3.4 Research and Development (R&D) Strategy

R&D Strategy deals with product and process innovation and improvement. It also deals with the appropriate mix of different types of R&D (basic, product, or process) and with the question of how new technology should be accessed- through internal development, external acquisition, or strategic alliances.

One of the R&D choices is to be either a technological leader, pioneering an innovation, or a technological follower, imitating the products of competitors. Porter suggests that deciding to become a technological leader or follower can be a way of achieving either overall low cost or differentiation. (See table 8-1).

3.4 Research and Development (R&D) Strategy

One example of an effective use of the leader R&D functional strategy to achieve a differentiation competitive advantage is Nike, Inc Nike spends more than most in the industry on R&D to differentiate the performance of its athletic shoes form that of its competitors. As a result, its products have become the favorite of serious athletes. An example of the use of the follower R&D functional strategy to achieve a low-cost competitive advantage is Dean Foods Company. ``We're able to have the customer come to us and say. If you can produce X, Y, and Z product for the same quality and service, but at a lower price and without that expensive label on it, you can have the business,’’ says Howard Dean, president of the company.

An increasing number of companies are working with their suppliers to help them keep up with changing technology. They are beginning to realize that a firm cannot be competitive technologically only through internal development. For example, Chrysler Corporation’s skillful use of parts suppliers to design everything from car seats to drive shafts has enabled it to spend consistently less money than its competitors to develop new car models. Using strategic technology alliances is one way to combine the R&D capabilities of two companies. Maytag Company worked with one of its suppliers to apply fuzzy logic technology to its IntelliSense dishwasher. The partnership enabled Maytag to complete the project in a shorter amount of time than if it had tried to do it alone.

A new approach to R&D is open innovation, in which a firm uses alliances and connections with corporate, government, and academic labs to learn about new developments. For example, Intel opened four small-scale research facilities adjacent to universities to promote the cross- pollination of ideas.

3.4 Research and Development (R&D) Strategy

Mattel, Wal-mart, and other toy manufacturers and retailers use idea brokers such as Big Idea Group to scout for new toy ideas. Big Idea group invites inventors to submit ideas to its web site (www.bigideagroup.net). it then refines and promotes to its clients the most promising ideas. To open its own labs to ideas being generated elsewhere, P&G’s CEO Art Lafley decreed that half of the company’s ideas must come from outside, up from 10% in 2000 P&G instituted the use of technology scouts to search beyond the company for promising innovations. A slightly different approach is for a large firm such as IBM or Microsoft to purchase minority stakes in relatively new high-tech entrepreneurial ventures that need capital to continue operation. Investing corporate venture capital is one way to gain access to promising innovations at a lower cost than by developing them internally.