Globalisation and the accompanying phenomenon of elimination of borders challenges companies in every area of production with a nightmare of intense competition. With multi-national companies which have become widespread particularly after 1970s, you are challenged by not only the competitors in local markets, but also competitors from dozens of countries. In the past, you used to have only 5-10 competitors, but now you have hundreds of them. The tremendous pressure which is brought by these conditions to companies is actually the major supporter for the rapid developments in technology. In this competitive environment, the efforts to differentiate, stand out, create brands and increase market shares have brought numerous brand new conceptsto companies. Innovation, R&D and P&D are the three most important concepts among these.
What do these three concepts, which are frequently used and often confused in today’s manufacturing areas, mean; why are they important and how are they implemented? Ìn this article, we will try to find answers to these questions, by consulting experts.
INNOVATION - INNOVATIVE OR INNOVATIVENESS
The main source which has been globally accepted in terms of definition of innovation is the Oslo Guideline published by OECD in cooperation with Eurostat. The currently applicable version of 2005 of the guideline defines innovation/innovativeness as follows: “Innovativeness (innovation) implementation of a new or significantly modified product (goods or service) or a process; a new marketing method, or a new organizational method in business practices, workplace organization or external affairs.”
But is every novelty an innovation? A Deputy Secretary of the Ministry of Science, Industry and Technology and a lecturer at Kırıkkale University, Faculty of Administrative and Economic Sciences, Department of Business Management, Prof. Dr. Cevahir Uzkurt states that not every novelty is an innovation in his article titled “Innovation Management: What Is Innovation, How Is It Implemented and Marketed?” as follows: “Emphasizing that not every novelty is an innovation would be an important step to understand the scope of innovation. Because the basic dynamics of innovation is “not everything that is new, but the innovations that can translate itself or be translated into economic and social added values”. Therefore, it is clear that anything without an economic or social added value cannot be considered as innovation, no matter how new, different, original or creative it is.”
As emphasized by Prof. Dr. Uzkurt, your innovation should create an economic or social added value, or, to put it simply, it should offer benefits. If the product or service you have developed does not offer economic benefits to you or social benefits to the user, it cannot be considered as innovation.
ECONOMIC AND SOCIAL VALUE OF INNOVATION
Prof. Dr. Uzkurt explains the economic and social value of innovation as follows: “Economic value can be considered, in a narrow sense, as offering economic returns to the party which implements innovation. Innovation should always bring economic benefits to the person or organization which has developed or commercialised it. When we consider this benefit or economic returns in a wider sense, innovation can be considered as the competitive advantages gained by the regional or national economies where they are implemented, benefiting from the exogeneity of innovation. In this aspect, innovation makes it inevitable for various parties to cooperate with each other (individuals, societies, businesses and government) for the value and exogeneity that may be created during development and commercialisation of innovation.
The social value of innovation refers to the benefits it brings to its users. In other words, something that is new can be considered as innovation to the extent that it can respond to a need of the user in a better way than the existing tools or it can offer a new set of values that are not offered by the existing tools. In this aspect, it is inevitable that innovation has certain characteristics that can compete with what exists and that can be widely accepted.
COMMERCIALISATION OF INNOVATION
Another striking issue highlighted by Prof. Dr. Uzkurt is the commercial marketability of innovation. Prof. Dr. Uzkurt explains how important this is for a successful innovation process with examples from America and Europe: “It would not be incorrect to define innovation as ‘commercialisation of something new so that it is translated into an economic and social added value’. However, we should underline that the way of creating economic and social value is successfully commercialising or marketing the new things. One of the mistakes in innovation in Turkey and around the world is considering innovation merely as an action in R&D, and focusing merely on production/development of new things. In fact, during the years when Europe noticed it was investing more on R&D than America but fell behind America in terms of returns, they recognized the importance of this, and realized that commercializing innovation was as important as its development. Although this phenomenon, which is also called “the European paradox”, demonstrated that innovation is not merely R&D, some countries and business have not realized the importance of this yet. However, when you fail to successfully commercialize innovations and obtain sufficient social and economic added value from innovation, you will be clearly disadvantaged in competition, and in effectiveness and efficiency of the resources.”
