The other main consideration on the Company agenda is how the R&D and innovation activities can be used to improve the company's competitive position. Competitive position is difficult to define in absolute terms since it depends on the competitors, i.e. other companies' competitive positions. Competitive position is a product of all features of business which give advantages or disadvantages to a company compared to its competitors on a defined market. This document is naturally concerned only with those features that can be improved through R&D and innovation activities.
Since the financial rate of return is discussed separately in this document, this issue deals with features that can not easily be presented in monetary terms, but will affect future earnings. Competitiveness relates to the company's strengths, weaknesses, threats and opportunities (SWOT-analysis). Regarding competitiveness the common hypotheses attached to public funding are:
Technological superiority through R&D creates a strong foundation for sustainable competitiveness. Public funding for R&D induces companies to invest more in R&D.
The ability to react quickly and to use the best available resources globally are the key elements of competitiveness in fast changing markets. Public funding for R&D stimulates companies to change, develop and adapt new technologies and strategies.
How can the competitive position be assessed? Since the competitive position is always defined with respect to other companies in specified markets, the actual competitiveness measurement should include information from all relevant competitors in that market. This will in practice be difficult, so some indirect measures must be used. The basic indications of competitive position are connected to the present position, the changes in the near future and the ability to shape the future in the longer term.
|7.1 Current market position
The current market position is defined by specifying the market, the market share and competitors' market shares. The simplest way to approach this is to ask the company to specify these, since they must be able to position themselves. What is the market to which where the innovation is targeted and is the company already in this market? Is the innovation supposed to increase the market volume or increase the market share? Is the company losing or gaining market share with its current products? Is the innovation replacing current products or is it improving the existing ones? Where are the geographical market areas?
The indicators that can be realised will have at least two features - growth aspect and a position aspect. Growth should be assessed with respect to the expected growth (or decline) with current operation and the position with respect to competitors. e.g. with this R&D or innovation activity the company is supposed to increase its markets by 50% and to position itself as the market leader with 40% of the total increased market.
Deeper market analysis is very difficult for the Agency, so they must rely heavily on the knowledge provided by the company. This knowledge can sometimes be extended with the knowledge from other companies competing on the same markets, if those companies are also in contact with the Agency. Also in some cases the Agency might have the possibility of using external experts to assess important markets.
|7.2 Level and maturity of technologies
There are some classification methods (e.g. Wheelwright, 1992 ) that have been suggested for assessing the level and maturity of technologies. The first consideration for the company is the strategic value of various technologies. The technologies can be classified into vital, supportive and marginal technologies according to their value and competitive relevance to the company.
The next classification is according to the maturity of products and technologies. The typical classification includes emerging, developing, mature and old technologies. The same can be applied to products, processes, methods and services.
Yet another classification is based on the level of technology. The typical classes include world class, high, medium and low levels. The names of levels can be different, but the basic idea is generally the same. Sometimes the novelty of technology is also used instead or in parallel to indicate the level of technology. Then the usual classes are global novelty, advanced level in specific sector, novel to the company and incremental improvement.
Competitiveness of a company depends on the whole portfolio of technologies (and products, processes, methods and services) that the company has at its disposal either currently or under development. One important question in assessing the company's competitiveness with reference to public funding is whether it should be limited to the product, process, method or service that is being developed in the project or whether it should concern the whole company. These are sometimes difficult to separate and perhaps the best approach would be to look into the intended effect of the project, into any business on which it will have an impact, and to treat the rest of the company according to other R&D activities (if known) or according to company estimates (which are usually more realistic for businesses which the company indicates will not be affected by the public funding).
Placing the company in these various classes will result in a profile for the company, which can then be used to rate the company according to Agency objectives. The expected change in the profile will then be a visualisation of the competitive advances related to the R&D and innovation activity proposed and subsequently executed.
|7.3 Capabilities to create and adopt new technologies
The assets of a company define its capabilities to create and adopt new technologies which in turn defines the company's potential to improve its competitiveness in the future. The assets can be classified according to Howells (1996), which is depicted in the following figure.
This type of information is usually unstructured. Defining indicators is therefore a difficult job. First of all this information has to become more structured.
Tangible assets: These are assets that can easily be accounted for in monetary terms. These can include:
- new or improved products and processes
- new or improved methods and services
- new or improved facilities (for general use)
- R&D equipment
- QA equipment
- production equipment
- quantity and qualification of the personnel
- in R&D
- in other parts of the company
- research intensity
- R&D budget/turnover
- R&D budget/added value
Codified knowledge can be the subject of business transactions and thus can have monetary value attached to it. But more importantly it is increasingly the actual base for companies business. Its value is typically underestimated and not presented openly when a company's value is being estimated.
Intangible assets also include knowledge other than codified i.e. tacit knowledge. This is the knowledge within the company that can not easily be extracted or put into monetary terms. Tacit knowledge includes the following types:
- knowledge technical knowledge relevant to the project technical knowledge relevant to other activities within the company/consortium
- technical skills
- organisational improvements
- strategic management (technology strategy, market strategy, ...)
- operational management (project management, QA, ...)
- co-operation (internal and external)
- goodwill - image
- towards customers, suppliers, end users
- towards universities and research institutes
- towards government (local, national, EU,..)
- towards social movement
- network position
- number and typology of contacts
- type, quality and intensity of contacts
- "centrality" and "density"
- geographical distribution of contacts
- knowledge flow direction
- lobbying ability
It could be claimed that tacit knowledge is improved by any activity the company undertakes, but the way organisations learn differs a great deal. Some organisations can learn as organisations whereas others learn only as individuals. The company's knowledge management has a vital role in giving birth to , cultivating and fostering innovations.
The other, mostly non-documented asset, is the company's capability to use networks or other companies and research units for R&D and innovation purposes. The use of networks is always an optimisation problem for the company. When to take up the leading role as opposed to a more silent role? When should the link to another partner be very strong and when should it be more loose? What information has to be given in order for the network to work for the company in the optimal way? etc. The network issue is discussed in more detail in Chapter 10.2.
The indicators can be aggregated from these assets by methods similar to those used with other items of competitiveness, by using classification - or in some cases direct numbers - and compiling company (or innovation) profiles from them visualising what the actual achievements of the R&D activities are expected to be or known to be.
|7.4 Data structures and variables Timing
A large variety of variables can be defined for measuring the factors influencing improvement in the competitive position of the company. As we are dealing with industrial research, it is an advantage if concepts used in industry or by large consultant firms are used.
All partners involved in the R&D/Innovation project form the primary analysis population. However a competitive position is always relative to "competitors". So information external to the consortium has to be collected in order to be able to make the comparison.
The indicators can be described for an individual project as a listing of the factors which have been influenced in a clearly positive or negative way. In order to describe the results of a programme one can make an aggregation and report on the factors which have been improved in a significant way for most of the participants or make an even more aggregated statement such as "Through the ........ programme 80% of the participants have improved their competitive position in a significant way".