Feed R&D or Farm It Out Cases
Case 1 Feed R&D or Farm It Out?
The predicament that RLK Media is facing is losing their market share in the products that they manufacture and sell, without a new product to offer its customers and with the very competitive pace that the other players in the industry are churning up new products; RLK Media needs a miracle to turn around their present state. The strength of RLK Media is their brand equity status, as the first innovative and high-end manufacturer of speakers; their brand has become synonymous with top quality and high-priced products and recognized by consumers. Lars Inman as CEO is frustrated at how the company is doing and has been pressured by the company chairman to produce results in a year. The R&D department has come up with a potential product that would make or break the company, Lars is thinking of bringing the product to production but the costs of hiring software developers for the specific project is too costly and beyond that of the company at the present.
The trend of outsourcing R&D has come into his mind but the chief researcher had been fighting it off for a long time and would make it very difficult to do so. Outsourcing in general terms had started from administrative functions to even product operations. The prime attraction that outsourcing has is that it is low in costs and almost delivers the same quality of work although it is very risky especially if the company do not have a trustworthy partner, there is also the risk of confidential information leaking out, miscommunication that could disrupt the company’s operation and other loopholes inherent in this form of transaction. The option is to establish a relationship with the firms that could actually become a trusted partner and to look for trustworthy firms.
In the years of existence that the company has existed it never had the need to outsource until now, but the rest of their competition had been outsourcing R&D for last couple of years and were able to produce the same quality product at a lower cost and hence had been quite profitable as compared to RLK Media. Since Lars do not have experience with outsourcing firms, he researched through the most trusted companies and came up with Inova as the most trusted and reliable contracting software company located in New Delhi. Using a transactions cost economics approach, it is evident that RLK will be spending less budget allocations for R&D to complete the product if it uses Inova to develop the software for them, however with the contract demands of Inova to have a 5% royalty from the sales would be another form operational cost and may pose problems in the future as to proprietary rights.
The transaction that RLK Media is planning to have with Inova is for the firm to develop the software they need to launch the new product whose concept and design had already been developed internally by the company. In this terms, it is highly profitable for RLK to outsource the software development which is a highly asset specific transaction since it is a new product and the software would be written from scratch and Inova have the qualified people to do it albeit expensively. The environment at present wherein the transaction for outsourcing will be made is a highly competitive one, and since Inova had just severed ties with a strong competitor, it is beneficial to RLK since they would be clearly ahead of the competition now that is does not have the software developer to supplement their R&D.
However since RLK do not have the experience in outsourcing, the transaction is uncertain in the sense that the company does not have the assurance that Inova will deliver what they promised and whether the product would become a hit in the market. The parties involved in the transaction will be RLK Media and Inova, on the part of RLK the R&D unit will be in constant communication with the engineers in Inova to make sure that specifications will be followed. But since the chief researcher have a negative attitude to the idea, he might become a problem to the efficient implementation of the transaction, but since he is too talented to let go, he should be treated sensitively and give him the opportunity to become involve in the process.
Clearly, Lars had issues with the security of the transaction since he needed to fly to New Delhi to see Inova, whether it is as efficient, effective and excellent as it is. He had been communicating with Inova previously through phone calls but after reading the firm’s proposal, he needed to see it for himself. Obviously, RLK Media will be investing in an uncertain transaction that could make or break the company, but the other option is simply not feasible at the moment.
Case 2 A Blogger in Their Midst
Lancaster-Webb is the topmost producer of medical disposables and it has been a profitable company since it started. It is obvious that Lancaster-Webb had closed major deals with important clients and has often stayed well ahead of their competitors. Will Somerset the CEO of the company has just found out that one of their employees has become a huge celebrity in the blogging community and has inadvertently affected the company by sharing sensitive information to a large number of people regarding company policies, product development and even its relationship with its clients.
Apparently, Glove Girl’s blogging habits have influenced a large number of people although her intentions for blogging may have not been malicious or in bad faith. In the case, Glove Girl’s influence was apparent in how she was able to make an old product gain greater sales and how she could change the public’s view of the company and even those of their clients. Will Somerset have just learned of the Glove Girl during a conference and it speaks of how little or nonexistent is knowledge management in the company. The flow of communication is inefficient in the sense that the CEO is the last to know about a potentially damaging or helpful employee and since there had been actions taken by the management to control the blogging activity; this had not been made known to him.
Sensitive information is not protected in the company, as Glove Girl had good insider information and she had even aroused sentiments among those who read her blog by her candor and honesty. Internal control is very low in Lancaster-Webb, she could even post her blog using the company terminals and she had also linked her site with the company’s own therefore identifying herself as an employee of the company. This means that there are no restrictions to employee use of the internet; employees do not have a clear idea of the rules and regulations in protecting company information as well as being consciously aware of violating confidentiality clauses in her contract.
The company has to establish ethical standards in employee behavior that respond to technological advancements, clearly many of its employees are using the internet for different purposes and it’s only the CEO who have not kept up with it. Another issue for the knowledge management program is that, there had been very little information available on how to handle the situation caused by Glove Girl, whether Will likes it or not, Glove Girl had been beneficial to the company as evidenced by the positive reaction of the people she reached. It was clear that Will was not sure of how to respond or what to do about the blogger in their midst.
Case 3 P&G
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P&G have become an enormous global company and much of it is due to the fast tracked R&D program that they have. The company has dealt with diminishing product performance because it failed to innovate and produce truly innovative and new products. It is a fact that with the large numbers of employees and offices the company has, it is difficult to get together and be bale to come up with new ideas for the company. Hence, P&G has set up virtual teams to take care of the R&D aspect of the company. The virtual teams are more cost-effective since it would save the company from travel expenses and there is a constant flow of information since everyone is connected and the discussion can be steered to the most relevant topics that they need. Virtual teams as shown by P&G generate more creative ideas and it has been a large source of product innovation for the company. With a large number of people participating in the discussion, unique solutions and ideas can be identified and elaborated on right there and then as well as avoid group think and loud people taking over the discussions.
However, virtual teams need to be made up of team players who are willing to share information and learn from each other. The virtual teams in the case of P&G had thrived due to the knowledge management set-up that they have. The company is now developing a program that would enable their R&D unit from all over the world to access codified materials and researches and experiments. This would allow researchers from Asia to check whether researchers in North America had done the research and in what areas they could improve it and whether it has failed and better left alone. The program also allows the other personnel who need the information like company lawyers who need the experiment notebook for litigation and patent cases. Lastly, the program also has started with automation of the research process which would eventually lead to a highly digital, codified and easily accessible knowledge base. However, P&G has given importance to face to face interaction in terms of virtual teams and from the observation of successful companies with effective knowledge management strategies; it is better if P&G will use the codified strategy and use the other to supplement it.