Why Internal R&D Is No Longer the Strategic Asset It Was - Case Study Example

Research and Development Name Institution Date Introduction Successful innovation is dependent on the development as well as the integration of fresh knowledge in the process of innovation. So as to effectively innovate, the company will combine various activities of innovation. Internal R&D is the company’s activity whereby a research project is set up and fulfilled within the company (Stanko, 2008). The company may as well obtain a section of the activity of R&D from outside; referred to as external R&D. Internal R&D has various dimensions that can be advantageous to its full function. This entails its capacity to evaluate the environment for present technology, capacity to assess the technology, incorporate the technology, appropriation capacity, leverage the R&D activities’ productivity, and previous knowledge to successfully absorb external knowledge (Cassiman & Veugelers, 2006). This paper will discuss why internal R&D is no longer the strategic asset it was and also further discuss how open innovation model assist companies today in dealing with this issue. Why internal R&D is no longer the strategic asset it was R&D is considered as a major element for the survival of a company within the international competition arena (Hall & Lerner, 2009). Once the activity of R&D is successful, the overall performance of the company is affected. The choice of whether to execute external or internal official R&D for specific projects ought to be established by the company’s leading management (Stanko, 2008). The responsibility of sources of external knowledge as innovation determinants has been frequently emphasized within the literature in a variety of theoretical approaches (Cassiman & Veugelers, 2006). For instance, evolutionary theorists, argue that innovation entails a continuous process of interactive learning involving the company and the different agents that surround it (Cassiman & Veugelers, 2006). Similarly, theorists of innovation network consider that companies hardly ever innovate by their own, and introducing new processes and products to the market greatly depends on the ability of the firm to build powerful connections with outside agents (Cellini & Lambertini, 2008). Through open innovation model, the significance of external initiatives for the process of innovation is highlighted (Haas & Hansen, 2005). Nevertheless, a number of researchers have pointed about the danger of overrating the position that the external sources of knowledge play, contending that in various industries, efforts of innovation are not just made by companies themselves, but are in house generated (Cassiman & Veugelers, 2006). A number of authors have argued that in trying to outsource and decentralize activities of R&D, core competences of the firms might be weakened (Herzog, 2011). However, and from a perspective that is more integrative, a couple of works highlight that internal and external acquisition of knowledge can be corresponding activities in the innovation strategy of the firm (Hall & Lerner, 2009). These works uphold that the impact of external sources of knowledge on performance of innovation, even though essential, relies on the internal abilities of the company (Hall & Lerner, 2009). For instance, it is argued that connections to technical and scientific sources of knowledge are effective once the firm is ready and open to outside ideas, and has technical and scientific staff that is skilled (Caloghirou et al, 2004). With this regard, ‘absorptive capacity’ concept has attained influence within present years (Hall & Lerner, 2009). This concept puts special importance on the pre-existing knowledge of the firm in the responsibilities of identifying, incorporating and utilizing external knowledge (Hall & Lerner, 2009). Since the choice of deciding to embrace internal or external R&D lies upon the top management’s decision, it is important to review some essential theories. For instance, stewardship theory maintains that there exists no inherent issue of executive control, implying that the organizational managers’ actions seem to be compassionate (Van Slyke, 2006). Agency theory puts more stress on extrinsic motivation, whereas stewardship theory is centered on inherent rewards that are actually not simply quantified, like duty, achievement, and growth (Van Slyke, 2006). Resources based theory enables people to consider diverse needs that firms have at various phases of their life-cycle (Baker & Anderson, 2010). The life cycle of a business may possibly be understood and clarified through three effects. The first is the birth stage whereby companies create a sustainable and profitable vision (Water-Fire effect). As the firm progresses into the survival phase, it seeks to develop by growing its learning abilities (the Earth-Water effect) and raising its cost’s competitiveness. The success phase may possibly be demonstrated majorly through the powerful Fire-Metal effect, which is characterized by the raising competitiveness and profit (Baker & Anderson, 2010). The decline phase is illustrated through deteriorating profits as well as market share loss and through absence of learning abilities. The renewing companies need to reconstruct their innovative and learning abilities and build a new direction of profit for the business (Baker & Anderson, 2010). How open innovation model assist companies today in dealing with this issue Open innovation involves the exploitation of purposive knowledge outflows as well as inflows to speed up innovation (Caloghirou et al, 2004). Since knowledge is now distributed widely, companies are not able to rely fully on their individual research, but ought to acquire intellectual property or inventions from other firms when it progresses the model of business (Haas & Hansen, 2005). Historically, Procter & Gamble (P&G) depended on internal abilities as well as those of a system of trusted dealers to invent, expand and deliver fresh services and products to the market (Procter & Gamble, 2013). The company did not dynamically seek to link with prospective external partners. Correspondingly, the P&G knowledge, technologies and products developed were exploited almost exclusively for the production and auction of P&G’s own merchandise. Beyond this, the company hardly ever licensed them to different companies. With the changing times, and the more connected world, P&G took another turn. Within the fields in which P&G does its business, there exist millions of engineers, scientists and different companies globally. This made P&G to collaborate with them. Hence, they now acknowledge open innovation through their approach ‘Connect + Develop’ (Procter & Gamble, 2013). Currently, at P&G open innovation works equally – outbound and inbound – and entails everything from services of business to design, trademarks to packaging, and models of marketing to engineering (Procter & Gamble, 2013). Connect+Develop is the innovation strategy at P&G. The thought of partnering outwardly to speed up innovation is used across the firm as well as all over the world within every P&G’s work and brands. In P&G, there is an international team called Global Business Development devoted to empower C+D, looking for innovations, collaborating with potential partners and shepherding advance innovations via the firm and into the market (Procter & Gamble, 2013). Conclusion In conclusion, R&D abilities have been established among the significant components for the company operations’ survival. The company’s performance is shown to have direct connection with powerful R&D abilities. Once a firm is able to produce suitable products as a result of R&D achievement, this will assist in increasing the company’s revenue. Consequent to revenue of the company, the company’s economic growth as well as its market share increase as well. At its basis, open innovation model assumes that valuable knowledge is greatly distributed, stating that even R&D capable organizations ought to identify, link to, and influence external sources of knowledge as a fundamental process within innovation. There exists empirical proof on the significance of the company’s knowledge foundation for assisting the company to discover and obtain external know-how and, vice versa, on externally obtained knowledge’s role in promoting activities of internal R&D. On balance, though, the literature is not quite definite regarding the complementarities involving external and internal technology sourcing, with regards to the effect on the company’s innovative performance. Reference Procter & Gamble. (2013). What is Connect + Develop? Retrieved from http://www.pgconnectdevelop.com/home/pg_open_innovation.html Haas, M. and Hansen, M., (2005), ‘When using knowledge can hurt performance: The value of organizational capabilities in a management consulting company’, Strategic Management Journal, 26, 1-24. Caloghirou, Y., Kastelli, I. and Tsakanikas, A. (2004), ‘Internal capabilities and external knowledge sources: Complements or substitutes for innovative performance?’, Technovation, 24, 29-39. Cassiman, B. and Veugelers, R. (2006), ‘In search of complementarity in innovation strategy: internal R&D and external knowledge acquisition’, Management Science, 52, 68-82. Van Slyke, M. (2006). Agents or Stewards: Using Theory to Understand the Government- Nonprofit Social Service Contracting Relationship. Journal of Public Administration Research and Theory. 17: 157-187. Hall, B. H., & Lerner, J. (2009). The financing of R&D and innovation. Cambridge, Mass. Cellini, R. & Lambertini, L. (2008). Economics of innovation: incentives, cooperation, and R&D policy. Bingley: Emerald Group Publishing. Stanko, M. A. (2008). Finding the Balance Between Outsourcing and Internalization: The Key to Innovative Success?. New York: ProQuest. Baker, H. K. & Anderson, R. (2010). Corporate Governance: A Synthesis of Theory, Research, and Practice. New York: John Wiley & Sons. Herzog, P. (2011). Open and Closed Innovation: Different Cultures for Different Strategies. New York: Springer. Read More

 

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