Evaluate research-and-development choices by balancing innovation, commercialization, cost, risk and long-term competitiveness.
Kodak
Kodak, after decades as the leading American camera and photography company, went bankrupt in 2012. Despite its large research and development (R\&D) budget, Kodak concentrated on products related to its film-processing business, a market that Kodak had long dominated. However, digital technology had changed photography dramatically, and Kodak, unlike its competitors, failed to innovate.
At least three times, Kodak misunderstood consumer desire to interact with photos and the external environment:
- Digital cameras - In 1975, Kodak invented the first digital camera but did not sufficiently develop this technology. Its cameras were always perceived as satisfactory products, but "nothing special". Competitors innovated with features such as face-and-smile detection. Kodak only followed trends, never led them.
- Photo viewing - In 2002, Kodak entered the market of low growth, small margin products, such as digital photo frames. Kodak's products did not have a unique selling point (USP) and were unsuccessful.
- Photo sharing - In 2005, Kodak developed the first WiFi camera, but sales were disappointing. Shortly thereafter, a new business opened, Eye-Fi, which proved Kodak wrong about WiFi. Eye-Fi created a successful business based on WiFi memory cards for cameras - the concept that Kodak had abandoned and not patented.
The conclusions from Kodak's bankruptcy are clear:
- "Cannibalism" - do not be afraid to develop a new technologically advanced product even if it causes the decline of your existing products.
- Innovation - do not be afraid to take risks. Kodak's inability to give any of its digital products a USP shows its failure to take advantage of inventions. Innovation also requires strategic vision.
- New product design - do not be afraid if sales do not happen immediately. Kodak withdrew its WiFi cameras simply because the first model sold poorly.
As the evidence shows, not taking risks in new inventions will reduce profit margins in the long run. Small, innovative business start-ups such as Canon can often successfully penetrate markets dominated by big companies unless those companies use their resources to keep up-to-date.
Define the term patent.
5. (a) Define the term patent.
A patent is the exclusive right, granted by a government, to make use of an invention or process for a specific period of time. It gives the inventor the intellectual property rights to the invention.
Candidates are not expected to word their definition exactly as above.
Award [1 mark] for a basic definition that conveys partial knowledge and understanding.
Award [2 marks] for a full, clear definition that conveys knowledge and understanding similar to the answer above.
For only a relevant: example or application to the stimulus award [1 mark].
Explain the role and importance of research and development (R\&D) for Kodak.
The role of R&D is to conduct extensive research into features, designs, testing of prototypes and so on in order to develop a new / unique, innovative product. By doing so:
- More value being added over and above the cost of resources - R\&D plays an important role in lowering the costs of resources or their processing
- Rapid and successful R\&D provided a competitive advantage to Kodak in the film processing business. Kodak enjoyed, and could have enjoyed with subsequent products, a first mover advantage by product differentiation. Its R\&D did result in new products, as stated in the stimulus, digital cameras, photo viewing and photo sharing products, R\&D was very important for Kodak earlier on.
- R\&D can improve brand perception (as an innovator) and acts as a barrier to entry for other competitors.
The above can result in an improved new and large product range, greater appeal to a broader range of market segments and better performance in terms of lower costs, higher revenue.
Kodak understood the role and the importance of R\&D. The above should have led to a long- (as well as short-) term success. Kodak dominated the film processing industry for a long while.
Accept any other relevant explanation.
N.B. A clear distinction between the role and importance is not expected.
Award [1 to 2 marks] if the response is limited and descriptive. There is no or limited reference to the stimulus material (name only) and the response is mainly theoretical.
Award [3 to 4 marks] if the explanation lacks some depth and less than two issues are covered. The candidate has referred directly to the stimulus material. A response that is based on the issue of market research without covering the issue of development, award up to [3 marks].
Award [5 to 6 marks] if the explanation is detailed and covers at least two issues. The candidate has referred directly to the stimulus material. For [6 marks] a clear distinction between research and development should have been made.
Soft Skin Cosmetics (SSC)
Soft Skin Cosmetics (SSC) is a private limited company that produces a small range of face creams and soaps. Its products are designed and produced in the United States, and are made from safe, natural ingredients.
SSC has a product-orientated marketing approach. Tiffany Presley, one of the company's co-founders, believes that SSC's consumers value health above fashion. "The skincare market is full of toxic products, but ours are healthy even if they don't smell or look as nice," she says. Chelsea Presley, SSC's other co-founder, wants to develop the first sunscreen free of synthetic chemicals. However, product innovation is costly and risky. If the new sunscreen is a failure, several years of research and development costs will be wasted, which SSC cannot afford. SSC currently lacks the scale to innovate.
SSC does not pay for advertising. It relies on social media and word-of-mouth promotion. Its brand awareness is very high among young women, and customer reviews are very positive about SSC's quality and effectiveness. The company only sells online, not in retail outlets. To reach unsatisfied demand domestically and internationally, SSC would have to broaden its current distribution channels.
SSC practises corporate social responsibility (CSR). It does not test its products on animals, and supports several charities protecting endangered species. Pressure groups publicly recognize SSC's commitment to animal welfare.
Currently, multinational companies dominate the global skincare market. Small emerging companies rarely survive. Chelsea wants to convert SSC to a public limited company, but Tiffany disagrees: she argues that shareholder pressure toward profit maximization could jeopardize consumer and animal safety.
State two features of product innovation.
Product innovation features could include:
- the development of a new, redesigned goods or services - creative innovation
- quality improvements made to a product
- the inclusion of new components, materials or desirable functions into an existing product. - adaptive innovation
- It results from successful research and development which can be expensive, time consuming and risky
Accept any other relevant feature of product innovation. Candidates are not expected to word their responses exactly as above. Award [1] for each relevant feature of product innovation identified. Award a maximum of [2]. N.B. do not credit features which are in fact repetitions.