Innovation and Change - Drivers for Change or Innovation in Organizations - Essay Example

Introduction In the present dynamic world of management, innovation is the key to success for any organization and also for progress of a nation. Innovation is a significant and most vital element, which overcomes several challenges like, sustainable development and climate changes. Innovation, thus, leads to success of a company when it encounters series of challenges that question their existence. There are many drivers for change or innovation in organizations, but Research and Development (R&D) is regarded as the most important one. Even so, the fact is criticized by opposing the notion. The paper highlights different views for and against the topic and the outcome is revealed after proper justifications. Research and Development (R&D) is defined as a particular assembly of activities that exist in a company. These activities differ from one organization to another. However, there are two particular models for R&D. In the first model, the main role of R&D is to develop new products. In the second model, the main function of R&D is to gain further knowledge about products and create a more technological and scientific product. The knowledge uncovers an enhanced and developmental process for production of the new products. Both models have different applications in various industries. The R&D intends to yield large amount of profit or involve in generation of return on investment (ROI) (Bruno and Reinhilde, 2002). The first model pertaining to R&D is used by engineers; whereas the second model is used by industrial scientists. These types of activities are carried out by every private or public companies as well as the government. R&D has been linked with innovation in a way that defines success of a company or organisation. An effective R&D department helps to introduce new products and processes whereby higher ROI can be earned, thereby adding to success of a company. Innovation is observed to have distributed randomly among the companies, but it cannot be defined as successful strategies or investments that can be develop in the market. R&D is referred as the creative work that is undertaken on systematic basis so as to increase accumulation of knowledge. The stock of knowledge is used to devise new applications, which form part of the R&D. The new application is used to generate improved or new products and processes. The acquisition of ethnological instruments implies purchase of embodied technology, which forms part of computer hardware and advanced machinery. The disembodied knowledge forms the acquisition of rights for using non-patented and patented inventions, trademarks, know-how, software and licenses (Stefano, Franco and Luigi, 2000; Andrea, 2006). Government policies have supported innovation by continuously updating and reforming institutional and regulatory framework, which governs the innovative activities. The reforms are required in order to create regulatory framework and public policy that is helpful in forming a range of policies that represents the general business environment like, services of the financial market and labour market. Governments play a pivotal role in nurturing innovation. The public investment in basic science also has an essential part in development of ICT and technologies. Such conditions necessitate innovation (Andrea, 2009). By implementing reforms, the governments have fostered innovation to a great extent. Even so, political issues connected to the development of innovative strategies have affected decisions of the government. There are strong political barriers, which have hampered correct disclosure of cost of innovation and R&D to the stakeholders and as a result, they remain unaware. The reforms are interrupted and this has restricted development for innovation. Innovation has raised the standard of living of people since they are provided with the opportunity to use many products and services. In the recent years, it has been noticed that innovative performance is a vital factor for ascertaining national progress and competitiveness. Innovations are also essential for addressing challenges globally. However, application of advanced technology combined with innovative approaches and entrepreneurship as well as creation and delivery of goods and services is translated from technological advances to productive economic activity. This results in growth of economy, when regulatory market structures and environment helps in expanding productive activities. The evidences provided by researcher’s points out to the fact that innovative effort are rising as a part of the economic activity. It is observed that the investments that are made in knowledge have been fruitful. R&D has contributed a lot in developing the process of innovation. It has been observed that companies have heavily invested in developing R&D since it is related to higher rate of return. The R&D department helped companies in developing new products and processes, which enables organisations to move towards success. The investments that are made in the R&D department are directed at improvement of existing products as well as experimenting on new products. The experiments for innovating new products give maximum benefit to organisations if products are successfully accepted by the mass. If the products fail to attract consumers or meet their requirements, then investment made in the R&D department is wasted, thereby causing losses to the organisation. With rise in population of every country, people have become more demanding for newer