Aug 09
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The product-creation process breaks down into four stages:
Basic research. Although most industrial advances rely on progress in basic research, industry funds very little of this work. Basic research seeks to answer fundamental scientific questions, such as the internal structure of matter or the properties of human-body proteins. It is a long and uncertain process. No one can know ahead of time whether it will lead to new applications or technologies. Few companies have the resources or patience to fund this type of research. So most basic research in the United States is performed at universities or national laboratories, with funding coming primarily from the government.
Applied research. When a scientific endeavor becomes directed toward a particular industrial result, it becomes applied research. Squeezed between basic research and development, applied research suffers the woes of a middle child: ambiguity and neglect. University researchers, whose main goal is to expand scientific knowledge, prefer to focus on basic research. Small companies cannot afford to get involved until research has already passed through the
applied stage. So most applied research is performed at large industrial labs, such as AT&T’s Bell Laboratories and Xerox’s Palo Alto Research Center.
Development. This is the most directed phase of product creation. Its goal is a finished product that can compete in the marketplace. All companies do development work. But in fast-changing industries, small companies are the most productive and successful in development efforts. Unlike corporate giants who must invest substantial resources in maintaining their bureaucratic structures, small startups direct almost all their resources and energies toward development of a product. Necessity presses startups to be more innovative: The company’s very survival depends on success of the development effort.
Manufacturing and marketing. The first three stages of the cycle, from basic research through development, all represent investment costs. It is through manufacturing and marketing that companies produce a return and recoup the costs of product creation. Without this return, the investment is lost and it has generated no new capital for the next generation of product innovation. Size and resources are often major advantages in manufacturing and marketing, so big companies tend to be the leaders in this final stage of the product-creation process.
It is in this final stage that Japanese companies have their biggest advantage. Japanese companies usually lag behind their U.S. counterparts in the first three stages of the product-creation cycle. But in some fast-growing markets-such as consumer electronics and semiconductor memories-they have managed to leap ahead in the final stage, in part because of superior manufacturing technologies, and in part because of the special treatment they receive from the Japanese government and Japanese financing system. In winning the manufacturing battle, the Japanese have deprived U.S. companies of the returns they need to invest in future-generation products.
Strategic alliances can help U.S. companies share costs and expertise, and thus meet the Japanese challenge. In looking at the product-creation process, it is clear that different companies have different strengths in different parts of the cycle. Teaming up is a way to share expertise. If big companies are typically stronger in applied research and manufacturing, while small companies are the most innovative at development, why not join forces?
IBM’s strategic alliances have done just that, linking its manufacturing prowess with the developmental skills of Intel, Microsoft, Tandon, and others.
