R&D and Innovation - Case Study Example

R&D and Innovation In a factor analysis, it was revealed that there is the presence of two distinct factors that characterize a business organization’s competitive strategies: first, the size of the market area, which guides a strategy that is aimed at the mass market; and, to achieve differentiation in terms of product characteristics targeted towards specific groups and segmented markets. The latter factor is considered to be the more popular of the two. (Caloghirou, Vonortas and Ionnides 2004, p. 80) It would also be the focus of this paper as it is the strategy that requires research development, which as this paper would establish, creates innovation that drives competitive advantage. Theoretical Framework The main framework behind an organizational strategy that emphasizes research and development is the theory that considers innovation as a competitive tool. This was first posited by Frohman (1982) who stressed that technology can be a powerful weapon on the battlefield of economic enterprise. (p. 97) A concise interpretation of this theory was given by Mario Kafourus (2008), who said: A company can obtain a competitive advantage by introducing new products that better satisfy customers’ needs and market demand. As a result of this, it can attract more customers and consequently increase its sales, market share and output. Higher output may also lead to a lower cost per unit as it often means that economies of scale will be achieved. (p. 26) Another theory that best demonstrate the significance of R&D and innovation to businesses is the internationalization and multinationality of corporations. Teece (2009) identified the competitive advantage of multinational firms from indigenous companies, arguing that it has the natural capability to emphasize on R&D given the highly segmented markets and cultures it must operate in. Teece stressed that a multinational firm is in an organizational mode capable of internally transferring a diversity of knowhow among its various units in a relatively and efficient fashion. He added that that given the opportunities that exist for international trade experience as well as the transactional difficulties associated with relying on markets, multinational companies are expected to fare better in innovation and would frequently employ the channels of technology transfer. (p. 144) The internationalization theoretical framework suggests that multinational companies have distinct competitive advantage because of its capacity to understand a diverse and wide market, allowing it to develop and exploit innovation-intensive products. R&D and Innovation In a study conducted by Caloghirou, Vonortas and Ioannides, it was found that majority of business organizations believe that research and development is an important variable in their competitive advantage, in comparison to other organizational practices such as marketing and advertising. (p. 79) It appears that companies are less and less inclined to believe that their organization would be able to achieve competitive advantage through superficial practices that characterize organizational strategy. Here, there is a prevailing view that the more important and efficient type of competitive strategy are those that focus on processes and product characteristics. Indeed, the amount of scientific knowledge acquired through the emphasis on R&D results in technological breakthrough. Or, when this is not achieved, it could also lead to additional innovations that could improve organizational processes and existing products or services. These are significant because technological breakthroughs or innovations could dramatically lower products prices while maintaining and upgrading product and service quality, in effect, providing an opportunity to offer more value for the customers. An excellent example was recounted by Nevens et al. (1990) in the case of how HP was able to successfully introduce its Desk-Jet printer, then maintain its popularity in the market afterwards by improving printing speed and the introduction of more flexible versions of the printers’ predecessor. The support for innovation goes well beyond business organizations. For instance, European governments encourage innovation by awarding substantial research grants and establishing agencies that will facilitate the discovery and production of innovative products. A case in point is the London Development Agency, an agency under the Mayor of London that supports the technological aspect of the city’s economic development. The benefits of the government’s support in R&D are evident in London’s 42 Higher Education Institutions, which generate innovation through their research. The Innovation Strategy Because of its importance to an organization’s competitive advantage, an innovation strategy could be formulated. The driving force behind this is the money funneled in research and development. Within the limits of science and creativity, wrote Daniel Spulber (2004), management of R&D can change the rate and direction of innovative strategy. (p. 304) For instance, this can be reflected in the appropriation of R&D funds. Here, the management could identify which areas to prioritize and what kind of invention should be pursued commercially. This guide to the direction of research is backed by a wealth of market information collected for such purpose. The customer data, however, would not be sufficient to assure commercial viability. Information of the competitor’s R&D is also crucial so that the innovation strategy does not overspend or does not lag behind in comparison to the competing organization. According to Spulber: Companies often seem to invest in similar types of inventive activity, racing to secure valuable patents and know-how that will yield a cost advantage or