INNOVATION OR R&D?
We stated earlier that innovation is defined as a novelty that offers economic and social benefits, and commercialization of this novelty. The Law of Technological Development Areas defines R&D as follows: any creative work that is performed to increase the knowledge consisting of cultural, human and social knowledge, and to use this to design new processes, systems and applications, including software. On the basis of this definition, R&D can be considered as the whole work you do to achieve the innovative novelty you target.
Thus, although innovation and R&D refer to different things, the two concepts complement each other. If you are a manufacturing company, it would be right to suggest that neither would mean anything on its own. Because, while innovation refers to a new target or outcome, R&D is the method, the means to achieve this target or outcome. In short, R&D is the pre-condition of innovation. When the innovative approaches brought by R&D are addressed with an entrepreneur perspective, these novelties are commercialized, thus leading to innovation.
Research and Project Development Coordinator at Okan University, Faculty of Engineering, Prof. Dr. Orhan Behiç Alankuş gives the following answer in his article to the question of “innovation or R&D?”: “R&D and innovation should go hand in hand to become a successful company that makes difference. However, they are not enough; you should also clearly define the areas where R&D activities will be conducted, and the areas where innovation will be implemented. The must-have conditions for R&D and innovation are creating the correct system for R&D and innovation, integrating relevant values and conducts into the company, and a good leadership. That is, the question of “Innovation or R&D?” can be answered as “both”. However, its implementation can only be achieved by complete integration of various fundamental disciplines, conducts and culture into the company, and a good leadership.”
PROCESSES IN INNOVATION AND R&D
Innovation is generally addressed in 4 types, which are product, process, marketing and organizational innovation. The research report by MUSIAD, titled “R&D and Innovation for Global Competition” defines these 4 types of innovation as follows:
1. Product innovation refers to offering to market a good or service which is new or has been significantly developed/improved by its specifications or intended use. This includes major improvements/developments in technical specifications, parts and materials, established software, ease of use or other functional properties. For example, the mirror credit card which has been developed for use by women.
2. Process innovation refers to the implementation of a manufacturing or distribution method that is new or has been significantly improved/developed. This includes major changes in techniques, equipment and/or software. An example of process innovation can be industrial designs made by computer-assisted software.
3. Marketing innovation refers to the implementation of a new marketing method that involves major changes in product design or packaging, product placement, promotion or pricing. For example, selling sliced cheese.
4. Organizational innovation refers to implementation of a new organizational method in business practices, workplace organization or external affairs of the company. Creating a new management structure for supply chain is also an example of organizational innovation.
Innovation occurs on the basis of accumulated knowledge and improved experience of the business. R&D is an important approach since it provides the necessary knowledge and experience for “innovation”. Finding new markets, producing new financing options or other similar activities also basically result from R&D.
Today, R&D activities are addressed under three basic titles, which are basic research, applied research and experimental development.
1. Basic research refers to any experimental or theoretical work which does not have any special application or use, but which is performed to acquire new information of the prioritized phenomena or observable facts.
2. Applied research refers to the authentic works performed to get new information. These works have a certain practical purpose or target.
3. Experimental development refers to all systematic works that aim to produce new materials, products or devices, or to create new processes, systems or services, or to significantly improve the already produced or installed ones, using the available information obtained from research and/or practical experience.
There are three basic strategies to turn R&D into innovation:
1. Aggressive Innovation Strategy: The basis of the aggressive strategy is to lead the market. The R&D investments made for this purpose help to offer rapid solutions to customers’ demands, but also bring along the relationship of high returns/risk.
2. Defence-Oriented Innovation Strategy: It is a strategy adopted by businesses that prefer to follow the novelties in the market, instead of leading the market. The businesses which use this strategy avoid the risks arising from being a leader, but have to compromise from high returns.
