Link With Product Innovation Process & R&D Investment

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Link With Product Innovation Process & R&D Investment

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Link With Product Innovation Process and R&D Investment:

Link With Product Innovation Process and R&D Investment Dr. G C Mohanta, BE( Mech ), MSc( Engg ), MBA, PhD(Mgt) Professor Al-Qurmoshi Institute of Business Management, Hyderabad - 500005

Product Innovation Process :

Product Innovation Process The innovation process is the integration of existing technology and inventions to create a new or improved product, process, or system . Innovation in the economic sense is accomplished through the utilization and commercialization of a new or improved product, process, or system.  Various technology-based organizations look at the overall innovation process differently. In a general sense, the innovation process includes : (1) identifying the market need or technology opportunity, (2) adopting existing technology that satisfies this need or opportunity, (3) inventing (when needed), and (4) transferring this technology by commercialization or other institutional means.

Product Innovation Process (Contd.):

Product Innovation Process (Contd.) The innovation process integrates project need, invention and development, and technology transfer . Ideas and concepts are generated in each of these three major stages. The innovation process is accomplished when these three stages culminate in the utilization and commercialization of a new or improved product, process, or system. Developing the ‘right’ new products through innovation, is critical to the firm’s success and is often cited as the key to a sustained competitive advantage.

Link With Product Innovation Process and R&D Investment:

Link With Product Innovation Process and R&D Investment Any company that engages in new product development faces the important problem of allocating resources between innovation initiatives in a portfolio. When resource allocation decision for new product development portfolio is made, the choice may be: Allocate resources to the development of fundamentally new technologies, products, and markets that are naturally more risky investments, or Improve existing technologies, extend product lines without excessive risk. The former investments have the lure of potentially high-payoffs, while the latter often result in smaller payoffs .

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) The following 9 steps may be taken in linking Product Innovation Process and R&D investment: 1. Understand the market – Before conducting R&D, an exercise may be made to fully understand the marketplace in which to compete. To make an investment decision, one first needs to know where the markets are going . Generally speaking, the five year view looks back over three years and focuses intently on where markets are going over the next two years . This analysis helps to understand the ‘big picture’ and what is happening to core technologies, the marketplace and what new technologies are impacting upon the particular markets.

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) 2. Define the strategic goals - Whilst researching the overall market position, one should also define the specific strategic goals of the R&D output .   This helps inform other parts of the business where the organisation is, where it wants to go and how it wants to get there. This can take the form of a ‘mission statement’ or a five year plan , if one wants to set the stage for a strategy to substantially extend the organisation’s capability.

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) 3. Know your capabilities - To create an efficient investment plan one must understand the company’s abilities and resources. Underestimation can lead to an inefficient use of resources, but overestimation can be catastrophic to the successful completion of projects, meeting revenue & profit targets.  Some businesses perform annual audits of their R&D capabilities to accomplish this and assist in the investment process. If the review reveals shortcomings in capability or that it is not possible to utilise the existing resource efficiently, then outsourcing the R&D may be an alternative option.

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) 4. Include partnerships - Whilst creating an R&D investment plan for the business is fairly well understood and straightforward, it is rare that no external resources are required at all . Integrating the legal, technological and IP ownership complexities of an alliance, collaboration or partnership can easily complicate an otherwise controllable investment plan. They must be included however; otherwise the plan will certainly fail as projects progress .

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) 5. Plan for contingencies – Investment plan is always an estimation of costs, based on experience and guesswork. Therefore, it is likely that the investment may have been either under or over estimated. Although it is always the objective to submit a ‘realistic’ investment, it is prudent to include a contingency fund which is generally based upon historic norms. Depending on the experiences, contingencies can sometimes be as much as 20% of an overall R&D investment.

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) 6. Use forecasting models when possible - All forecasting models have strengths and weaknesses. One-year projections generally have a high reliability, but the reliability of five year views are generally low. With the rapid change of technologies and markets, the assumptions included in the models can quickly become out of date. 7. Link R&D investment to revenue growth - Expenditure on R&D projects is rarely confined to one fiscal year and it can be a number of years before a new product is finally manufactured. By breaking down the R&D investment into product related investment streams, the link between revenue growth and R&D spend can be modelled.

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) 8. Bring in the experts - All R&D investments go through a number of refinements. Bring in the staff that will be involved in the project to get the finer details of what will be involved and required .  This information can be used to create a database of the investment information, capabilities, resources, models, personnel, experts, etc. This provides managers the ability to continuously fine tune the investment as it goes through subsequent iterations. 

Link With Product Innovation Process and R&D Investment (Contd.):

Link With Product Innovation Process and R&D Investment (Contd.) 9. Consider the sources of investment - As companies grow and evolve over time or change their planning processes, so the provider of funds for an R&D project can change. These changes can take time but the way the structure of the investment process is performed can alter.  Sometimes the process may be to create or take advantage of new technologies, at other times it may be to support individual business units with next-generation products to help win increased market share.

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