A2 Operations Management Research and Development

Research and Development (R&D) R&D - Scientific investigation necessary to discover new products or manufacturing processes. Innovation - bringing in new methods that have been researched and developed. Innovation ends with the implementation of new ideas and processes. R&D is not Market Research (It is directed at improving the product rather than finding out what the consumer thinks/wants)

Purposes of Research and Development Helps develop new products that have a unique selling proposition/point (USP) Discovers new inventions that can be patented which will give the business a monopoly Develop higher quality products Improve the efficiency of production Update a product range continually to stay ahead of the competition e.g. Sony, Apple, Dyson, Microsoft, Pfizer, GlaxoSmithKline Creating new products and ideas stimulates and motivates employees and makes it easier to recruit

Problems with R&D No guarantee the expenditure will lead to new products and processes The level of uncertainty makes it difficult to justify expenditure e.g. research into the common cold R&D spending may encourage rivals to carry out similar activities, therefore both increase costs so no competitive advantage gained A new idea may already have been developed and patented by another firm Rushed new products and testing to beat competition may result in problems and damaged reputation Industries such as pharmaceuticals have many ‘generic’ copy cat products produced cheaply as soon as the patent expires and have not suffered the cost of R&D

Student activity Use the AQA textbook Pg 264 to complete the following questions 1. Describe 4 ways a firm might ensure successful R&D takes place 2. Briefly describe how R&D links to Product design, the product life cycle and market research 3. List some of the factors that influence how much businesses should spend on R&D Read page 268 and 267 on R&D spending (25 mins)

Effective R&D An innovative organisation culture must be in place that encourages and rewards the use of initiative by employees and is prepared for failures as well as success e.g. Apple + Hewlett Packard Successful ideas produced through R&D must be protected through patenting. The patent holder is the sole user of that process/product for 20 years after the registration. This right may be sold. Market Research must be carried out - Products must be developed that are attractive to the consumer

Activity 1: Watch the Apple video What features of Apple make it a successful and innovative firm. What are the benefits to Apple of spending large amounts of money on R&D? Activity 2 Read the article from “Business Week” about Shimano (p.271 Wolinksi/Coates A2 AQA Textbook) Explain the nature of the link between R&D and market research. How is this different from how Apple have approached R&D?

Funding R&D and the Product life cycle R&D should be started promptly before the current product reaches decline in its product life cycle. Therefore there should be no gap in sales revenue as the new product sales will compensate for the fall in the old product. Often companies have a range of products and will use money from a cash cow (Boston matrix) to finance R&D for another product. Money from product A sales can fund R&D for Product B R&D expenditure Sales Time Product A Product B

Why might firms not use R&D UK businesses have a low level of investment in R&D. This may be because: Cannot raise sufficient funds May be perceived as risky if no return May wish to invest the funds elsewhere e.g. training Short-termist view from management Conflict between management’s desire to invest in R&D and shareholders desire for higher dividend payments

Student activity Read the business review article and highlight important information