Operational Strategies: Innovation

Section 3.4

Chapter 13

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Research and development

But before you can make a new business idea happen, you need extensive research and development!

Research and development: the scientific research and technological development of a new product or process
It can be expensive and time consuming, but it is the process by which firms are able to develop new products, new materials, improve existing products and improve production processes. Through this they can innovate and enjoy the competitive advantage generated by the USP or greater productive efficiency 
It is the first stage of the product life cycle, prior to the product launch, at a point where money is only flowing outwards so firms want to keep this to a minimum to help cash flow

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The process of R&D

Idea Generation
I
Idea Screening
I
Concept Testing
I
Development of Ideas

 R&D involves lots of investment in time and money, the firm want to know when the outcome is launched, know that it is thoroughly researched, tested and developed.

Idea generation- the process of identifying a wide range of possible new ideas

Idea screening- the process of streamlining all the ideas generated to shortlist those worthy of consideration involves considering the practical nature of the idea in terms of resources available and customer needs

Concept testing- the process of pitching potential ideas to consumer panels to assess their reactions reactions gathered to consider further viability of the concept

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Development of ideas- responses from the consumer panels are used to develop those ideas still seen as potentially viable

Business analysis- the process of investigating the economic and practical viability of an idea considering whether each one has the potential to make a profit, whether hey can turn the idea into a marketable good/service at an affordable price and whether there will be sufficient demand for it, at this point the firm should also consider whether it fits into their current portfolio

Product development- developing the potentially successful products into working prototypes that can be fully tested

Test marketing- launching the product into a small target market, normally geographically defined, in order to identify any final adjustments necessary before launching the product fully

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Purpose and costs of R&D

The purpose of R&D is to keep your product or service at the cutting edge, allowing for competitive advantage and charging premium prices. It is through that businesses maintain their position as market leader, or gain market share

The costs of R&D are large sums of money invested into the process, which doesn't even guarantee a successful outcome 

When the outcome of R&D is used for economic gain, a firm can gain competitive advantage

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Innovation

Innovation: the launch of a new product or process, and invention onto the market for commercial gain. The extension/progression of a new idea, practical application of new ideas making them real 
Normally an invention will be patented because when a company launches a new product or process it wants to be able to recoup the cost of this by being a market leader. It does not want to have invested heavily in R&D to find that competitors have copied the idea and take the rewards from it 

Risks of innovation:

  • Heavy time and resource commitment with no guarantee of success
  • Potential loss of focus on core function of the business
  • Competitors reactions
  • Company image/reputation if the product fails or detracts from the norm

Potential rewards of innovation:

  • Development of a USP leading to competitive advantage
  • Ability to charge premium prices
  • Improvements in the efficiency of production processed
  • Reputation as being innovative in an industry


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Impact of innovation on marketing, finance and HR

The actions of functional areas of a business will affect others

Marketing:
This department may have acted to inform the R&D department in the first place of a potential niche or of consumer opinions. Marketing department will also have a major role in getting the product to the customer and designing effective marketing mix in order to achieve sales targets

Finance:
Will be involved from the onset in setting and monitoring budgets for R&D, they are also likely to be involved in costing the new products and looking at possible pricing structures and profit levels alongside the marketing department

Human resources:
They will need be to be informed of the work of R&D and have an opportunity to contribute to the decision making process, which could include the need for new skilled workers to manufacture or the need to reduce staff numbers due to innovations in the production process.  

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