5.6 InnovationHL Only

Chapter 35

Research & Development (R&D)

• Research and development is the scientific research and technical development of new products and processes.– Inventions: discovery of new ideas for

products or processes– Innovation: practical application of new

inventions into marketable products• Product innovation• Process innovation

Examples of Product Innovation

Process Innovation

• A new manufacturing process– Glass manufacturing

• A new service process– TCBY self-serve– Drive-thru windows– Superstores– Debit cards

Benefits of R&D Spending - Country

• Creation of high-tech jobs

• Creation of high-added-value products that may then be manufactured in the country of development

• Prestige – a country linked to scientific and technological breakthroughs

• Attraction of investment by multi-national corporations

Benefits of R&D Spending - Companies

• Competitive advantage over competitors

• Customer loyalty

• High, premium prices when first to market

• Publicity

• Lower costs

R&D Limitations

• Does not always lead to new products – there is still no cure for the common cold

• It is expensive and has an opportunity cost – what else could be done with the money?

• Competing R&D may lead to other competitive products – Toshiba HD-DVD vs Sony Blu-ray

• Ethical issues may out weigh commercial benefits – genetically modified food crops, stem cell research

Current R&D projects in NC?

• Do you know of current R&D projects the NC government (or Charlotte) is trying to encourage?

Intellectual Property

• Intellectual property refers to the creations of the mind such as– Inventions– Literature– Artistic works such as paintings, theatre, dance– Symbols, names, and images used in business

• Intellectual property rights is the legal possession and use of the intellectual property

Value of Intellectual Property

• Intellectual property cannot be destroyed so rights last as long as the law allows

• Can increase sales because of distinctiveness

• Be sold or licensed to produce a revenue stream

• Becomes a key part of branding

• Is seen as an ASSET and can be placed on the balance sheet with value.

Trademarks

• Protect registered words, letters, or symbols connected with a company or product.

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Patents

• Provides originators the exclusive right to make, use, or sell the item for 17 years.

Medicine

Schering-Plough patented Claritinnow sold as generic Loratadine

Sporting Equipment

Callaway Big Bertha Iron Golf Clubs

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Crazy Patents

• Patent #4233942 Animal Ear Protection

• This invention provides a device for protecting the ears of animals, especially long-haired dogs, from becoming soiled by the animal's food while the animal is eating.

Crazy Patents

• Patent #5971829 Motorized Ice Cream Cone

• Rotates the ice cream in the cone so you don’t have to.

Crazy Patents

• Patent #4455816Tricycle Lawnmower

• Allows you to mow the grass while riding a tricycle bike. As you pedal it turns the mower blade.

Patents to Expire Soon (2012)

• Pharmaceuticals lose patents every year.– Singular Asthma/Allergy drug– Lipitor Cholesterol lowering drug– Plavix Anti-Blood clotting drug– Advair Asthma/COPD drug

Other drugs that have gone “off patent”

Loratadine (Claritin) – allergy medicineLansoprazole (Prevacid) – heartburn medicationIbuprofen (Advil) – analgesic

Copyrights

• Protects the creative works of artists, authors, and composers.

• In the United States, originators are protected during their lifetime plus 70 years to publish and exhibit their works.

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Fair Use

• Allows infringement of copyright law with limited use of copyrighted material under certain situations.

• Fairy Use Tale

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Factors Affecting Innovation• The nature of the industry

– Pharmaceutical products, defense, computer software and hardware, motor vehicles see more need for innovation than hotels and hair dressors

• R&D budgets of competitors– It may be necessary to keep up with competitors or stay ahead of them

• Business expectations– If future business profits are optimistic, it is more likely a company will feel

that funds will be available for R&D.

• Culture of the business– Attitude of management determines whether it is important to invest in

long-term or short-term research

• Government policy– Issues grants/tax incentives to business and university research programs

• Finance is needed– Many firms do not have the cash reserves or financing which will limit R&D

ability of the company.