Directing resources away from research and development is a gamble for marginal and short-term revenue gains at the cost of eroding sound market foundations. Research and development are engines of technological innovation which is in turn much of the source of growth and wealth creation for companies. The demise of past innovation leaders is caused by failures to respond to the market forces driving customer value.
However, an area in which companies often fail even when investing resources into basic, applied, and development research is appropriating the value created through these activities. Four company policies could improve appropriability rates by making key changes in the way they tie research activities to product or service development.
- Financial incentives in the form of increased funding could be provided to researchers that team up regularly with development staff.
- Processes and activities revolving around basic materials, methods, and equipment should be standardized within the company with both researchers and product developers relying on these same or equivalent essential tools.
- Cross-training research staff with development engineers exposes the researchers to their counterparts encouraging interaction in a non-competitive environment.
- Proposals for research funding must be evaluated for results in competitive advantages or strengthened competencies for the firm in order to be considered for funding.
But don’t make the assumption that customers drive all innovation. An innovation is by its definition something that didn’t exist before. The most crystal examples are organizing form of innovators, such as the Internet retail sales site Amazon.com. Its innovation was the way the firm organized itself to leverage a new technological development to sell books. Given the success of these previously unknown innovations, the market more often than not will not know except in hindsight its own wants and needs. In the case of Amazon, the product didn’t change at all but the sales vehicle convenience and ease of use gave the firm a competitive advantage over traditional brick-and-mortar bookstores. Since then, the company applied this same model to every product with a reasonable shipping profile.