R&D Planning at ARCO Chemical

Abstract

When companies look for the planning process there seems to be none readily available. An applicable planning process usually incorporates elements from different methods, resulting in a tailor-made product specific to that organization. Furthermore, the methodology that is applied evolves and changes to meet the varying needs and structure of the company. Of most importance, then, is to learn how and why companies adopt their particular approach to planning and how it has paid off in serving the particular entity. Rather than discussing a general planning process, our aim is to show the process that has been implemented at ARCO Chemical for R&D planning, how it evolved and why, and to describe what we believe are the key elements of a successful planning process. For most companies, planning has most often been a budgeting exercise, with the importance placed on allocation of resources rather than on determining the direction the company should take to sustain its competitive advantage. A broader picture incorporating competitive trends, and potential environmental, legislative and economic issues was seldom included. Until 1987, ARCO Chemical Company (ACC) was a division of Atlantic Richfield Company (ARCO). The ACC plan was folded into the long-range plan of ARCO for capital and business forecasts. Since October 1987, ARCO Chemical has been a publicly traded company in which ARCO currently owns an 83.3 percent interest. ACC is organized by regions (Americas, Asia/Pacific and Europe), but the coordination of the regions and capital allocation decisions are the responsibility of the Worldwide Business Management group. R&D is a corporate activity with laboratories in all three regions. ACC's R&D planning process prior to 1987 generally followed the accepted norm. Traditional inputs from the business centers, either direct or indirect (depending on the funding basis), were used to guide the development of the coming year's efforts. The R&D department identified projects it would work on and a capital program was developed over a five-year period. The process leaned more toward budgeting than planning. The change in ownership necessitated major changes in how we managed our affairs. It had a major impact on the planning process within ACC, due to the presence of the investment community and the sourcing for capital from profits or outside debt rather than the parent. All parts of the ACC organization made the changes the new company required. A major change was the creation of a Worldwide Business Management Group to respond to the changing need for improving communication of our business within the global environment. This group now became the focus for the business activities on a product line basis. For R&D, this new group also became a key to the development of an improved approach to planning. Identifying the Right Approach Our efforts in the planning area took on a review of how we had been operating, what we needed to do to improve the process, and benchmarking how other companies had handled similar changes in dealing with this issue. Choosing the right approach proved to be no easy task. The challenge, recognized as we went into 1988, was to develop a systematic process that would clearly delineate the corporate goals for R&D and allow us to direct and focus the resources of the R&D department. In addition, it has important to provide a longer range perspective for the company, and to provide further opportunities to maximize the return on our R&D investment. Several studies conducted within the past decade have shown that a more productive R&D can find its roots in the integration of corporate R&D with other corporate functions. Furthermore, strategic integration of R&D and other functions is needed to maintain and gain technical leadership and to assure adequate support of programs aimed at fulfilling long-range corporate objectives (1,2). …