Evaluate research-and-development choices by balancing innovation, commercialization, cost, risk and long-term competitiveness.
Pedro is a farmer who operates as a sole trader in a developing country. Like other farmers in his community, he grows oranges, which are sold to buyers in developed communities and large cities. Working in the primary sector often results in very low income and poverty for some of the farmers. Most children do not go to school, as they are needed in the fields for manual work. Cooperation between the farmers in this community is very limited due to linguistic and cultural differences. Recently, farmers’ incomes have fallen further. Pedro has conducted social, technological, economic, environmental, political, legal and ethical (STEEPLE) analysis and identified two main external threats that are impacting on farmers’ incomes:
• competition from orange producers from developed communities and large cities with improved technology and higher productivity rates
• a severe and sustained drought affecting the level of orange production in all developing countries. Pedro would like to improve productivity as an orange producer. Investing in new technology is risky and would require extensive research and development. The internet is unreliable and Pedro is unable to raise funds for this investment himself to change current production methods.
Pedro
Pedro is a farmer who operates as a sole trader in a developing country. Like other farmers in his community, he grows oranges, which are sold to buyers in developed communities and large cities. Working in the primary sector often results in very low income and poverty for some of the farmers. Most children do not go to school, as they are needed in the fields for manual work. Cooperation between the farmers in this community is very limited due to linguistic and cultural differences.
Recently, farmers' incomes have fallen further. Pedro has conducted social, technological, economic, environmental, political, legal and ethical (STEEPLE) analysis and identified two main external threats that are impacting on farmers' incomes:
- competition from orange producers from developed communities and large cities with improved technology and higher productivity rates
- a severe and sustained drought affecting the level of orange production in all developing countries.
Pedro would like to improve productivity as an orange producer. Investing in new technology is risky and would require extensive research and development. The internet is unreliable and Pedro is unable to raise funds for this investment himself to change current production methods.
Pedro has arranged an emergency meeting of local farmers. He proposes that all farmers in his community create an agricultural cooperative and collectively raise funds to invest in new capital-intensive farming methods. The investment in technology could allow them to diversify into the manufacturing of bottled orange juice drinks.
Explain one cost and one benefit to Pedro of conducting extensive research and development.
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.
Explain the role and importance of research and development (R\&D) for Kodak.
Benno is a soft drinks manufacturer. Its mission statement is “to produce healthy drinks without damaging the environment”. Competition in the healthy soft drinks market is fierce. Benno uses a competitive pricing strategy. However, sales of Benno’s drinks have fallen significantly over the last five years, particularly in the 12–18 age group. The business has no accumulated retained profits.
Benno is committed to innovation and corporate social responsibility (CSR). Its research and development division has recently invented a new biodegradable drink pack ring that starts to break down within two hours of contact with sea water. It dissolves fully in 48 hours. Currently, 98 % of pack rings are made of plastic and when dumped in the sea are responsible for the death of many sea creatures.
A focus group of loyal customers used regularly by Benno’s marketing department is wholeheartedly in favour of the new drink rings. However, the marketing director has read recent studies that suggest: • purchases of green products are not increasing, despite the positive attitude of many consumers towards sustainability and biodegradable products • consumers continue to prioritize price when purchasing soft drinks.
Benno
Benno is a soft drinks manufacturer. Its mission statement is "to produce healthy drinks without damaging the environment".
Competition in the healthy soft drinks market is fierce. Benno uses a competitive pricing strategy. However, sales of Benno's drinks have fallen significantly over the last five years, particularly in the 12-18 age group. The business has no
accumulated retained profits.
Benno is committed to innovation and corporate social responsibility (CSR). Its research and development division has recently invented a new biodegradable drink pack ring that starts to break down within two hours of contact with sea water. It dissolves fully in 48 hours. Currently, 98 % of pack rings are made of plastic and when dumped in the sea are responsible for the death of many sea creatures.
A focus group of loyal customers used regularly by Benno's marketing department is wholeheartedly in favour of the new drink rings. However, the marketing director has read recent studies that suggest:
- purchases of green products are not increasing, despite the positive attitude of many consumers towards sustainability and biodegradable products
- consumers continue to prioritize price when purchasing soft drinks.
To manufacture the new drink rings, machinery costing million would be needed. Drink ring production unit costs would rise from 10 cents to 15 cents and prices of a six-pack of Benno soft drinks would have to increase by 5 %. Benno's net profit margin on a six-pack is 10 %.
Benno's director of corporate social responsibility favours the change to the new drink rings but is opposed by both the finance director and marketing directors.
Define the term innovation.