products. The taste and preferences of the mass are diverse and organisations have tried to cater to those needs and requirements in order to survive in the market. For surviving in the competitive market, organisations need to continue developing new products and services so as to keep in pace with changing market demand. The innovation of new products is done by the R&D department of every organisation. They are not only responsible for generating ideas for product development, but also for innovating cost effective processes through which products can be manufactured with ease. Hence, it can be inferred that R&D is very essential for creating innovative products in an organisation. Figure 1: Growth in R&D intensity from 1995 to 2005 (Source: Andrea, 2009) From the above diagram, it is evident that all countries have concentrated greatly upon investment in R&D. The investment in R&D projects or department has positively contributed in the economy. It is observed that there has been significant increase in investment made in R&D over the years from 1995 to 2005. This reflects the fact that R&D department has greatly helped to facilitate success of an organisation. In the above figure, it is noticed that Sweden had invested the highest amount in R&D during that period of time, followed by Israel, Switzerland, Germany and others. As more and more emerging markets are developing around the world, it is becoming necessary for organisations to produce products that will help them sustain in these market. The innovation of new products through R&D has triggered demand for advanced technologies, which will reduce cost of production. The emerging markets do not depend on low valued producers, but have added weight for creating and commercialising innovative services, processes and products (Hans and Almas, 2001). The relation between innovation and R&D can be elaborated by citing the following example. General Motors (GM) has introduced a new process for rejuvenating innovation in the company. The new innovation process is planned by the R&D department. This process has its foundation in sense-learn approach. It was used by the automobile industry long back, but it has presently become obsolete due to slow pace of development. The new process aims at gathering information through market survey with the help of new technology. The responses obtained through the survey lead to actions, which are executed in two paths. Figure 2: GM innovation process (Source: Chemical Innovation, 2000) The innovation process put forward by the R&D department ensures that there is a steady flow of technology options and products. The products are developed in order to capture the current market that is being served. The options come in form of responses to the company, which are regarded and utilized as new opportunities. The innovation process is designed dynamically, which takes into consideration new ideas and information that are in motion continuously inside the system. Every time GM undergoes an innovation cycle, knowledge is gained regarding technology programs that are used and its subsequent outcomes (Chemical Innovation, 2000). Recently, OECD has pointed out few facts that are related to innovation and R&D. It has identified that increase in the intensity of R&D activities and innovation is determined by a wide range of factors, which include the following: There is leniency in matter of compliance with regulations that are levied on anti-competitive product market. So, this stimulates R&D of an organisation and toughens its initiatives to innovate new products, without following stringent rule and regulations. The organisations also receive low level of restrictions on the practice of foreign direct investment; this has helped them in developing cross-border relations. The cross-border relation has enabled transfer of knowledge pertaining to goods and services as well as allowed organisations to progress towards a developed business (Jacques and Pierre, 2002; Franco, Richard and Sidney, 2008). The macroeconomic condition is stable during the last 10 years and this has favoured growth of innovation and related activities. The real interest rates have also encouraged growth in innovation by stabilising the low cost environment. There is adequate availability for external and internal finance. The expansion in public research has supported the business research sector by expanding both the researches simultaneously. It requires adequate number of human resources, which the economies possess (Toshihiko, 2006). The fiscal incentives are efficient in increasing demand for R&D, particularly when organisations encountered financial crunch. The tax relief for the private R&D is a strong stimulus, rather than direct support from the government. It is observed that R&D department of every company have to comply with rule and regulation of the government. Hence, tax relief acts as rescuer for the same. The openness to global R&D has facilitated higher growth in productivity. R&D tax concessions have helped OECD countries in encouraging the indirect way for expenditures of R&D. The R&D tax credit provides potential benefit to small innovative firms, which have little taxable income. The small amount of taxable income empowers the firms to run their R&D department smoothly without worrying about huge tax amounts. It is observed that tax incentives are flexible, which allows firms to have direct funding. The direct support enables the government to intervene in their works and link with priorities of public policy in areas of innovation and science. The efficiency of both