Outsource or in source R&D

“Outsource or in source R&D - Feed R&D - or Farm it out”

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“Outsource or in source R&D - Feed R&D - or Farm it out”

Background

This case study is an example of a company at a turning point. Faced with the critical business decisions, the firm will have to choose a strategy and stay focused. This Harvard Business Review article1 demonstrates the trade-offs that many companies must face today in a technology environment.

The competitive environment is changing in technology sectors which cause this problem increasingly prevalent. Competition and the rate of technology development reduce the profitability of innovation. In the past, innovative companies could make a name for it and hold a large and loyal customer base that is eager to pay premium prices for the latest products. It seemed that patents and industries with few competitors allowed companies , fully utilize and profit technologies through a typical product life cycle.

Today's situation is saturated with high-technology competition that can discover many ways to replicate or improve technologies at drastically reduced prices. A replicator can mass-produce a product and reach a wide market without incurring the costs of research and development (R&D) (Nohria, 2005).

History of RLK

RLK Audio has a history of innovation. Their products sell to a niche of enthusiasts that seek new high-end products. RLK Audio believes that this market is eroding from two directions. Customers are finding less expensive alternatives, possibly substituting savings for a less-known product or settling for last year's hot products.

Competition is growing fast and providing alternatives and substitutes of similar quality and design for much less cost. Stereo speakers that can be sold for $20,000 provide a high-profit margin. In the past, the profits could pay for the past development or fund future development. According to Michael Porter's Five Forces model, 2 high margins attract competition and erode profits quickly. If profits are unavailable for funding R&D, companies must change their business strategies.

Strategic issues presented in the case

There are several interconnected strategic issues argued in the HBR case “Feed R&D or Farm It Out”. This case is all about RLK Media and its managerial predicaments. The strategic issues presented in the case are related to outsourcing in relation with marketing, R&D, human resource and decision-making process at managerial level.

Some of the main strategic concerns for RLK media are;

The CEO of RLK Audio, Lars Inman, is facing one such crossroads. RLK Audio is unable to sustain R&D with the profits earned from recent products. If Lars cannot devise a business strategy that allows internal innovation, production, and sales, the company will have to narrow its scope.

• Company's internal environment has been mainly influenced by the external environment, which has changed incredibly from the past. Lost touch with customers who buy their products. Appears to have only one substantial product in the pipeline.

• Increased competition from several competitors such as Japanese giants. Competitors are offering similar products at more competitive prices.

• The type of R&D technology is changing in the audio products ...