3. Imitation Strategy: It is a strategy adopted by the businesses which prefer to follow the market from a distance instead of making technological leaps and radical novelties. What takes a business to success in this strategy is the ability to do business with low costs.
4. Dependent Strategy: It is the strategy applied at business which operate as satellites or contractors of companies with strong innovation, to respond to the demands of the customers.
5. Opportunity Tracing Strategy: This strategy, which uses the innovation of competitors as a leverage, looks for success and returns in turning the weaknesses of competitors into opportunities.
6. Acquisition Strategy: It is a strategy that aims to implement the novelties developed in other businesses to the business by employees. It ensures that the novelties developed by other business with high R&D investments can be acquired at low costs.
PLANNING AND MANAGEMENT OF INNOVATION AND R&D
The study of R&D and Innovation for Global Competition explains the importance of planning and management of innovation and R&D. According to the report, the need for change naturally leads to innovation. Businesses have to rebuild themselves depending on their abilities to understand, comprehend and internalize change. The business which tries to develop procedures through an institutionalisation process, also needs to renew its processes which have become a status-quo in the face of change.
What underlies change is the customers’ needs and market conditions. There are many innovation and R&D management methods that are designed for today’s modern businesses. The spine of R&D is the market expectations and the vision for the future. Although many R&D projects are completed successfully, they result in losses since they lack focus on the right market. Even the biggest companies may fail to promote products on the market, despite lengthy and costly market studies.
More than 20 products of Apple, one of the most innovative companies around the world, have failed to achieve expected commercial success. When we look at successful and innovative companies, we see that they have dynamic skills in terms of organization. These skills are the vision and strategy, ability to use competence, organizational intelligence, creativity and management of ideas, organizational structures and systems, culture, climate and technology management.
R&D BUDGET IN PRIVATE SECTOR
The trends in global economy, the changes and differentiation in consumers’ needs, economic crisis and financial difficulties force companies and industries to spend more on R&D. Companies aim to maintain and improve their assets with the new and competitive products obtained through R&D projects.
The EU Commission tries to develop mechanisms depending on the intensity of R&D in industries.
Industries requiring high-density R&D (R&D spending more than 5% of turnover): Pharmaceuticals, bio-technology, healthcare, software, computer-hardware
Industries requiring medium-high-density R&D (R&D spending equal to 2%-5% of turnover): Electronics and electrical equipment, defence, process, machinery, chemistry, intense consumption
Industries requiring medium-density R&D (R&D spending equal to 1%-2% of turnover): Food, beverages, landline communication, electricity, oil equipment
Industries requiring low-density R&D (R&D spending less than 1% of turnover): Oil and gas production, metal, iron-steel, mining, construction, logistics, retail
Meanwhile, as industries get older, their need for R&D decreases. Biotechnology, software and hardware industries, which are among the youngest industries, are the areas with the highest R&D investment. When we look at the countries which focus on these young industries, US leads the race by far. For example, when we look at top 100 countries with the highest R&D investment, we see 15 US-based companies in biotechnology, 15 in software and 10 in hardware industries.
We also observe that developed countries invest in R&D in traditional industries to preserve their competitive power. Regardless of their activity, businesses now have to invest in R&D in accordance with the nature of their activities.
WHAT DO WE DO? R&D or P&D?
The concept of P&D, or Product Development, is a new concept which is not as old as innovation or R&D. The concept is particularly compared to R&D.
So, what is P&D? P&D is basically making a product different in terms of its current appearance or functioning to reduce its costs or to improve its quality. That is, the concept defines improvement of existing products in terms of costs or use.
Therefore, when a brand new product, method or purpose is involved, it is about R&D; but when you talk about improving an existing product or its use, it is about P&D.
