This is part 2 in a series of posts about the unique strategic challenges facing research organisations. Read Part 1.
Traditionally regarded as bastions of basic knowledge and discovery, research organisations must evolve in the face of advancing technology, complex societal challenges, a changing funding landscape, and the shift of fundamental research into the private sector.
In Part 1 of this series we proposed a novel concept for envisioning research organisations as complex, multi-modal platforms. This perspective transforms research entities from isolated silos into dynamic platforms operating across various dimensions: as product platforms leveraging their underpinning research, as innovation platforms extending their discoveries, and as transactional platforms connecting stakeholders.
In this article, we will look further into this idea, unpacking how traditional strategic levers need to be reconfigured for our sector, and what this means for shifting to a platform perspective.
Traditional Strategy Concepts: Cost Leadership and Differentiation
In corporate strategy, there are two primary pathways to a winning strategy: cost leadership and differentiation. Both have their roots in the early days of strategic management and still serve as the backbone of business strategy.
Cost leadership is a concept introduced by Bruce Henderson. It entails a firm strategically striving to gain a relative market share advantage over competitors to have lower production costs than them. The theory is based on the premise that a larger market share provides economies of scale and thereby lower costs. The payoff, as Henderson envisioned, is that it puts the firm in a position to further drive relative costs even lower as competition unfolds, given the experience curve advantage. This leads to a firm becoming the cost leader in the industry, providing it with a significant competitive advantage.
The other strategy available to firms is differentiation, as originally proposed by Michael Porter. This approach posits that a firm seeks to be unique in its industry along dimensions that are widely valued by buyers. It involves selecting one or more attributes that buyers in the industry perceive as important, and then uniquely positioning itself to meet those needs. This could be in the form of superior quality, innovative features, exceptional service, or overall branding. The objective is to create a perception of exclusivity that justifies a higher price point.
These traditional strategic concepts are challenging, however, to transpose to research organisations.
Barriers to Cost Leadership for Research Organisations
For research organisations, cost leadership has significant barriers. The primary constraint is the nature of costs. Unlike other industries, where costs can be controlled and managed strategically, research organisations have a high proportion of fixed costs, limiting the extent to which they can be reduced or optimised.
Labour forms the bulk of these fixed costs. Salaries for researchers and support staff represent the most substantial percentage of the total expenditure across the board. These costs are highly regulated by Enterprise Agreements and Awards. The room for flexibility is minimal, and cost leadership through labour cost reduction is nearly impossible to achieve.
Apart from labour, other costs related to capital investments such as equipment, technology, or infrastructure are also substantial and necessary. These are mostly fixed in nature and essential for carrying out research activities. Attempts at cost reduction – like shared services, inter-institutional procurement etc. – have historically amounted to little cost advantage. Moreover, as non-commercial organisations, the cost driver is not as acuteley felt as in privately or shareholder held companies where profit is a key driver.
Simply put, the nature of costs in research organisations is a barrier to the effectiove deployment of a cost leadership strategy. This makes the pursuit of cost advantage as a competitive strategy pointless, prompting the need to explore alternative strategic paths.
Challenges with Differentiation in Research Organisations
That might leads us to conclude that differentiation is the key strategic driver. However, when it comes to pursuing differentiation, research organisations encounter a distinct set of prohibitive challenges. These are primarily driven by the many forces that push towards homogeneity rather than fostering uniqueness across the sector.
The largest portion of the revenues for research organisations stems from external grants. These grants, while crucial for funding research, inadvertently propel organisations towards uniformity. This is because the criteria for grant allocation force research organisations to model their research projects, objectives, and processes in a way that matches grant requirements, effectively driving everyone to 'look alike' to compete for these funds.
Moreover, the competitive landscape of the research sector itself imposes restrictions. Research organisations often engage in similar fields of study, utilise the same methodologies, and vie for the same pools of talent, leading to a certain level of uniformity across the board.
This results in less room for unique positioning that is at the heart of the differentiation strategy. Where a company might position itself uniquely relative to some market demand, the 'demand' for research comes largely from research funders for which all institutions are competing on the same terms.
Given these challenges, we see research organisations differentiating on parameters like research quality, which becomes a pointless task, and differentiation struggles to find a comfortable fit.
The Role of Strategy in the Current Research Environment
Without these traditional strategy levers, we need a shift in perspective to find alternative strategies. This doesn't remove the need for strategic thinking. Instead, it calls for an alternative entry point into the strategy discussion.
As we have seen time and again with our clients, the most succesful form of differentiating factor for research organisations lies not in cost leadership or traditional differentiation but in their organisational mission. In essence, this boils down to articulating what change they are striving to effect in the world. This question forms the crux of a viable, winning strategic position.
Organisational mission – and this applies as much to an entire organisation like a university as it does to smaller units like research centres therein – serves as a guiding light, shaping the direction of their research, influencing their approach to funding, and underpinning their interactions with stakeholders. It forms the bedrock of their identity and offers an alternative route to strategic differentiation, providing a unique position in the marketplace.