innovation and science depends greatly upon implementation and design of the R&D process. The global experiences with tax incentives pertaining to R&D imply that the system is well-designed and have induced additional R&D efforts. The direct support of the government has, thus, fostered the innovation process. However, need for innovation is based on the area where an organisation is serving as well as level of competition. This also identifies whether the innovation can fetch good return or not (UK Census Online, 2014.). From the above discussions, it is clear that R&D plays an important role in innovation process of an organisation. R&D department gives emphasis on formulating products and services that act as competitive advantage for the organisation. It is very crucial for an organisation to stay connected with needs and requirements of the market. If requirements of the market are not taken into consideration, then an organisation is bound to encounter hard times. The market is competitive everywhere around the globe. The emergence of new small companies is threatening the existence of large firms. It can also be depicted that small companies in order to step in the market are imitating products of the large firms and as a result, the latter are encountering challenges. Hence, it is obvious that innovation is needed by every organisation so as to run an uninterrupted business (Dyer and Gregersen, 2013; Berry, 2012). It is observed that there are many other factors, besides R&D, which contribute in innovation process of an organisation. Innovation takes into account various important factors ranging from manufacturing, sales, marketing, distribution and R&D to engineering (Sirkin, 2013). The top management gives their ideas for structuring these products since they are well aware of tastes and preferences of the market. The rest of the innovation plan is prepared by the R&D team, which ranges from market research to manufacturing. After manufacturing of product, they are distributed to different places like, wholesalers, retailers and store house. The distribution process also needs innovation, which pertains to different methods that are to be used for transportation of products (Dyer and Gregersen, 2013). During the whole process, from designing of products to their distribution, several departments are involved in the innovation process, apart from the R&D department. So, it can be concluded that though R&D department plays an important role in innovation process of a new product, yet it is not the only department that is responsible for innovation (Sirkin, 2013). Top innovators have been seen to involve their customers in the innovation process so as to recognize the exact needs and requirements. The idea generation stage is very important for an organisation and thus, innovators demand customer feedback throughout the process so that the organisation can move forward aggressively without making any loss. The managers or innovators take decision based on data available from the market. Therefore, the market research team also plays a significant role in the innovation process. The innovators take tough decisions in order to evaluate various projects that align with business of the organisation (Sirkin, 2013; Dyer and Gregersen, 2013). The link between R&D and innovation is explained through external and internal analyses of an organisation. The external analysis consists of PESTLE analysis and Porter’s five forces. Five Forces analysis is carried out to get a clear picture of a particular industry. The internal analysis consists of resource based views of organisations, which have helped in connecting innovation with R&D. The external environment of an organisation is evaluated through PESTLE and Porter’s Five Forces. The two aspects of external analysis are given below: PESTLE To examine the macro-environment where an organisation is operating, number of aspect is taken into consideration in order to facilitate a stable business. It is important to examine factors responsible for impacting a range of variables within the organisation. The factors have ability to affect demand and supply levels of products of the organisation. The ongoing changes in society have developed an environment that affects operation of a firm (Jan, 2002; Kapferer, 2012; Kotler and Keller, 2006). The following section elaborates the reason why organisations need PESTLE analysis in order to undertake an innovation process as well as highlights ways in which innovation is linked with R&D. Political Political factors accounts to government policies like, tax policy, environmental regulations and employment laws (Kotler and Keller, 2006). It is observed that government has always encouraged innovation in any organisation and the governmental policies and regulations are not stringent (Kotler and Keller, 2006). The environmental regulation is, however, levied on every industry since innovation cannot harm the society, community and public as a whole. The tax concessions on the small companies’ R&D department encourage undertaking innovative process. Economic Economical factors highly influence cost of capital and purchasing power of firms. The global financial condition deteriorated after every nation was hit by recession (Kotler and Keller, 2006). There was huge rise in price of products and purchasing power of the individuals reduced drastically. In such a situation, innovation process in any organisation is not encouraged since new products will not be accepted by the market. In addition, the R&D department cannot undertake any innovation process due to lack