Do we spend our research money wisely?
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O.i4EG.4 [nt. J. of Mgmt Sci., Vol. 12, No. ~, pp. 327-331, 1984 0305-0483 84 $3.00 ~0 00 Pnnted in Great Britain. All rights reserved Copyright ~ 1984 Pergamon Press Ltd
Do We Spend Our Research Money Wisely?
MORE and more firms find themselves in a rapidly changing and unpredictable environment. This represents a great managerial chal- lenge. In order to meet increasingly sharp competition both at home and abroad, the firm must be efficient in current operations--in manu- facturing, marketing and improving existing products. In addition, it must respond to change by renewal and innovative behaviour in order to secure future growth. In this context the word research has become a buzz word. It is something one cannot get enough of; the more the better. Millions of words are written and spoken every year blessing the benefits and calling for more spending on research both at national and company levels. For many, it appears to be the difference between failure and survival.
This somewhat sceptical introduction does not underestimate the importance of research. On the contrary, having worked a long life with problems directly or indirectly related to research and development both at the practical and the academic level, the author of this editorial certainly appreciates the value of research in technological progress and industrial development. However, he does not share the belief in the value of research as the only way to survival and future development of the firm. He recognizes that the role of research has been over- estimated in many cases and feels that its place depends on many situational factors and that a more balanced view would be beneficial. Research is not an end in itself, but one of several means for obtaining necessary renewals in the form of new products, new processes and new forms of leadership and organization.
An interesting illustration of the situational iofluence on research is found in Japan, where there has been a remarkable economic growth after the second world war. This has not been obtained primarily through pioneering new technologies, but by adopting, adapting and improving innovations made in other countries. The success is to a large extent due to a good educational system and excellent cooperation between industry and government. Although there are exceptions, most Japanese firms have their strength in the back end of the innovation process. They spend their resources on engineering, manufacturing and marketing, whereas companies in the West focus more on the front end of the process, on research and development.
Now it appears that a change has recently occurred in the application of research in Japanese industry. More and more firms are turning to
a strategy based on development of products rooted in new and original technologies. This is reflected in an increasing R&D effort. The reason appears to be that Japanese firms have reached such a high tech- nological level that they no longer have so much to learn from Western countries. In order to maintain and improve their competitive position, they rely more on manufacturing and marketing new high technology products developed by themselves. This strategy is also reflected in the educational system. In the past the major objective of technological education has been to graduate a large number of engineers in order to catch up with the countries advanced in engineering. Now the focus is more upon the provision of the new knowledge that will help Japanese firms to continuously develop the newest and most modern technology.
It can hardly be disputed that technological knowledge is a key element in successful technological innovation. Such knowledge is often acquired through one's own research and development. However, there is an increasing number of firms that recognize that in many cases they may benefit from acquiring technology from the outside. This can be obtained through a licensing arrangement, by sub-contracting research to an external organization, by hiring competent personnel, or by acquiring a firm that has the appropriate technology.
Technological knowledge is a necessary, but not sufficient condition for survival and growth. Successful product innovation also requires thorough knowledge about the market. This includes knowledge about competitors, their strategies, products, prices, strengths and weaknesses, about market trends, and above all, about human needs in terms of problems, requirements and wishes.
Up to now the provision of knowledge concerning human needs has been neglected in most firms. This is no longer satisfactory. In a competitive and increasingly complex environment product innovation activities cannot be based solely upon gifted individuals who are sensitive to such needs. As with technology, a purposeful and systematic approach is required in order to reduce the risk of failure when launching new products.
It is easy to conclude that both technological and market knowledge is necessary for successful product innovation. However, it is more difficult to indicate how much is required. Turning to industrial practice for an answer, the picture varies greatly.
At one extreme one finds the high-technology company which continuously initiates innovations and opens up new markets. One example is the Sony Corporation in Tokyo, which was founded after the second world war by a highly competent electronic engineer. Today the firm has more than 35,000 employees and markets its products world- wide. The remarkable growth is due to the develepment and maintenance of a high technological level. This has resulted in a number of pioneering innovations such as the high frequency transistor, the
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pocket transistor radio, the micro television receiver, the videotape recorder, etc.; several of them being the first of their kind in the world. From the start, when the company had only eight employees, it was based on some very innovative strategies:
- -Only the most advanced technology was to be used for making the products.
- -One should not rely upon copying what others had done. --Every effort was to be made to control quality in order to supply first
class products. - -The time factor was to be minimized in developing new technologies
and products in order to get sufficient lead time before similar products appeared.
The prevailing culture in the firm is characterized by apioneering spirit--one attempts to bring out products that never existed before, to encourage creativity, and to utilize the ability of each individual to the full.
An example of another strategy is found at Matsushita--one of the largest firms in the world in consumer electronics and home appliances. It was founded at the end of the first world war by a practical man who started as an employee in a bicycle repair shop. Its strategy has been to adopt and improve products developed by others and to focus upon efficiency in engineering, manufacturing and marketing. Great attention is given to adapting products to user needs. The major part of research and development goes to production engineering; the firm has 23 laboratories for this purpose. The remaining part of the R&D budget is used for analysing and improving on competing products.
A case in point is found in the development of the videotape recorder. Sony did the pioneering work in developing the new technology; its brand name "Betamax" was for many years synonymous with videotape recorders. However, after the product had been introduced on the market, Matsushita undertook a thorough need assessment and devel- oped a videotape recorder with larger capacity, with better reliability, and about 10~ lower price. The result of this strategy was that Matsushita got a substantial part of the world market in videotape recorders.
Most firms will have a technology strategy somewhere between those indicated above. An interesting example is found in a Scandinavian firm which produces large quantities of sophisticated components for con- trol, regulation and automation. These are sold to manufacturers of capital goods. The basic Objective is to maintain a high annual growth rate; if this cannot be reached with established product lines, the strategy is to plan for horizontal diversification by adding one or more new lines. The firm does not have the capacity for handling all new products with its own engineering staff. It therefore brings in new technologies from
outside through commercial agreements. This reduces the technical risk and the time span for completion of new projects. In addition to buying new technology from outside, product development is undertaken both in product divisions and in the central R&D department. Most projects are concerned with improving existing products and adapting and improving technology adopted from outside. Now and then one also succeeds in bringing out a new product of a pioneering nature. Great effort is given to obtain efficient mass production by means of highly automated manufacturing processes. As soon as a process reaches an efficiency level which cannot be substantially improved in economic terms, a special group is established and given resources to develop a new manufacturing concept. With increasing demand for product quality, influenced by consumerism and government regulations, great attention is given to the provision of i~formation about human needs; this is considered to be one of the most important aspects of the product innovation process.
Another example is the most successful Norwegian firm in recent years, Norsk Data. The development of this organization from a small technology-oriented laboratory to an international market-oriented company is r