Introduction
The research and development (R&D) department serves the primary tole of organizing a company’s products, generating new ideas to improve products, and innovating new technologies to improve production. These activities primarily aim to increase a company’s profitability by reducing operating costs and attracting more buyers. Whether R&D activities are customer-driven or part of a company’s internal development strategy, R&D activities are typically motivated by a need for continuous product improvement to meet the ever-changing expectations of customers. According to Schot and Steinmueller (2018), R&D entails more than just creating new products and ideas. It is a critical part of a business that connects all the aspects of a business in a way that creates oneness of purpose and a culture of continuous quality improvement. Analyzing a company’s R&D strategies over time gives the management a clear picture of its progress and informs their decisions regarding the organization’s future projects and potential changes. Such changes may improve the production process and improve profitability.
The General Importance of Research and Development
A company’s R&D department plays a vital role in enhancing business success. R&D involves a systemic activity that combines fundamental and applied research findings to develop solutions to a company’s problems and create improved products based on research findings. As McClure (2017) explains, R&D is the primary step in attaining new product development, improving process capabilities, and improving existing products. Thus, by investing heavily in R&D activities, a company can maintain itself as an industry leader because its products will constantly be updated to meet customers’ requirements. This is made possible through the continuous collection of feedback from customers and using this feedback to develop products that meet clients' needs.
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R&D, besides facilitating continuous improvement and new product development, also serves as the primary bridge between a company’s commercial strategy and its corporate vision for long-term sustainability. Kleiner‐Schäfer and Liefner (2021) explain that R&D ensures sustainable business by facilitating continuous process improvement and enhanced brand equity as the years advance. This ensures that the company’s reputation continues to match the evolving desires of customers through its ability to adapt to changes (He et al., 2019). In support of the critical role of R&D in connecting corporate strategy and a company’s long-term vision, Brown, Martinsson, and Petersen (2017) posit that R&D creates an internal culture of continuous change which sparks new ideas, lowers business costs, and attracts new talent. These become the foundation of continuous improvement within the organization. Accordingly, the company can retain its long-term focus without distraction because the R&D department ensures all business operations and products are updated according to the market’s standard. For instance, Liao (2019) explains that R&D is not an activity that generates immediate returns but focuses on ensuring the company remains profitable in the long run as customers’ expectations evolve. Therefore, R&D activities facilitate long-term success and sustainability by placing the company in a position to meet customers' changing expectations.
A robust and fully functional research and development (R&D) department gives an organization an added advantage over its competitors. The department’s activities generate new ideas which eventually materialize into new products. This continuous building of inventory places the business ahead of competitors as long as the company’s employees maintain secrecy and the management invests resources to implement the ideas of the R&D department (McClure, 2017). According to Kleiner‐Schäfer and Liefner (2021), R&D may also promote a company’s competitive edge by creating products that are not easy to duplicate. Thus, by sparking innovation, R&D enables a company to meet customer’s expectations through continuous process improvement. This gives the company an added advantage over competitors and increases its profitability.
Andrews Team R&D Strategy
As an industry cost leader, the simulated company’s primary strategy focused on improving internal automation through heavy investment in a quality production process that would improve manufacturing efficiency and reduce production costs. This ensured that customers received high volumes of high-quality products. Thus, the company focused on purchasing machinery and employing qualified human resources to run the business’ operations. Besides, the company’s management also strategized to train staff to ensure they possessed the needed skills to produce quality goods and services. No significant investments were directed towards developing new products in the initial two rounds of the competition. This resulted in a low R&D expenditure of $3,336,000 and $2,483,000 for the first and second rounds (CAPSIM, 2021). These minimum investments were directed towards ensuring the current products remained relevant concerning size, functionality, and performance. This caused an increase in the company’s market share from 18.1% in the first round to 22.7% in the second round (CAPSIM, 2021). Thus, while the initial strategy mainly focused on process improvements, it still yielded positive results.