of cash since the organisation also encounters financial crunch. Social Social factors affect the needs of customers as well as the potential market size of products or services of a firm (Kotler and Keller, 2006). The change in taste and preference of public has encouraged organisations to innovate products that are able to adapt with the changing scenario. The R&D helps organisations to undertake various research processes, which depicts original requirements of the general mass. Technological The technological factors control the barriers to entry and make or buy decisions. They also affect the investment capability of the firms for innovation such as, automation and speed of technological change (Kotler and Keller, 2006). R&D requires advanced technology to cope with the ever changing tastes and preferences of consumers. Legal The legal factors consist of definite laws that influence environment in an organisation of a particular country. The organisation has to abide by laws that are formulated by the country specific authorities (Kotler and Keller, 2006). Any organisation before undertaking an innovative process has to verify its legal status. The R&D department also needs to follow this rule in order to support an uninterrupted business. Environmental The environmental factor that affects operation of an organisation includes weather, climate global changes in climate, geographical location, and environmental offsets. The R&D department ensures an organisation whether the innovation process is affecting surrounding environment or not. Porter’s Five Forces Michael Porter had identified five forces that could establish competitiveness in a market. The forces control the profit of a firm by operating in a market and industry as a whole (Porter, 1979). Threat of substitute products and services The threat of substitute products and services has encouraged organisations to develop new innovative items in order to secure the existing market share. R&D plays an important role in developing new product for an organisation (Porter, 2008). Threat of entry of new competitors The threat of new competitors is the main challenge for organisations in any industry. The organisations have concentrated upon improvising products in order to compete with others. Hence, organisations focus on investing in R&D departments so as to ensure improvement in the process of designing products as well as adopting new advanced technologies that boost smooth operation. Intensity of competitive rivalry Currently, existing organisations in the same industry have been creating high levels of competition. So, organisations have improved their R&D departments to construct a successful innovative process. Bargaining power of suppliers The bargaining power of suppliers has huge effect on the innovation process of any organisation. If supplies are not timely available for manufacturing due to late delivery, then there is delay in the production process. So, suppliers should be handled tactfully so that their bargaining power does not affect operation of organisations (Porter, 1979; Jeffes, 2008). Bargaining power of buyers The bargaining power of buyers or customers influence the innovative process of any organisation since with rise in bargaining power, organisations are likely to encounter problems (Jeffes, 2008). Resource Based View (RBV) RBV is a process that helps an organisation to achieve competitive advantage. RBV of any organisation is combination of the analysis of all phenomena existing within the organisation with the external analysis of industry and its competitive environment (Ibrahim, 2012). The innovation process of any organisation requires support of internal and external analysis of the industry. This greatly benefits the R&D for the purpose of designing and creating new products. 4P’s Product The products that are offered to public are designed by the R&D department of an organisation and are later accepted by top managers. Hence, R&D plays a significant role in innovation process of a product. Processes The processes that are undertaken by an organisation for delivering finished products to the warehouse or retailers are developed by managers and the R&D department. Position The innovative products developed by the R&D department of organisation need to be appropriately positioned in the market. It is the responsibility of the R&D department to undertake a market survey in order to evaluate prevailing tastes and preference of consumers. Paradigm Organisations frame a process that is followed in order to place the formulated product in the market. This process is structured by the R&D department along with the consent of managers. Conclusion R&D is regarded as the key element for several industries and service sectors; it triggers innovation in organizations for ensuring success. R&D is regarded as investment for future opportunities or capabilities and technology that is transformed into successful processes and new products. In all industries, R&D is identified as the key element in developing competitive advantage. Nevertheless, it is stated that R&D is not the most important element, as there are other factors that have the ability to bring about innovation. The code of innovation is built within the people, philosophy and process of an organization or the 3P’s. Thus, there are other elements in an organization that are capable enough to make innovative changes and R&D is not the only one. Reference List Andrea, C., 2006. The Evolution of the Literature on Technological Change over time: A Survey. 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