Excellence in Managing Global R&D

Recently, frugal innovations, i.e. affordable, 'good-enough' product innovations, have created a huge demand in emerging markets as they meet the requirements of a large amount of resource-constrained people. Frugal innovations are fundamentally different from advanced, western product innovations designed for developed markets with respect to their architecture, development, as well as business model and organizational implementation. Due to these differences, Western multinational enterprises (MNEs) struggle to design strategies and organizational structures which allow the simultaneous pursuit of both types of innovations. In this article, we therefore investigate how Western MNEs organize their research and development (R&D) to develop both types of innovation simultaneously. Based on multiple case studies in large Western MNEs from the medical equipment industry, our findings show that firms have designed dual R&D structures where advanced product and technology innovations are conducted in the central, Western R&D headquarters while frugal product innovations are developed in the R&D units located in emerging markets. The empirical findings improve our understanding of innovation in emerging markets and yield significant implications for management practice.

International research and development (R&D) operations require a significant amount of coordination between the headquarters and the subsidiaries in order to integrate the dispersed activities in one final product. While prior research has investigated the intensity of the use of formal and informal coordination approaches in different R&D subsidiary mandates, this article goes one step further and explores what kinds of mechanisms are used in different subsidiary settings. Based on a multiple case study involving nine multinational companies (MNCs) from different industries, we find that formal coordination mechanisms are supplemented with informal ones with increasing subsidiary mandates. Furthermore, independent of the subsidiary mandate, we find that a well-defined product architecture serves as a complementary, hybrid coordination mechanism which has the potential to lower overall coordination efforts. The findings bear important implications for the effective coordination of MNCs' international R&D subsidiaries organizations.