The Role of R&D Process in Innovation

The objectives of R&D are to develop existing and new core competencies, to further existing and new products, and to develop existing and new business processes through invention and innovation. [23] The R&D process is the engine that drives product and process differentiation. Innovation is typically defined as the ideas, the products, the services, or processes that are perceived as being new and different and they have been implemented or even commercialized.

Research and development are usually thrown together as one concept, but in reality they are somewhat distinct processes. [24] Research is typically considered to be science-oriented whereas development is the mechanism for translating the science into commercial products and services. Basic science can be thought of as the engine for pushing new discoveries and ideas into society. This is in contrast to the concept of market pull. Market pull is essentially the process of translating the basic science into products and services in order to satisfy customer needs, wants, and demands. The interaction between science push and market pull creates a very powerful feedback loop that spurs on the development and diffusion of new products and services. [25]

As noted earlier, the diffusion and awareness of technologies typically follows an S-curve. In the early stages of the S-curve, there are very few people aware of the technology. Market research is not important at this stage because there are few untapped wants because of the lack of awareness. As a technology matures and begins to take off, there is a propagation of awareness with increased insight of the possibilities of a technology. [26] It is at this stage that market research becomes viable. It is also at this stage that many similar products begin to emerge because of the surfacing of a kind of group aha because of the interconnectedness of businesses and research groups. This group aha occurs because market research by producers and product development laboratories leads to the same conclusions about consumer wants. Once consumers begin to use products and have had the opportunity to experience a product, they also begin to identify areas of deficiencies in the product and areas where a feature might be added. And this is where market research is very effective because market researchers are very adept at identifying changes in consumer wants.

As the market matures, the demand for the products also begins to decline with the emergence of substitute products and technological obsolescence. It is then necessary to re-prime the pump and reload science. This is done by working with new science and new technologies in order to identify new opportunities for developing products and services. The figure below “Push, Pull, and Reload” illustrates the concepts of science push and market pull and how they relate to diffusion and awareness.

Screen Shot 2015-02-07 at 14.27.01

Some individuals believe that there is a limit on the ability of innovative activities to bring new products to the market. This suggests that differentiation cannot go on forever. This line of reasoning is similar to the idea attributed to someone in the U.S. patent office that: “Everything that can be invented has been invented.” There is good news, however, from the patent office. Research has shown that companies can keep innovating and still contribute to the bottom line because it appears that, in general, there are no diminishing returns to scale for R&D expenditures. [27] In essence, continued investment in R&D yields rewards, revenues, and profits. Even though a particular technology may have a performance limit, advances in R&D and in basic science along with customer pull will start the process anew. Moore’s law continues to work for Intel because they continuously re-prime the pump. They have gone from focusing on the clock rate of their CPU, which is constrained by thermodynamic considerations, to exploring multiple CPU cores and restructuring the overall microarchitecture of their chips.

Extracted from

Developing New Products and Services by the Saylor Foundation: Available on http://www.saylor.org/site/textbooks/Developing%20New%20Products%20and%20Services.pdf

Product and Technology Life Cycles

Life cycles are a very useful way to understand how products and technology evolve over time. They are very useful in tracking product and process differentiation. They can be used to understand the evolution, growth, and decline of ideas and phenomena in the physical world, the plant and animal kingdom, and technology. The most commonly used life cycles in business are the technology life cycles and the product life cycles. They are used to track the diffusion of technologies and products.

Diffusion is the acceptance, adoption, and awareness of a technology or a product by individuals. The technology and product life cycles are essentially the same, except the product life cycle is focused on selling products while the technology life cycle is focused on innovation. The technology and product life cycles consists of four phases that follow the classic S-curve and they consist of awareness of the technology, technological growth, technological maturity, and a decline of interest in the technology

Screen Shot 2015-02-07 at 14.22.05

Extracted from:
Developing New Products and Services by the Saylor Foundation: Available on http://www.saylor.org/site/textbooks/Developing%20New%20Products%20and%20Services.pdf

