Due to increased competition and accelerated product development cycles, innovation and the management of technology is becoming crucial to corporate success. The importance of technology and innovation must be emphasized by people at the very top and reinforced by people throughout the corporation. Management has an obligation to not only encourage new product development, but also to develop a system to ensure that technology is being used most effectively with the consumer in mind.
External Scanning: Corporations need to continually scan their external societal and task environments for new developments in technology that may have some application to their current or potential products, Stakeholders, especially customers, can be important participant in the new product development process.
- Technological Developments: Focusing one’s scanning efforts too closely on one’s own industry is dangerous. Most new developments that threaten existing business practices and technologies do not come from existing competitors or even from within traditional industries. A new technology that can substitute for an existing technology at a lower cost and provide higher quality can change the very basis for competition in an industry.
- Impact of Stakeholders on Innovation: A company should look to its stakeholders, especially its customers, suppliers, and distributors, for sources product and service improvements. These groups of people have the most to gain from innovative new products or services. Under certain circumstances, they may propose new directions for product development. Some of the methods of gathering information from key stakeholders are using lead users, market research, and new product experimentation.
- Lead Users: Companies should look to lead users for help in product development, especially in high technology industries where things move so quickly that a product is becoming obsolete by the time it arrives on the market. These lead users are “companies, organizations, or individuals that are well ahead of market trends and have needs that go far beyond those of the average user. They are the first to adopt a product because they benefit significantly from its use-even if it is not fully developed.
- Market Research: A more traditional method of obtaining new product ideas is to use market research to survey current users regarding what they would like in a new product. This method has been successfully used by companies such as Procter & Gamble to identify consumer preferences. It is especially useful in directing incremental improvements to existing products.
- New Product Experimentation: Instead of using lead users or market research to test the potential of innovative products, by “probing” potential markets with early versions of the products, learning from the probes, and probing again.
Internal scanning: In addition to scanning the external environment, strategists should also assess their company’s ability to innovate effectively by asking the following questions:
- Has the company developed the resources needed to try new ideas?
- Do the managers allow experimentation with new products or services?
- Does the corporation encourage risk taking and tolerate mistakes?
- Are people more concerned with new ideas or with defending their turf?
- Is it easy to form autonomous project teams?
In addition to answering these questions, strategists should assess how well company resources are internally allocated and evaluate the organization’s ability to develop and transfer new technology in a timely manner into the generation of innovative products and services.
Resource Allocation Issues: The Company must make available the resources necessary for effective research and development. Research indicates that a company’s R&D intensity (its spending on R&D as a percentage of sales revenue) is a principal means of gaining market share in global competition. The amount of money spent on R&D often varies by industry.
Time to Market Issues: In addition to money, another important consideration in the effective management of research and development is time to market. A decade ago, the time from inception to profitability of a specific R&D program was generally accepted to be 7 to 11 years. Time to market is an important issue because 60% of patented innovations are generally imitated within 4 years at 6.5% of the cost of innovation.
Strategy Formulation: Research and development strategy deals not only with the decision to be a leader or a follower in terms of technology and market entry but also with the source of the technology. Should a company develop its own technology or purchase it from others? The strategy also takes into account a company’s particular mix of basic versus applied and product versus process R&D. The particular mix should suit the level of industry development and the firm’s particular corporate and business strategies. In addition, R&D strategy in a large corporation deals with the proper balance of its product portfolio based on the life cycle of the products.
Product versus process R&D: The proportion of product and process R&D tends to vary as a product moves along its life cycle. In the early stages, product innovations are most important because the product’s physical attributes and capabilities most affect financial performance. Later, process innovations such as improve manufacturing facilities, increasing product quality, and faster distribution become important to maintaining the product’s economic returns. Generally product R&D has been key to achieving differentiation strategies, whereas process R&D has been at the core of successful cost leadership strategies. To be competitive, companies must find the proper mix of product and process R&D.
Technology Sourcing: Typically a make-or-buy decision, can be important in a firm’s R&D strategy. Although in-house R&D has traditionally been an important source of technical knowledge for companies, firms can also tap the R&D capabilities of competitors, suppliers, and other organizations through contractual agreements.
A company should buy technologies that are commonly available but should make (and protect) those that are rare, valuable, hard to imitate, and have no close substitutes. In additions, outsourcing technology may be appropriate when:
- The technology is of low significance to competitive advantage.
- The supplier has proprietary technology.
- The supplier’s technology is better and/or cheaper and reasonably easy to integrate into the current system.
- The company’s strategy is based on system design, marketing, distribution, and service-not on development and manufacturing.
- The technology development process requires special expertise.
- The technology development process requires new people and new resources.
Licensing technology to other companies may be an excellent R&D strategy-especially in a turbulent high tech environment where being the first firm to establish the standard dominant design may bring competitive advantage.
Importance of Technological Competence: Companies must have at least a minimal R&D capability if they are to correctly assess the value of technology developed by others. Those corporations that do purchase an innovative technology must have the technological competence to make good use of it. Some companies that introduce the latest technology into their processes do not adequately assess the competence of their people to handle if. A corporation may acquire a smaller high technology company in order to learn not only the new technology, but also a new way of managing its business.