Chapter 61 - innovation, research and development Flashcards
what is innovation?
innovation is introduction of a new idea, or method of production or new equipment into the production process. it is a new and better idea that should result in an increase in productivity that occurs to meet a market need.
how does innovation come about?
innovation will often arise as a result of research and development of the business, but it could also come at the suggestion of:
> employees
> as a result of solving problems in the production process
what is the difference between Product & Process innovation?
> product innovation is the introduction of a new and usually better product to the market.
> process innovation is the introduction of a new production process that improves productivity and lowers costs or produces improvements to the original product, or produces as completely new product.
what is research and development?
research and development is a process that enables the creation of new or improved products to meet the needs of its consumers.
why is Research and Development important?
> it is essential for many businesses, particularly those in highly competitive or technological markets.
keeping up with or being ahead of competition is vital if a business is to survive. - means lots of money is spent in order to stay ahead ( especially in businesses involved with mobile phones, cameras, airplanes or medical drugs).
the importance of R&D has grown as a consequence of increasing globalisation.
many markets are international and therefore open to competitors, often with a advantage in terms of cheap labour costs.
one way to stay competitive in such a global market id to ensure sufficient amounts of money are spent on research and development in order to gain in terms of technological advancement.
what are the advantages of research and development?
research and development:
- is necessary to launch new products successfully, to ensure they meet the customers’ needs.
- examines how to improve the production process and its efficiency.
- explores alternative materials to produce the goods.
- aims to reduce the amount of waste generated in the production process.
these actions will help a business to maintain or gain a competitive advantage. innovation can allow the business to charge premium price as a reward for its high costs.
what are the problems of research and development?
[ COST ]
- can be very expensive
- cost depends upon nature of the product
[ RISK ]
- there is no guarantee of success (research doesn’t necessarily yield effective results)
- consequently, the money spent will be a cost without any revenue to cover costs. ( often explains high prices of certain products such as sophisticated technological products)
[ COPYING FROM OTHER BUSINESSES ]
- even if the R&D is successful, there is a danger of other companies copying any new initiatives
- patents do not last forever
- companies that copy products will have not incurred the same r&d costs, and could charge less for their product
[ LIMITED PROTECTION OF NEW IDEAS ]
- patents do not cover all aspects of new products
- nothing can prevent a copy being made if no patents have been applied for
- it is time consuming and expensive to prove that a copy has been made
[ COPING WITH RAPID CHANGES IN TECHNOLOGY ]
- for certain industries the rate of exchange is significant
- e.g. the mobile phone industry: the technological rate of progress is so fast that without r&d, a business could fall out of the market very quickly if it failed to keep pace with the level of changes being made
[ CONSTANT CHANGES MAY ANNOY CONSUMERS ]
- e.g. although some consumers may crave the latest model, some are happy with the type and model they have, and become annoyed if their next phone operates in a totally different way
- being unable to replace old parts for old models may be frustrating; may feel like there being forced to update their phone unnecessarily
[ UNEMPLOYMENT ]
- constant improvements because of research and development has meant in many cases a shift from labour to capital intensive processes.
- this can have a significant effect on the level of employment
[ TECHNOLOGICAL CHANGES ]
- has led to many changes in the working practices of employees
- the workplace has been altered by hot-decking, and video/telephone conferencing, ad more people being able to work from home
- this is a disadvantage in the terms of isolation and the lack of team building
why is market research important?
> the business needs to ensure that the product will be something which the customer will want to buy
it is essential to undertake market research to ensure that a market-orientated approach is adopted
there are very few types of of product which are product orientated, where MR is not undertaken
research into market trends is important, especially as fashion and consumer lifestyles are constantly changing.
a business may wish to influence or set trends
how easy this is to achieve will depend on many factors including the size of the business, its financial status and the skill of the R&D department
research may also take place within the business to assess its capability to produce a new product. this will involve a consideration of the resources required to make the new product, in terms of capital equipment & materials to be used
define product orientation:
this means that a business concentrates its activities on improving quality or efficiency of the product.
define morphological study:
a method that generates a lot of ideas very quickly and therefore means more cheaply
brainstorming
> whether this takes place before or after any initial research will vary, according to the type of business and the products involved
however, morphological studies can generate ideas very quickly
what are the three aspects to value analysis?
- FUNCTION
- the nature of the product will determine its task
- e.g. a mobile phone needs to be capable of making and receiving calls and texts
- for many products the functional aspect is taken for granted by consumers, but at the R&D stage, this is of paramount importance, simply because if it does not fulfil its function, the time will be useless - COST
- will vary depending on on the nature of the product and the market in which it is to be sold
- keeping dow costs for any product allows the business to be competitive and/or profitable
- how the product is perceived can also be improved; being good value for money may be attractive to the customer
- it is often a challenge to guarantee the functional element of a product without incurring high costs
- different materials can me considered to reduce costs, ensuring that they do not reduce the functional ability of the product - AESTHETICS
- this is where the looks of the product become important
- for some goods, the look is of little importance
- clothes are a good example of when aesthetics of the product are a top priority
- ensuring that the product and its packaging appears attractive is vital for many goods.
balancing the three aspects of value analysis
- different products will priorities different aspects of value analysis
- for example, high fashion clothing will value aesthetics over anything else whereas paper cups will prioritise cost
- there are some products for which it is hard to suggest which aspect of the value analysis triangle takes priority e.g. cars.
- the R&D is to straightforward and its complexity will vary according to the product
- cutting costs may affect the quality and the reliability of its functional qualities
- spending too much on the functional aspects or aesthetics may affect the ability of the marketing department to sell the product
what factors affect research and development?
[ LEVEL OF COMPETITION IN THE MARKET ]
- if the product in question is in a highly competitive market, it is more likely that R&D expenditure will be higher
- a competitive advantage maybe gained, but any additional R&D expenditure may affect the costs of the business
- increases in costs may affect the level of pricing, and therefore the products competitiveness, and also the profit margins, which may already be tight in a competitive market
- International markets can be highly competitive, in which additional R&Dv could be essential to attract the customer faced with so much choice
[ PRODUCT ]
- the more sophisticated the product in terms of technology, the more likely that research and development will be needed to keep up with technological developments
- the pace of technological development within the telecommunications industry is very fast.
[ EXTERNAL ENVIRONMENT ]
- e.g. following the vast increase in the cost of oi in 2008, the car industry responded with further research and development into better fuel consumption. there was also additional R&D expenditure to lower carbon emissions, following the government’s decisions to introduce a progressive road fund licence tax based on emissions.
[ STATE OF THE ECONOMY ]
- when the economy is in recession, it is more likely that the businesses will undertake cutbacks. one such cutback is research and development expenditure.
[ RESPONDING TO A PARTICULAR PROBLEM ]
- for example, Coca Cola bottle suppliers were faced with the problem of distributing large bottles to be filled at different plants. they quickly worked on the problem to reduce costs, as distributing empty one and two litre bottles was expensive.