A mission-centric approach fundamentally shifts the strategy discourse. Instead of trying to differentiate based on costs or on hollow traditional markers of esteem, research organisations differentiate on their very reason for being. They distinguish themselves through the unique contributions they make towards societal advancement, scientific discovery, and knowledge enrichment.
Differentiation through Mission + Platform Thinking
Success is more than just identifying an organisational mission, however. A mission is not a strategy, after all. The key to success lies in understanding and capitalising on organisational mission, while simultaneously embracing platform thinking. Building on the concepts introduced in Part 1 of this series, research organisations can effectively leverage platform thinking to bolster their strategic differentiation. Being multi-modal platforms, they engage multiple stakeholders on both sides of the marketplace, with their mission acting as the unique value proposition across the two sides.
When the mission is clearly articulated and differentiated, research organisations can explore funding opportunities outside the restrictive realm of grants. They can align their activities with stakeholders whose values match their mission, thereby unlocking new streams of financial support. This approach moves away from the homogeneity imposed by traditional funding sources and instead emphasises unique value creation for a specific set of stakeholders.
By integrating organisational mission with platform thinking, research organisations create a unique, mission-driven marketplace where their impact drives their value proposition. This strategic differentiation then provides a solid foundation to identify and cultivate diversified funding sources.
Realising Differentiated Value
This approach echoes a version of Porter's differentiation strategy but one that has been reimagined specifically for the research sector. This involves moving away from relying solely on external grants and towards sources of funding that align with the organisation's differentiated mission. It also implies recognising and leveraging the unique value the organisation brings to its stakeholders, thus aligning value creation with mission fulfilment.
By focusing on mission-aligned funding sources, research organisations tap into diverse financial streams that are more in sync with their unique value propositions. This could include philanthropic donations, corporate partnerships, governmental funding aimed at specific research areas, or even crowdsourcing initiatives. Each of these streams can align with the organisation's mission in unique ways, and thus they offer different types of strategic benefits and collaborations.
Take, for example, an organisation dedicated to cancer research. Its mission is distinct and resonates deeply with individuals, corporations, and philanthropic entities touched by this disease. These stakeholders become funding sources, providing potential support far beyond what traditional grants might offer. Here, the organisation's mission serves as a differentiator, aligned with its funding strategy.
This allows research organisations to create unique value for their stakeholders. In our example, the cancer research organisation provides value to its stakeholders by contributing advancements in cancer treatment, supporting patients and their families, or influencing policy towards better healthcare facilities etc.
Building Competitor-proof Capabilities
Once an organisation has a differentiated mission and an aligned funding strategy, it can begin to build unique, competitor-proof capabilities. These capabilities are those assets, skills, or systems that are exclusive to the organisation and are challenging for competitors to imitate. They stem from the alignment of mission, strategic differentiation, and unique value provision, and result in a winning strategy.
For example, a research organisation focusing on environmental sustainability might build unique capabilities in the form of an extensive network of partnerships with environmental NGOs, proprietary databases of global climate change patterns, or a state-of-the-art lab for environmental testing. These assets are specific to the organisation's mission and provide unique value, making them hard to replicate by competitors.
These also form the basis for further differentiation in the sector. They enhance the organisation's competitive position and open up additional funding opportunities that align with its mission. For instance, an organisation with cutting-edge environmental testing facilities could attract funding from governmental bodies or corporations interested in environmental impact assessment.
In essence, building these unique capabilities enable the organisation to provide differentiated value that is intrinsically tied to its mission and its platform-based operating model. As a result, the organisation moves further away from homogeneity enforced by traditional grant funding and closer to a model of strategic differentiation that aligns with its mission and delivers unique value to its stakeholders.
This approach has many practical implications for leaders and managers in the research sector. Here are some of the ways that this can start to be incorporated into strategy development:
Reimagine Strategy: Traditional strategy concepts of cost leadership and differentiation, while effective in corporate settings, encounter significant barriers in research organisations. Hence, the strategy must be reimagined from a mission-centric perspective, where the focus is on achieving a unique organisational purpose.
Differentiate through Mission: The cornerstone of differentiation for research organisations is their mission – the change they aim to bring about in the world. Emphasising and communicating mission can help organisations stand apart in the marketplace and provide a unique value proposition to their stakeholders.
Embrace Platform Thinking: Research organisations can effectively leverage platform thinking to bolster their strategic differentiation. This entails understanding the organisation as a multi-modal platform engaging multiple stakeholders, thereby opening up new avenues for value creation and funding.
Align Funding with Mission: Organisations can break free from the homogeneity imposed by traditional grant funding by aligning their funding strategy with their differentiated mission. This involves securing support from stakeholders whose values resonate with the mission.
Develop Unique Capabilities: Aligning strategy with mission allows research organisations to develop unique, competitor-proof capabilities that provide differentiated value. These capabilities enhance competitive position and open up new funding opportunities.
Diversify Funding Sources: Lastly, moving beyond traditional grants and diversifying funding sources is key to strengthening the financial resilience of research organisations. This diversification should be guided by the organisation's mission and its platform-based operating model.