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IB BM 5.6 - Research and Development (HL)
Terms in this set (22)
Research and Development
The scientific research and technical development of new products and processes
The formulation or discovery of new ideas for products or processes.
The practical application of new inventions into marketable products.
The importance of R&D to business:
1. Competitive advantage
2. Can create intellectual property rights
3. Customer loyalty
4. Premium prices
6. Lower costs
Advantages of R&D
1. Creation of high-tech jobs
2. Creation of high-added value products that may then be manufactured in that country.
3. Prestige - a country is linked to scientific and technological breakthroughs
4. Attraction of investment by multinational corporations.
Benefits of R&D
1. Competitive advantage over competitors
2. Intellectual property rights
3. Customer loyalty
4. High premium prices
6. Lower costs
Limitations to R&D
1. R&D does not always lead to innovation
2. R&D is expensive and has an opportunity cost
3. Inventions do not always lead to successful innovative products
4. Competing R&D spending may result in even more successful products
5. Ethical issues can sometime outweigh the potential commercial benefits
Refers to creations of the mind such as inventions, literary and artistic works and symbols, names, images and designs used in business.
Intellectual property rights
Legal property rights over the possession and use of intellectual property.
Legal right of an invention for a certain period of time to be the sole producer and seller.
Legal right to protect and be the sole beneficiary from artistic and literary works.
A distinctive name, symbol, motto or design that identifies a business or its products - can be legally registered and cannot be copied.
Benefits of intellectual property:
1. Sets a business apart from its competitors and encourages increased sales as a result of this distinctiveness.
2. Be sold or licensed to provide an important revenue stream.
3. Form a key part of the branding process and assist in the marketing of the firm's products.
4. Can be given a financial value on a firm's balance sheet which increases net assets.
- Market research can help find unmet needs of consumers.
- Some innovations are so different that customers may not realize they are needed until they are marketed (e.g. LED lights)
- Not all innovations satisfy unmet needs and if this is the case, the product fails.
- R&D is usually directed towards developing products that market research indicates will meet and unmet need.
New, marketable products such as the Apple iPad
New methods of manufacturing or service provision that offers important benefits
Innovation that involves re-positioning the perception of an established product or process in a specific context. Position-based innovations refer to changes in how a specific product or process is perceived symbolically and how they are used.
Innovation that defines or redefines the dominant paradigms of an organisation or entire sector.
The use of imagination or original ideas to create something; inventiveness.
Refers to thinking that applies existing solutions, techniques, or products to new scenarios or changed conditions. Minor incremental changes to make things better (e.g. cameras in cell phones).
Refers to thinking that results in new (innovative) solutions.
Innovative creativity is more like radical changes which transform the products and services available (e.g. Skype).
Factors affecting the level of R&D and innovation by a business:
The nature of the industry
. Rapidly changing technologies - consumer expectations - in pharmaceutical products, defence, computer and software products and motor vehicles lead to the need for substantial investment in R&D by leading firms. Other businesses such as hotels and hairdressing would need to spend far less as the scope for innovation is more limited.
The R&D and innovation spending plans of competitors
. In most markets, it is essential to innovate as much as or more than competitors if market share and technical leadership is to be maintained. However, a monopoly may limit R&D spending if it believes that the risk of a more technically advanced competitor entering the market is limited. On the other hand, profits from a monopoly could be used to finance research and development into innovative products if the risk of competitor entry into an industry is high.
The risk profile or culture of the business
. The attitude of the management to risk and whether shareholders are prepared to invest for the long term will have a significant effect on the sums that businesses can inject into R&D programmes.
towards grants to businesses and universities for R&D programmes and the range and scope of tax allowances for such expenditure will influence decisions by businesses.
is needed for effective R&D. In many firms this many be limited and will restrict the number of new innovations that could be made.
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