Section 3.9 - Strategic Methods

Question 1

Innovation - definition

Answer 1

Means thinking of a new idea and putting it into action e.g. new product/new process.

> many businesses have a research and development department that drives innovation
can help them to stay ahead competition, expand markets and increase market share
pressure to innovate is greater in some industries more than others

Question 2

Innovation - benefits

Answer 2

• businesses with lots of innovative products can take advantage of economies of scope
• innovations in processes can help add value to exiting products and services
• good for reputation - people will be naturally interested in future products
• can initially charge higher prices for innovative products and services before competitors do

Question 3

Innovation - drawbacks

Answer 3

• risk ruining reputation if the innovative product is poor quality
• businesses might not be able to produce the new product on a large scale at a low enough cost - no guaranteed return on investment.
• can end up wasting resources by developing something customers don’t want
• can be very costly and time consuming - businesses risk running out of money if they invest too much R&D.

Question 4

Innovation - impact on functional areas of the business

Answer 4

Finance:
> R&D for innovative product is
expensive
> the finance department might need to raise extra working capital