In the third round, the management noted that the company could increase its market share by developing new and improved products. Thus, a decision was made to create at least one new product. Therefore, the management invested $3,713,000 in the third round and $5,893,000 in the fourth round 4 to develop new products in the best areas (CAPSIM, 2021). This increased the company’s profitability as well as its market share and stock price significantly. In the subsequent rounds, the management maintained the policy of creating new products in the areas that showed strong sales. This ensured continued profitability and increasing market share. For instance, the market share in the fourth round was 26.2% (CAPSIM, 2021). In the fifth, sixth, and seventh rounds, the company’s management invested mainly in maintaining continuous product improvement. While the investment in the fifth round was $3,568,000, it is reduced to $3,375,000 in round 6 before increasing to $5,010,000 in the seventh round (CAPSIM, 2021). These investments increased profitability to $ 125,538,419 in the seventh round as the market share remained at 23.40%. The company also made sales amounting to $ 336,713,810 (CAPSIM, 2021) . Indeed, the company’s R&D strategy enabled it to retain its position as an industry leader in all aspects.
Evaluation of Initial R&D Strategy
The company’s initial R&D strategy worked perfectly. By investing in maintaining the current products and only developing new products based on openings in the most potent market segments, the company succeeded in the top the industry in market share through all the competition rounds. This implied that its products were relevant to customers' needs, ensuring it made more sales than its competitors. Increase in sales translated to increased cumulative profit. As of the seventh round of competition, the company recorded the highest incremental profit in the industry. It also retained its position as a market leader owing to its large market share.
Potential Changes
While the company continued to lead the industry with its large market share, one may quickly note that its measures continued to vary through the first seven competition rounds. It would be possible for the company to maintain its position as the overall market leader if it invested more in developing new products and improving the current products at least in each round instead of only working to ensure its products remained relevant. This reluctance and limited R&D activities may be cited as one reason behind the company’s continuing fluctuations in market share. Often, these market share fluctuations translated into reductions in profitability in some of the competition rounds. For example, the company’s market share reduced from 27.7% in the sixth round to 23.40% in the seventh round (CAPSIM, 2021). Therefore, there is a need for the management to respond to R&D cues faster than they did. This improved response rate will cause the company to cement its position as an industry leader through continuous product improvement and introduction of new products based on need.
Conclusion
R&D is an essential department in all growing companies. The department collects data from customers and other sources and uses this data to create new products, improve existing products, and develop technologies to enhance a company’s production efficacy. Through these, a company may attract more customers. Through properly implemented R&D, a company can grow its market share to become a market leader. This comes with increased profitability and better returns to business owners. In recognition of the vital role played by R&D activities, the Andrews team invested in a mixed strategy that involved maintaining the company’s current products and introducing new products in market segments with high sales volumes. However, this report recommends that the management should have introduced new products faster than they did because such would have placed them ahead of competitors and given the company a larger market share than they achieved.
References
Brown, J. R., Martinsson, G., & Petersen, B. C. (2017). What promotes R&D? Comparative evidence from around the world. Research Policy , 46 (2), 447-462. https://doi.org/10.1016/j.respol.2016.11.010
CAPSIM. (2021). Industry reports . Retrieved May 24, 2021, from https://ww3.capsim.com/student/portal/index.cfm?template=reports.reports
He, Q., Guaita-Martínez, J. M., & Botella-Carrubi, D. (2019). How brand equity affects firm productivity: The role of R&D and human capital. Economic Research-Ekonomska Istraživanja , 33 (1), 2976-2992. https://doi.org/10.1080/1331677x.2019.1686045
Kleiner‐Schäfer, T., & Liefner, I. (2021). Innovation success in an emerging economy: A comparison of R&D‐oriented companies in Turkey. Growth and Change . https://doi.org/10.1111/grow.12479
Liao, T. (2019). The role of R&D leverage as a dynamic capability in performance creation: Evidence from SMEs in Taiwan. Journal of Business Administration Research , 2 (2). https://doi.org/10.30564/jbar.v2i2.755
McClure, J. (2017). New-product research and development: The sequestered stage of the capital structure. SSRN Electronic Journal . https://doi.org/10.2139/ssrn.2988885
Schot, J., & Steinmueller, W. E. (2018). Undefined. Research Policy , 47 (9), 1554-1567. https://doi.org/10.1016/j.respol.2018.08.011
