Operational Strategies: Innovation

A2 Business Studies

Aims and Objectives

Aim:• Understand innovation as an operational strategy.Objectives:• Define innovation and R&D• Describe the R&D process• Analyse functional areas relationship to

innovation• Evaluate functional areas relationship to

innovation

Starter

• Think of 4 products which have recently been launched onto the market.

• How have these influenced the lives of consumers?

• How have competitors reacted to these new products?

• What process have all of these products been through?

Research and Development

• Define research and development.

Definition:The scientific research and technological development used to create a new product or process.

http://www.youtube.com/watch?v=xzkaEUEFsoQ

Research and Development Process

Development of Ideas

Responses from consumers used to develop viable ideas.

Concept TestingBusiness forms focus groups to gauge customer reactions to the product/service and its functions.

Idea ScreeningConsidering the practical nature of the idea in terms of resources available and customers needs.

Idea GenerationOrganisations that have enterprising culture, may involve all employees in process. E.g. Google

Test MarketingLaunching a new product to a small target market to identify any final

adjustments. Business must be careful as competitors will see for first time.

Product DevelopmentDeveloping products into working prototypes which can be tested.

Business AnalysisThe business judges whether each has idea has the potential to make a profit. Business should consider product portfolio, will it attract new customers or just existing ones to switch products (cannibalisation).

Two Points of analysis from the data

Research and Development

• Why should businesses invest in R&D?• What are the likely costs to a business of

R&D?

Research and DevelopmentAnalysis

- Product kept at cutting edge- Creates a competitive advantage- Allows for premium pricing- Helps maintain market position or increase market share

- Opportunity costs e.g. money could be used to retrain staff, launch marketing campaign etc.

- Large sums of money invested without guaranteed success

Research and DevelopmentEvaluation

• However effective or creative R&D is it will not satisfy the operational objectives.

• Only when the R&D leads to a successful economic outcome that it leads to a comp. adv.

• Successful outcomes only come from extensive R&D and even then, product success is not guaranteed!

Innovation

• R&D is part of the process of innovation.

• Can Microsoft still innovate using R&D to build a comp. advantage with the rise of Apple and Sony?

• Microsoft spends $9bn (£5.5bn) a year on research and development - and yet its rivals are often seen as more innovative. Is this the case?

• http://www.bbc.co.uk/news/business-12582357• http://www.bbc.co.uk/news/business-12581442

Innovation

• Define Innovation

Definition:The launch of a new product or process onto a market.

• Task: Brainstorm what you feel the risks and rewards are of committing to R&D and Innovating new products.

Risks Rewards

Efficiency improvements in production

Charge premium prices

Development of USP, and competitive adv.

Build reputation as innovative business

Competitors reaction

Potential loss of focus on business.

Heavy time and resources commitment, no guarantee

of success.

If new product fails could affect brand image

Impacts of Innovation & R&D

• Round Robin

• Consider the impacts of a business embarking on a costly R&D innovation strategy to launch a new product on functional areas of the business.

– Marketing– Finance– Human Resources

• Feedback

Marketing

Finance

HR

Impacts of Innovation & R&Don Marketing

Marketing may help identify target market

May gather consumer opinions

May assist in using a market led approach

Will design marketing mix for product

Communicate new product to customer, so it is vital communication is good with operations.

Impacts of Innovation & R&Don Finance

Finance must set budgets for R&D and communicate these whilst monitoring them.

Costing of new products/processes

Work with marketing to set pricing structures

Profit, sales, cots of new products

Impacts of Innovation & R&Don Human Resources

R&D is likely to have workforce planning issues as there could be a need for new skilled workers to manufacture a new product.

Reduce workforce size, due to manufacturing innovations.

Impacts of Innovation & R&Don Functional Areas

Vital for all functions to have an input from the outset.

This simultaneous development and engineering can potentially save time, money and result in a more efficient process.

HRFinanceMarketing