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