5.6 Research & development

Introduction

  • Innovation: practical application of new inventions into marketable products.

The importance of research and development

  • Research and development (R&D): scientific research and technical development of new products and processes.

  • Benefits of successful R&D spending to business:
      * Competitive advantage: what sets your business apart from your competition.
      * Intellectual property rights: rights given to persons over the creations of their minds.
      * Customer loyalty: the fact of a customer buying products/services from the same company over a long period of time.
      * High, premium prices
      * Publicity: media attention for your product, service or business.
      * Lower costs

  • Limitations of research and development:
      * R&D does not always lead to an invention/discovery.
      * R&D is expensive and has an opportunity cost
      * Inventions do not always lead to successful innovative products
      * Competitors’ R&D spending
      * Ethical issues

Intellectual property rights

  • Intellectual property refers to creations of the mind such as inventions, literary and artistic works and symbols, names, images and designs used in business.

  • Intellectual property rights: legal property rights over the possession and use of intellectual property.

  • Copyright: legal right to protect and be the sole beneficiary from artistic and literary works.

  • Trademark: distinctive name, symbol, motto or design that identifies a business or its products - can be legally registered and cannot be copied.

Types of innovation

  • 4Ps Innovation Model:
      * Product innovation: introduction of a good/service that is new or significantly improved with respect to its characteristics or intended uses.
      * Process innovation: implementation of a new or significantly improved production or delivery method. This includes significant changes in techniques, equipment and/or software.
      * Positioning innovation: repositioning, taking a product/service and offering it in a new market, or with a new slant.
        * Example: AirBNB which originally positioned around conferences before moving into the general holiday and traveller industry.
      * Paradigm innovation: shifting of an underlying mental model via a change.
        * Examples: Henry Ford and the motorcar; iPhone

  • Example of a 4Ps innovation model for Aviva (European-based insurance and pension business):
      * Product innovation:
        * Providing more products that can be tailored to individual needs, e.g. additional options to basic products
        * More customer-orientated product development to suit changing customer profiles: “A product for each stage of your life”
      * Process innovation:
        * Making it easier to access information, e.g. launching phone app for updates
        * Increasing content available online, e.g. a virtual online assistant for frequently asked questions
      * Positioning innovation:
        * A traditional life insurance provider
        * Marketed as a household brand name that people can trust. Taking advantage of the history and the heritage of the firm
        * A mass-market provider as opposed to a niche provider
      * Paradigm innovation:
        * Changing public opinion of financial services
        * Becoming family-orientated
        * Educating people on financial responsibility

Factors affecting R&D practices and strategies in an organization

  • Nature of the industry
  • R&D and innovation spending plans of competitors
  • Business expectations
  • Risk profile or culture of the business
  • Needed finance for effective R&D
  • Ethical considerations