The company and its environment · The business environment
Business, Digitalization, and Innovation
A few years ago you called a taxi by phone, and today you do it from your cell phone. Nobody reinvented the car: the way of connecting the driver with the passenger changed. Innovating is not just inventing a device; it also means producing, organizing, or reaching the customer in a different way. By the end of the page you will see why companies that don't do it lose their place.
R&D&I and the four types of innovation
Practice★☆☆Not started
Explain what the acronym R&D+i stands for and how research, development, and innovation differ from each other, giving an example of each stage in a yoghurt…
Explain what the acronym R&D+i stands for and how research, development, and innovation differ from each other, giving an example of each stage in a yoghurt manufacturing company.
Classify these innovations according to their type (product, process, organisational, or marketing): launching a new flavor, installing robots in the warehouse,…
Classify these innovations according to their type (product, process, organisational, or marketing): launching a new flavor, installing robots in the warehouse, reorganising the staff into self-managed teams, and updating packaging and brand image.
The diagram shows the four types of innovation according to the area of the business they transform. Identify the missing type, marked with "?", and give an example of…
The diagram shows the four types of innovation according to the area of the business they transform. Identify the missing type, marked with "?", and give an example of that type in a supermarket chain.
An industrial bakery installs ovens with sensors that automatically adjust the temperature and alert of breakdowns before they occur. Explain what type of innovation…
An industrial bakery installs ovens with sensors that automatically adjust the temperature and alert of breakdowns before they occur. Explain what type of innovation this is and analyse two effects it may have on costs and bread quality.
Distinguish between incremental innovation and radical innovation, give an example of each in the transport sector, and explain why most companies innovate mainly in an…
Distinguish between incremental innovation and radical innovation, give an example of each in the transport sector, and explain why most companies innovate mainly in an incremental way.
Digitalizing is not just "opening a web page." It changes four things about the business: the sales channel (the internet is added to the store), logistics (packing, shipping, or preparing orders for pickup), customer service (chat, social media, remote support), and the use of data (what sells most, who buys, when).
And new costs appear: the platform or online store (monthly fee or commission), the inventory system, the card terminal (which charges a commission on every card payment), packaging and shipping, digital advertising, staff training, and the protection of customer data. Many are fixed costs that are paid even if sales are low.
Practice★★☆Not started
A local bookshop starts selling online as well, offering click-and-collect in store. Analyse what changes this digitalisation entails in its way of operating (sales…
A local bookshop starts selling online as well, offering click-and-collect in store. Analyse what changes this digitalisation entails in its way of operating (sales channel, logistics, customer service, data usage) and what new costs arise.
A company has a competitive advantage when it offers something that customers prefer and that rivals cannot easily copy: a different product, a lower cost, or better service. R&D is a source of that advantage: if a company discovers a more resistant material or a cheaper process, for a time it sells something others don't have, and it can protect it with a patent or a trademark before the IMPI.
So why doesn't every company do research? Because R&D has three obstacles, especially for a small or medium-sized business:
Cost: labs, equipment, and specialized staff are paid for before a single peso is sold.
Risk: many projects fail or the market doesn't accept them.
Timelines: years can pass between the idea and the first sale, and a small business needs cash flow every month.
Even so, a small or medium-sized business has alternatives without setting up its own department: open innovation (collaborating with universities or research centers), buying or licensing technology that has already been developed, and copying with improvements (incremental innovation).
Open innovation and new business models
Why and how companies grow
Many companies innovate in order to survive and to grow. Growing allows them to produce more cheaply (economies of scale: the cost per unit falls as more is produced), sell to more people, and negotiate more strongly with suppliers. But growing badly or too fast can sink a healthy company: if it takes on too much credit, loses quality, or fails to get organized, growth becomes a problem.
There are two ways to grow:
Internal growth: the company grows with its own resources (more branches, new products, online sales, exporting).
External growth: it grows by partnering with or buying other companies (merger, acquisition, franchises, alliances).
Once in the market, it competes with strategies: offering the lowest price (cost leadership), differentiating itself (quality, brand, innovation), or targeting a niche. And when it crosses borders (internationalization, for example exporting to the United States under the USMCA), it faces new challenges: different regulations, tariffs, exchange rates, and competitors.
An innovation plan for a traditional company
A furniture maker in Guadalajara sees its sales fall against online platforms. What innovations would it combine, and in what order?
The logic of the order: first what generates income with little risk, then what lowers costs, and last what requires more investment and time.
Practice★★★Not started
A traditional furniture manufacturer sees its sales drop due to competition from large online platforms. Propose an innovation strategy combining at least three…
A traditional furniture manufacturer sees its sales drop due to competition from large online platforms. Propose an innovation strategy combining at least three different types (product, process, organisational, or marketing), explaining what each contributes and in which order you would implement them.
Biotecmar is a canned-food SME with a turnover of 2 million pesos that needs biodegradable packaging so as not to lose market share to major brands. Its management…
Biotecmar is a canned-food SME with a turnover of 2 million pesos that needs biodegradable packaging so as not to lose market share to major brands. Its management estimates that setting up its own R&D department would require an initial investment of $\$450,000$ and $\$120,000$ annually, with a $40\ \%$ probability of not achieving valid results within three years.
a) Based on the data, explain why the characteristics of traditional R&D (financial risk, sunk costs, and maturation periods) represent an almost insurmountable barrier to entry for an SME.
b) Design an open innovation strategy for Biotecmar using two specific alternative pathways (such as university agreements or patent licensing), justifying how each one reduces risk and cost compared to the closed model.
The general manager of a bicycle factory in crisis states: «To get out of losses, the only thing that works is designing 15 new models a year; innovating is only about…
The general manager of a bicycle factory in crisis states: «To get out of losses, the only thing that works is designing 15 new models a year; innovating is only about launching new products». However, the audit reveals that its manufacturing costs are $25\ \%$ above the industry average due to logistics failures, orders take a month to be delivered, and $70\ \%$ of the public is unaware of its current catalogue.
a) Refute the manager's statement by demonstrating, using the Oslo Manual typology, why focusing solely on product innovation can accelerate the company's bankruptcy.
b) Design two non-product innovation proposals (one process and one organizational or marketing) that tackle the inefficiencies in the report at their root, justifying their impact on the profit margin without the need to modify the bicycles.
Back to the beginning: the taxi app did not change the car, but the way of connecting supply and demand (platform model, process and marketing innovation). Those who don't adapt to these changes lose customers to those who do.
Summary
Let's practice! 3 medium exercises in this section