Firms - Assignment Example

FIRMS Chapter 10 Question What factors should a firm take into account when deciding how centralized its R&D activities should be? Should firms employ both centralized and decentralized R&D activities?  Answer: In determining the ideal level of centralization in the organizational environment, a firm needs to take into account the value of taking advantage of economies of scale, the opportunity to divide labor across a broader pool of R&D specialists, the importance of tapping local knowledge resources, the degree to which the divisions of the firm are likely to benefit from sharing innovations across them, and the degree to which innovations will require substantial customization for the local market. Also, there is the consideration of the cost of coordination and communication across the divisions. When it is more important for new product development to be close to the market or for projects to utilize the diversity of knowledge available in multiple markets, the firm would be better served by a more decentralized structure. Most organizations can benefit from some combination of both centralized and decentralized R&D activities, as a function of the importance of the previously mentioned factors, however the cost of coordinating the combination of centralization and decentralization must be taken into account. “Economies of scale refer to declines in unit costs of a product (or operation or function that goes into producing a product) as the absolute volume per period increases. Economies of scale deter entry by forcing the entrant to come in at large scale and risk strong reaction from existing firms or come in at a small scale and accept a cost disadvantage, both undesirable options” (Porter, 1980, p. 27). This provides a high barrier for new competition entering the market, in terms of economies of scale as well as capital requirements. Different types of entry barriers can exist simultaneously. Chapter 13 Question 2. Can you identify one or more circumstances when a company might wish to delay introducing its product? Answer: A company might choose to delay introducing a new product when they have an existing product still generating positive cash flow, and there are no potential competitors likely to establish a competitive advantage by entering earlier. Delay might also be part of a strategy to bring the product to market at a particular point in the business cycle or buying season, or to wait until production capacity can satisfy demand or complementary products are ready for the market. “When suppliers sell to a number of industries and a particular industry does not represent a significant fraction of sales, suppliers are much more prone to exert power. If the industry is an important customer, suppliers fortunes will be closely tied to the industry and they will want to protect it through reasonable pricing and assistance in activities like R&D and lobbying” (Porter, 1980, p. 31). A company may also delay because of unequal supplier power: this means that the buyer needs the supplier in terms of processes a company does not have any substitutes for its product on the market, it is going to have a greater control over pricing, will be more assured that there is not going to be product switching, and will not have to worry about this facet of competition. “Sugar producers confronted with the large-scale commercialization of high fructose corn syrup, a sugar substitute, are learning this lesson today, as have the producers of acetylene and rayon who faced extreme competition from alternative, lower cost materials for many of their respective applications” (Porter, 1980, p. 32) Question 3. In the ‘frog’ case study, would frog’s approach to product development be effective in a firm that primarily manufactured, marketed and distributed its own products? Answer: Students are likely to suggest that frog’s development process should be fairly effective for the development division of a firm that manufactures, markets and distributes, though it would require some adjustments. Frog’s specialty is coming up with very novel solutions (i.e., significant product innovations that may require combining materials in previously unconsidered ways), but may not be as well suited to the demands a firm would typically have for incremental improvements to existing products. While the frog process would likely be effective in a manufacturing firm, it might not be efficient. It can be costly to encourage many experiments and to encourage unfettered creativity if it is not needed for a relatively straightforward improvement to an existing product. is part of an individual’s responsibility to help to provide this framework in a spirit of consideration. In terms of weaknesses, there could be a lack of clarity to marketing objectives in the frog case. There are many different perspectives to consider when seeking a definition of the word marketing. Kotler, et. al see a modern definition of marketing as the crucial determination of how business are going to succeed in new conditions that are brought about by technological advances and globalization. For example, the authors state that, “In the analog economy, most companies operate three different businesses: a product innovation and commercialization business, a customer relationships business, and an operations and infrastructure business” (Kotler, et. al, 2002, p. 22), and then go on to note that in the new or digital economy, these three different businesses are still present, even if they must be dealt with more dynamically than in the past. And build relationships based on teamwork, as often as not, rather than the concept of competition. So this is an opportunity, but there is also a lot of competition in the external setting, so this gives a threat. The core strategy for cost effective value in the frog case involves distribution: distribution could be effectively linked to promotion using interest venues. For example, at the retailer level, services and products could be offered in promotional campaigns and distributed at select clubs, bars, and restaurants popular with the target market demographic. Another important and potentially cost-saving distribution channel for this market could be the vending-machine. The company could work with new technology that is developing in this area. Promotion could continue through this venue, and also in the abovementioned introductions, as well as traditional avenues of print and television media. “ For the new product development process to be successful, the objectives of maximizing fit with customer requirements, minimizing time-to-market, and controlling development costs must be achieved” (Schilling, 2009) REFERENCE Porter, M.E. (1980). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press Schilling, M (2009)> Strategic Management of Technology. New York. Read More