Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 35

Managing the Research and Development Department Effective use of research and development (R&D) is an important part of any firm’s competitive strategy. Some firms take an “incrementalist” approach to R&D, continually striving to add value to their products and services. Other firms take a quite different approach by looking only for “breakthrough” results from R&D. The breakthrough results are those that fundamentally change the nature of the products, the services, and the competition in the industry. An example of a breakthrough result is General Electric’s digital X-ray technology, first sold in 1996, which uses digital imaging to replace the conventional film-based technology. Other examples include Apple’s iPhone and Toyota’s hybrid vehicles.

Many firms employ both strategies: one R&D department uses the incrementalist approach that focuses on continually improving existing products and another R&D department uses the breakthrough approach that develops fundamental changes. The incrementalist R&D projects help to keep the current product lines competitive while the breakthrough projects hold the promise of a successful future.

Required What type of SBU would you recommend for each of the two types of research and development

departments and explain why?