our work in R&D is not useful for product development. In response I let some people from business units also work on technology development and communicate with the R&D department. That was a big success.’ – Firm 9

4.3.2.3. Required champions

Due to the different cultures, communication difficulties and the iterative nature of the process, the transition is fuzzy. Therefore, informal roles are important to make sure that research is not the ending point of a technology. There is a need for an employee that select promising technologies and champions its applications, referred to as a champion.

‘What usually happens in the business world is that companies name a champion. But it should be someone who has the feeling: I really want to do this, even if it means the end for me. Because if I don’t do it, I will regret it when I am 65.’– Firm 10

However, having an employee who is enthusiastic about a certain technology is not enough. These employees need to have certain skills. The employee needs to be informed about technology developments and market needs to effectively make technology-product-market combinations. Besides, the employee needs to be in an organizational environment where it is supported to act entrepreneurial. Eventually the champion must convince the management to provide resources. He must argue what the customer wants and that it fits within the capabilities of the firm. Besides, he has to highlight the concrete steps the firm needs to take. The champion has a key role in initiating a project. Regarding the process (see figure 4), the champion is important in finding technology-market combinations and to do a preliminary investigation. When the management is convinced to invest in the project, a project team will be created to conduct a feasibility study.

4.4. Firms’ perception of the Valley of Death

Companies with a passive research approach

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Companies with a proactive research approach

From the dataset, Firm 2, Firm 3, Firm 6, Firm 8, Firm 7, Firm 9 and Firm 10 are the companies that use a proactive research approach. Some of these companies perceive a Valley of Death. Some companies do not perceive a Valley of Death. They see their investments in research result in enough technologies that are further developed and used for NPD. They argue that it is not a bad thing to develop different technologies to keep their options wide, and subsequently select a few. Companies that do perceive a Valley of Death see too many technologies arising from research are not further developed and used in NPD. Those companies experience that business units are reluctant to invest in the technologies from research. That is because they do not want to bear the risk or they do not recognize it as useful for them. The cause can be bad communication between research and business units, whereby developers do not fully understand the technology or strategies of research and business units are not aligned.

Differences per sector

The perception of the Valley of Death is different per sector, depending on the technology development times. In sectors where technology development times are short, the process and customer demands are more predictable. A market pull approach can be used to meet customer demands. When the development of a product is assessed highly important, multiple technologies can even be developed to be able to select the best one. In those sectors, the Valley of Death is usually not perceived.

´If the project is important enough, we develop three technologies and subsequently pick the best one.´ - Firm 2

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5. Discussion

In this research, the perspective of companies is investigated in order to get a better understanding of the Valley of Death. In this chapter, these results will be discussed and related to the existing literature. Firstly, the boundaries of the Valley of Death are discussed, which helps to understand the location of the Valley of Death. Secondly, the resource gap will be discussed. In this section, the investment decisions of firms are compared with current literature about the resource availability in the Valley of Death. Thirdly, the skill and institutional gap is discussed. Lastly, a research agenda is provided for the Valley of Death.

5.1. Boundaries of the Valley of Death

Scholars (Hudson & Khazragui, 2013; Roberts et al., 2012; Auerswald & Branscomb, 2003; Frank et al., 1996; Markham, 2002) argue that the Valley of Death starts after research, which is mostly publicly funded. However, it is not specified after what kind of research the valley starts. This research indicates that for companies, a lack of resources arises after applied research, when the technology has to be further developed to be applicable on a larger scale. In basic and applied research, costs can be easily shared through collaboration. However, confirmation from the academic site is needed. It is possible that they already experience a lack of resources to move basic research into applied research. Companies are not aware of the quantity of unused basic research.

Literature suggests that the Valley of Death is bridged when a technology is further developed and used for new product development. This research shows that companies select technologies carefully, depending on their business cases. If contingencies occur during development, the chance exists that the project is shut down. Nevertheless, companies indicate that they adjust the project and continue in most cases. Therefore, it can be argued that the end of the Valley of Death is at an earlier phase, for example at the moment that the technology passes the technology feasibility study. However, because the Valley of Death is completely bridged when a technology is ready for NPD, that moment is proposed to be the ending point of the Valle of Death. As figure 4 illustrates, the technology is subsequently used in the feasibility study of a NPD project. That is because the product idea and scoping of that idea already exist.

5.2. Resource gap

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For that reason, governments have undertaken some actions to improve the situation. For instance, highlighting promising technologies by means of awards (Wessner, 2005) and stimulating collaboration by creating clusters (Jenkins and Mansur, 2011). In order to address the research gap, organisations need to exist that operate and invest through all stages from research to NPD. Organisations that operate there can be large companies, as investigated in this research, as well as small specialised companies backed by investors (Auerswald & Branscomb, 2003).