differentiation advantage. What strategies will firms pursue in an R&D race? (p. 305) Innovation strategies do not always mean increase in R&D expenditures. For example, Procter and Gamble adopted the so-called open innovation strategy and this was immediately preceded by significant layoffs in its R&D organization that also had to work under trimmed budget. The shift in innovation models, according to Chesbrough, Vanhaverbeke and West, was positioned to enable Procter and Gamble to generate more innovation with the reduced resources on hand. (p. 19) It is also safe to assume that the dynamics of the layoff maybe a strategy to prioritize certain products that are deemed more commercially viable and strictly coupled with the business model of the firm. R&D organizations gauge their own productivity by the number of patents and publications generated by the R&D staff however generating large number of patents or papers with little regard to their eventual business relevance are not unheard of cases within this department. (Chesbrough, Vanhaverbeke and West, p. 20) R&D Challenges According to Jonathan Mun (2006), one of the most significant challenges in R&D is the management of innovation because the process is difficult and that successful innovation usually involves the discovery and generation of knowledge, while at the same time exploiting existing knowledge and capabilities in such a way that they: 1) generate value through new products and services, 2) differentiate existing offerings; 3) lower costs; and, 4) disrupt the competitive landscape. (p. 53) These are huge tasks which when successfully addressed could still suffer failure because of the uncertain nature of technological change and the capability of the competitors’ R&D. Spulber stated that investment in R&D trades off the cost of investing in R&D against the likelihood of winning the R&D race. (p. 305) Research and Development and innovation will not successfully be translated into successful economic performance or competitive advantage. There are several factors that collectively ensure successful R&D initiatives and produce innovation and competitive advantage as consequences. Similarly, there are also numerous factors while companies fail in this area even though a lot of money and effort are pumped into R&D. One of this concerns the competition in the market. For instance, if a company was able to develop an innovative product and would prove to be technologically and commercially viable for a time, it profitability became tempered by the introduction of new or improved products by competing companies. McGahan and Silverman’s (2006) work on similar subject argued that innovations as a result of intensive R&D undertaken by competing companies decreases the economic performance of a firm even with a positive R&D productivity. These “technological innovations” by rival companies may have been produced through market-stealing or indirect appropriation through licensing. In addition, an R&D’s findings could also be neutralized by the proliferation of imitation and the efficacy of statutes protecting the intellectual rights of innovative products. And so, with the previously mentioned factors, among other issues, underscore the fact that R&D and innovation may not always yield the expected benefits in terms of sales and obtaining market share. Problems that arise in R&D competition within industries are usually alleviated through joint research initiatives. This venture mitigates the possibility of large losses as a result of failed research. However, participants to the initiative would be forced to share information and ownership of the finding once it proves successful. However, by cooperation, companies can reduce overall investment costs and in addition, the R&D joint venture captures benefit of scale and scope in innovation. Conclusion It is important to underscore that innovation, however one defines it across industries and sectors, would always be equated with the introduction of new products and services to the market or the development of new ways and practices that enhances production. It is driven by a high degree of creativity, dynamism and research, without which, innovation would not occur. Such innovation is important for an organization’s competitive advantage because it lowers production cost while upgrading product quality, and generally, offering more value for customers. This now highlights the role of R&D for an organization who aims to marginalize competition and maintain its edge in the market. This fact is even made more important due to the increasing use of technology and technology transfer. References Caloghirou, Y., Vonortas, N., and Ionnides, S., 2004. European collaboration in research and development: business strategy and public policy. Edward Elgar Publishing. Chesbrough, H., Vanhaverbeke, W., and West, J., 2006. Management strategy. Oxford University Press. Frohman, A., 1982. Technology as a competitive weapon. Harvard Business Review, January-February 1982: 97-110. Kafourus, M., 2008. Industrial innovation and firm performance: the impact of scientific knowledge on multinational corporations. Edward Elgar Publishing. McGahan, A. and Silverman, B., 2006. "Profiting from technological innovation by others: The Effect of competitor patenting on firm value. Research Policy 35(8): 1222-1242. Mun, J., 2006. Real options analysis: tools and techniques for valuing strategic investments and decisions. John Wiley and Sons. Nevens, T.M. Summe, G.L. and Uttal, B. 1990. "Commercializing Technology: What the best companies do." Harvard Business Review, 68(4): 154-163. Spulber, D., 2004. Management strategy. McGraw-Hill Professional. Teece, D.,2009. Dynamic Capabilities and Strategic Management: Organizing for Innovation and Growth. Oxford University Press. Read More