The Kingpins of Product Differentiation and Entrepreneurial Innovation Activity

Jeff Bezos, founder and CEO of Amazon.com, and Steve Jobs, the former CEO of Apple, are excellent models of serial entrepreneurship and the differentiation strategy. Many businesses give lip service to the notion of satisfying customers’ wants. Bezos means it. He is a maker of markets, a veritable doer and inventor. Amazon did not have skills in developing electronic books or selling cloud computing, so Bezos embarked on a mission to develop competencies in electronic books and cloud computing. His goal was to satisfy customer needs for books anywhere and computing anywhere at any time at an attractive low price. Bezos even enlisted a Harvard MBA to craft a business plan for the cloud computing initiative. Here is the essence of the Bezos approach for developing new businesses:

  •   The business should be capable of generating significant returns.
  •   The business should be able to scale substantially.
  •   The business should address an underserved market.
  •   The market should be highly differentiated.
  •   The opportunity should be in an area where a company is well-positioned to provide a new service.
    Steve Jobs was always an experimenter and a doer. Although some of Apple’s products, such as the Newton, the Lisa, and Apple TV, might be considered failures, he bounced back numerous times and introduced dazzlingly exceptional products that have and still are dominating the market. He is a superb example of an experimenter who sometimes failed in the marketplace, but learned from his mistakes and achieved subsequent success. This is the hallmark of the serial entrepreneur.Our view of innovation does not require an expensive research lab, but it can. It does not demand a large team of physicists, chemists, engineers, and software developers, but it can. It does not need lots of money, even though it helps. Innovation, as always, just demands hard work and constant attention to searching for new ideas and building things, and is often accompanied by failure. Success is the result of a never-ending process of trial and error and being entrepreneurial.

    Extracted from

    Developing New Products and Services by the Saylor Foundation: Available on http://www.saylor.org/site/textbooks/Developing%20New%20Products%20and%20Services.pdf

Monopolistic Competition

Edward Chamberlin published the foundations of monopolistic competition in his 1933 book entitled The Theory of Monopolistic Competition. It is considered by some economists to have the same stature as John Maynard Keynes’s General Theory in revolutionizing economic thought in the 20th century. [8] The idea behind monopolistic competition is simple in form and powerful in practice.

Monopolistic competition involves many buyers, many sellers, and easy exit and entry, with slightly differentiated products. The sellers in these markets sell products that are closely related, but not identical. They have features that differentiate them from the competition. Usually, the buyers and sellers also have good information on the attributes of the products and the prices of the products in the marketplace. Indeed, most products and services are sold in markets characterized by monopolistic competition. The list includes jewelry, movie production, food, entertainment, many electronic gadgets and components, some durable goods, books, crafts, soda, houses, cars, consulting businesses, software, game consoles, restaurants, bars, and so forth.

A monopolist is a price setter and a business competing in a perfectly competitive market is a price taker. Most businesses strive to be price setters within a certain range of prices by offering a product that is closely related, but not exactly identical to other products in the market. The key strategy for competing in markets characterized by monopolistic competition is to offer products that are differentiated. The products are sort of quasi-substitutes, but they still resemble the original product or service. For example, Apple developed the iPod to compete with existing MP3 players.

According to standard economic theory, a purely competitive market has many buyers and sellers and each individual firm is a price taker. In essence, consumers and producers determine the market price for a product or service. In perfectly competitive markets, there are many sellers and buyers, and entry into and out of the market is easy. In a perfectly competitive market, companies sell their products at prevailing market prices where marginal revenue equals marginal cost. In actuality, every business would like to control the market, set the price, and be a monopolist. All businesses should strive to compete as a monopolist, even if it is in the short term. The goal is to rake in lots of money in the short term because your company is the only seller of a slightly differentiated product or service. [9] This will be short term (unless you have an exclusive patent on a product, own a large oil field, or have exclusive rights to providing cable or utility services) because successful products will always attract the competition. The only way to compete in contemporary markets is to become a serial entrepreneur, to constantly refine and reposition your products, and to function as a near-monopolist in the short term.

Source
Developing New Products and Services by the Saylor Foundation: Available on http://www.saylor.org/site/textbooks/Developing%20New%20Products%20and%20Services.pdf