5.3. Skill and institutional gap

If companies invest, the technology moves from a group of researchers, with academic expertise, to product developers, with commercial expertise. Literature stresses that this results in problems regarding cultural differences and communication (Auerswald & Branscomb, 2003; Hudson & Khazragui, 2013; Markham, 2002). This research underscores these problems in communication and cultural differences. Remarkable is the observation that cultural differences exist even within the company. Besides, Markham et al. (2010) argued that there is a need for persons with scientific as well as commercial expertise, who have the quality to convince others and create an aligned vision. In this research, the importance of a mixed scientific-commercial expertise is stressed more often. That the mixed experience has to exist within an individual, is only mentioned incidentally. Nevertheless, obtaining management support for radical changes appears to be difficult. Therefore, the existing need for an individual that champions the project seems plausible.

To address problems regarding communication and cultural differences, companies created overlap between different departments. Creating overlap is easy between two departments within the same company. With external parties it might be more challenging to create overlap. A possibility for companies is to let an employee work both externally and internally. In that way, the employee gives the external research direction and absorbs the external knowledge. However, external cooperation partners can have different interests, which endangers the connection of the results with the company. Another way to bridge the Valley of Death is supporting specialised companies that develop technologies. For example, universities establish technological start-ups by themselves to develop their technologies (Burg et al., 2008).

5.4. Research agenda

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Topic Further research

Resource gap Risk Information

asymmetry

How do subsidies affect investments in technology development? What is the role of clusters in addressing the Valley of Death? How can companies develop general technologies that are specific enough for applications in order to cope with changing markets? Long

development times

What are the pros and cons of a proactive research approach? What are the differences between different sectors regarding the used research approaches?

No match of research with product developers

How to realise that academic research connects to organisations that do product development?

Institutional gap Fuzzy front end How to align technologies with corresponding development times

and risk to the product portfolio of the firm?

How can researchers contribute in the creation of ideas for new technology applications?

What are effective mechanisms to research the potential of an idea?

Organisations through the Valley of Death

Who adopts technologies and do further technology development? Comparison between start-ups, SME’s, large firms and research institutes.

Skill gap Mixed expertise How to realise mixed academic and commercial expertise to find

technology-market combinations?

How to realise mixed academic and commercial expertise in technology development?

Communication How effectively transfer knowledge from researchers to product developers?

How to create alignment between different parties that are concerned with the transition from research to NPD?

How to create overlap between firms and external researchers in order to improve the usefulness of the research results?

Valley of Death in general

Size of the problem What is the perception of the Valley of Death of research organisations and the government?

What are the difference experiences of the Valley of Death per sector?

Boundaries Do basic researchers perceive a valley between basic research and applied research?

What are problems in the transition from basic research to applied research?

Quantitative research to get a better understanding of the resource availability in the transition from applied research to NPD:

- How many technologies are the result of applied research? - How much technology development is started?

- How much technology development is completed? - How much developed technology is used in NPD?

Governmental intervention

What governmental interventions are needed to address the Valley of Death?

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6. Conclusion

Due to federal investments in research, numerous technologies exist that could be exploited. However, organisations develop a limited number of technologies. That is due to a resource, institutional and skills gap, referred to as the Valley of Death. In this research, the valley is investigated based on the guiding research question: ‘How does the process from research to new product development look like and what causes the Valley of Death?’ Three figures are introduced that illustrate the process. Firstly, figure 3 shows the total process in a simplified manner. Secondly, figure 4 illustrates the process of technology development and relating activities in more detail. Thirdly, figure 5 shows the research process in more detail, which is conducted to create technology. The Valley of Death is the result of a resource, institutional and skills gap between research and the feasibility study of new products. In this research, investment decisions of companies are analysed in order to get a better understanding of the resource gap. Investments in research can be shared relatively easy with other organisations, because the research is still broadly applicable. Companies that are dependent on research usually use a proactive research approach rather than a passive research approach. A proactive research approach is more expensive, but it enables them to give direction to the research and it results in more exclusive access to the technologies. The scarcity of resources begins after research, where costs regarding technologies are rising significantly. Companies are often reluctant to invest in technology development because of high risks and questionable rewards. The technology has not been proven on large scale yet, which makes the development process uncertain. Besides, during the development time, technology and market trends can change, which endangers the financial returns of the technology. Moreover, the results of this research correspond with the literature about the institutional and skill gap. Companies mentioned difficulties regarding the different cultures between departments, problems in communication, and the need for mixed expertise and a champion. A remarkable result is that culture differences even exist within the same company.

However, the undeveloped technologies are of limited importance to companies. They invest in the technologies with the highest potential and leave the other technologies undeveloped. From a different perspective, governments and universities see federal funded research remain unused. The area between research and NPD still is not well organised and lacks the availability of resources. Therefore, a research agenda is developed. Only if the transition from research to NPD is better organised and more resources are available, technologies will be further developed. Consequently, federal investments in research will result in economic growth and prosperity, companies can improve their products and financial performance in a fast pace, and the Valley of Death will be bridged.

6.1. Managerial implications

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6.2. Limitations

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