Research And Development
Research and Development (R&D): the scientific research and technological development of a new product or process.
Can be expensive and time consuming, but is the process through which firms are able to develop new products, new materials, improve existing products and improve production processes.
It is through this that they can innovate and consequently enjoy the competitive advantage generated by a USP or greater production efficiency.
R&D is the first stage of the product life cycle. At this point money is only flowing outwards. Therefore, firms want to keep the time spent on R&D to minimum, in order to help cash flow and also achieve first mover advantage.
However, it is an ongoing process as many firms will be looking for continual improvements, as well as how to stop a product from going into decline once at the mature stage of the life cycle.
The Process of R&D
Idea generation: the process of identifying a wide range of possible new ideas. Team is encouraged to think imaginatively, and at this stage no consideration is given to the practicality of the ideas as this may stifle creativity. Organisations with an enterprising culture may involve employees in this process.
Idea screening: the process of streamlining all the ideas generated to shortlist those worthy of further consideration. Ideas narrowed to a small number of potentially viable ones by considering the practical nature of the idea in terms of resources available and costumer needs. Some organisations may choose to involve consumers at this stage in the form of focus groups, but this may be left until the next step in the process.
Concept testing: the process of pitching potential ideas to consumer panels to assess their reactions.
Limited numbers of ideas are shared with consumer groups to assess their responses and consider further the viability of the concept.
Provide information on the core and actual aspects of the product or service.
The responses from the consumer panels are used to develop those ideas still seen as potentially viable- Development of ideas.
Business analysis: the process of investigating the economic and practical viability of an idea.
Involves considering whether or not each one has the potential to make a profit.
Whether they can turn the idea into a marketable good or service, at an affordable price and whether there will be sufficient demand.
A business should also consider where the new product or service will fit into their current portfolio.
One concern here may be cannibalism. I.e. whether the new product will just attract current customers to switch products and not attract new customers, in which case there may be little benefit.
Product Development & Test Marketing
Business should now just be left with the ideas which are both feasible to the business and acceptable to the target market.
Product development means developing these potentially successful products into working prototypes that can be fully tested.
Test marketing involves launching the product to a small target market, normally geographically defined, to identify any final adjustments necessary before rolling the product out fully.
Care must be taken here as it will be the first time the market and competitors will have access to the product.
The purpose and costs of R&D
Purpose of R&D is to keep your product or service at the cutting edge.
Allows for competitive advantage and the charging of premium pricing. Allows a business to maintain their position as market leaser or gain market share.
Costs of R&D must be considered-large sums of money are invested in R&D without the guarantee of a successful outcome.
Opportunity cost must be considered.
It is only when the outcome of R&D is used for economic gain that it leads to competitive advantage.
The practical implementation of the results of the R&D is the launch of a new product or process so that it becomes an innovation.
Innovation: the launch of a new product or process, an invention, onto the market for commercial gain.
Normally an invention will be patented because, when a company launches a new product or process, it wasn’t to be able to recoup the cost of this by being a market leader.
Does not want its competitors to copy the idea and reap the rewards without having taken the risks by being able to undercut on price because they do not have the high R&D costs associated with an innovation.
Risks and Rewards
Possible risks of innovation include:
· Heavy time and resource commitment with no guarantee of success
· Potential loss of focus on core function of business
· Competitors’ reaction
· Company image and reputation if new product fails or detracts from brand image.
The potential rewards of innovation include:
· Development of a USP leading to a competitive advantage
· Ability to charge premium prices
· Improvements in the efficiency of production processes
· Reputation as being innovative in an industry.
Impact of innovation on marketing, finance and hum
May have acted to inform the R&D department of a potential niche or of consumer opinions. This means business is taking a market led approach to new product development.
The marketing department is also going to have a major role to play in getting the product to the customer and designing an effective marketing mix in order to achieve sales targets.
Setting and monitoring of R&D costs. During the business analysis process they are likely to be involved in costing the new products and, also with marketing, looking at possible pricing structures and potential product levels.
Likely to have workforce planning issues. It is going to be important that all the functions have an input and integrated approach from the outset and not just after a product has reached the development stage. Adoption of simultaneous engineering from the beginning can save a lot of time, money and expensive reworking of a product.