Feed R&D or Farm It Out

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Feed R&D--or Farm It Out?

A)Actionable Key Issues and Consequences

1)Invest more in Research and Development department in RLK a.If Lars decides to invest around $6 million more in research and development, it is highly risky as the company’s survival depends largely on the success of the launch of Ray’s new product into the market. b.Since customers associate RLK with high-end audio-video design, pumping money into R&D would increase their brand equity as well as to live up to consumers’ expectations of their highly innovative products. c.However, RLK’s competitors are downsizing and outsourcing R&D and exploiting on the cost advantages. If RLK decides to invest more money into R&D and should the new product stall on launch, they face the danger of becoming bankrupt. 2)Collaborate with Inova to work on the new product - IVid

a.Lars could procure the software skills he needed from Inova for one-fifth what they'd cost in the States. The huge cost savings will be advantageous to the RLK in the short run even though there were transaction costs and royalties to consider as well. b.A potential obstacle to outsourcing may be Ray, who has long resisted outside involvement in R&D operations. He may be unhappy with external ideas competing with his own and thus refuse to cooperate with Inova. c.RLK’s organizational cultures are radically different from Inova. The huge culture disparity may cause difficulties in cooperation. Besides, the time zone differences and distance apart will contribute even more problems at hand. 3)Invest in marketing to build on brand equity and satisfy customer needs. a.Keith suggested investing more in marketing to find out more about customers’ wants and needs. However, this is not the root of the problem and marketing will not help to solve the current crisis that RLK faces. b.The issue is whether RLK should exploit its brand equity as it is known for their innovation and the innovation capabilities. However, Lars need to understand that outsourcing is not the only option and he should consider more options and possibilities.

B)Evaluation Criteria

1)Impact on the R&D department in RLK– Ray may have adverse reactions to the idea of collaborating with Inova and hence refuse to cooperate with them. 2)Long term viability and lowering the risk of any possible action – the solution must be advantageous in the long run with the least amount of risk involved instead of just achieving short term cost advantages. 3)Impact on Financials –ability to generate revenue and increase profits with the launch of RLK’s new product and ability to obtain higher cost savings. 4)Ability to ward off competitors such as Pycosonics and gain a higher market share – To beat Pycosonics in marketing this new product so as to be able to gain a foothold in this industry

C)Alternatives: I have identified and critically analyzed four possible alternatives:

1. Invest more in RLK’s research and development and regain leadership in product innovationBringing the software-engineering talents into RLK will help the R&D department in improving on innovation and creativity. •This will increase RLK’s brand equity, especially if the launch of the new product turns out to be a success.It is extremely costly to pump in more money into R&D as RLK does not have excess money available. They may have to sacrifice on other areas in order to raise the estimated amount of $6 million. •This option is highly risky as the survival of the company depends on success of this new product launch. Besides, whether it will be a success or not is not within RLK’s control and hence this makes the alternative even more precarious. 2. Collaborate with Inova to work on the iVid prototype so as to exploit cost advantages by outsourcing.

The iVid prototype may serve as a common goal for both teams. Besides, it can help the teams communicate in engineering and improve on the design...
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