PLANNING AND PROCESS FOR A SUCCESSFUL P&D
Gürcan Banger, who offers consultancy and training services in business culture, management, re-planning, clustering, entrepreneurship, strategic planning and Industry 4.0 at various organizations including large industrial companies, states that establishing a systematic process or path contributes to success in P&D projects, in his article titled “How To Do P&D”. According to Banger, there is an overall process that helps businesses to systematically overcome the challenges in product development and to shed light on their path to success. This approach, in essence, is an approach of project management. Here, the P&D project is divided into a series of stages. There is a “gateway” between each of these stages. An authorized executive or committee decides whether the company will proceed to the next stage at each gateway. Thus, the company takes action against the mistakes or risks arising from previous stages of the P&D process which may result in failure and which may be carried to the subsequent stages. The decision to be made at the gateway is based on the information that has been gathered so far. In this information, the business status in the market, other liabilities of the business, existing and accessible resources and competency, etc. are taken into consideration. The gateway between stages also allows to make improvements in the project or the product that is developed, by going back to the previous stage.
A systematic P&D that consists of a series of stages with gateways between them serves as a roadmap in successful marketing of a product. When we look at the examples of P&D around the world, we see that the business which adopt this approach have succeeded. Furthermore, the businesses where a similar approach is applied, it is observed that the team work is improved, the need, ratio and time for re-processing is decreased, the product is launched on time, and the duration of each stage is shortened.
This systematic process of product or service development (P&D) consists of six stages with check points in between, which are called “gateways”. Finding an idea, establishing its scope, planning the work, development, testing, verification and marketing.
The stage of “finding an idea” aims to get familiar with the opportunities in the market and generating relevant ideas. At this stage, well-known thinking and idea-creating methods that guarantee results are used, but the important thing is to have access to all sources of idea that are possible.
At the stage of “establishing the scope”, the preliminary works for the P&D project are completed, and a project is created. The first objective at this stage is to identify the requirements of technical skills and market-related skills for the project. This stage often consists of desk work. The preliminary assessments of the market, technical requirements and business conditions are made.
The stage of “planning the work” is a component of P&D where details are addressed. At this stage, a detailed market analysis is made, customer needs are identified, works to ensure participation of the customer in the process are undertaken, comparisons of competitors and testing of concepts are done, a detailed technical assessment and assessment of existing and accessible sources as well as financial and business analyses are made. (Concept testing is a test to evaluate the customers’ reaction to the idea of the product using qualitative and quantitative methods, before the product is marketed.) In the end of this detailed stage, a product, a business verification and a detailed action for the subsequent stages are obtained.
The stage of “development involves the actual design and development of the new product. At this stage, the development plan and the physical development of the product is undertaken. Laboratory tests, on-site tests and alpha tests are performed to ensure that the product fulfils the required conditions in a supervised environment. (Alpha test is a test performed for products that are close to the completion stage. This test which is performed for end-customers, may result in minor changes in the product.) The outcome of this stage is a prototype of the product which has been partially tested by the customer and which has passed the alpha test.
“Testing and verification” is the stage where the candidate product in development and its production and marketing are tested and verified. This stage looks into the ability of the product to survive as a whole. To this end, customer tests, beta tests and on-site product trials are performed. (Beta test are the tests performed after product has been completed and mandatory tests are completed, and before marketing, in order to identify potential errors or problems; it is performed by the end-users of the product.) At this stage, just before marketing, the product which is produced in a limited number is offered in the test market conditions to receive feedback. The product which is marketed in a limited number can also be referred to as “test product”.
The stage of “marketing” refers to the ultimate commercialisation of the product. The product is launched on the market along with all steps in the sales and sales development process. Data is collected on how the sales are going in the market and how the product has been received by customers. Where necessary, improvements are made. Product improvement is a constantly implemented approach, with consideration of the conditions and changes in the market and customers.
The product development (P&D) process does not end with the marketing of the product. 1 or 1,5 year after launch of the product, the process, product and presentation are evaluated. The extent to which the project addresses the initial expectations is identified. Besides, the lessons taken from the project and the performance of the project team are established. After this, the project team is discharged, and the P&D project is finalized.