Innovation and R&D Based Leadership Strategy

Particularly in embryo stage technologies, competition is driven by functions developed based on R&D. 

However, as the technology progresses towards its adolescence, competition is now balanced on quality. In this period, innovations create small competitive leaps in companies and enable them to gain meaningful positions relative to their competitors. 

However, as technologies move towards maturity, new competitors enter the market and force you to cut prices (Arman Kırım Hocam, we haven't forgotten you, 2000, Bana Bi Akıl Ver Hocam, İstanbul: Sistem Yayıncılık). 

If the market is not expanding, after a while, innovations will not be enough for companies as competition will increase in intensity. In this situation, CEOs come to a decision point.

Whereas innovations are like dropping a bomb on the market, R&D is like sending a nuclear missile. It sweeps the market. It changes working and marketing conditions.

On the other hand, not every R&D work turns into a product. Even if it turns into a product, it may not be marketed or accepted by the customer. According to Cooper and Edgett (2006) (as cited in Dilek Çetindamar, Robert Phaal, David Probert, 2013, Technology Management, Ankara: Efil Publishing House), 67% of such projects turn into products, while only 25% of them achieve commercial success.

R&D-based strategy can sometimes cost companies big losses. For this reason, CEOs can choose to lead R&D, or they can choose to follow the leader in the youth of the technology, copy it in its maturity, or not react at all.

However, there is one CEO who used this strategy and earned the respect of the whole world; Steve Jobs. This article is his story as much as it is the story of R&D-based strategy.

Despite running a computer giant for years, Steve Jobs never saw himself as a technical man. After leaving Reed College, a liberal arts school, he worked for a time as a technician at Atari Corporation, but his real virtue was understanding the needs of customers and shaping the market accordingly (for those interested: Yoffie and Cusumano, 2015, Laws of Strategy, Istanbul: MediaCat53).

For this reason, when he and his colleague Steve Wozniak, also from Atari, founded Apple Computer in 1976, the technology was still in its embryonic stage. Behind this technology, which for many was just a hobby toy to take apart and put together, Jobs saw the horizon of a technological revolution. 

Perhaps that's why the first product, called "Apple 1", marketed in 1976, was just circuits in a wooden box, while in 1977, "Apple 2" was a completely ready-to-use product in a plastic casing. Jobs realized that people were ready for the computer age and turned his product from a hobby circuit into a real laboratory and office equipment.

But in the 1980s, IBM launched new computers with Bill Gates' Disk Operating System (DOS). Yes, the system logic that would make the user's work easier by controlling all the units of the computer had been on the market for some time, but when MS DOS was released with the IBM computer, it suddenly became the market standard because of its clones (remember the term IBM compatible?).

In response, Apple launched the more powerful Macintosh (Mac from 1998 onwards) computers in 1984, using the Mac OS system and RISC (Reduced Instruction Set Computer) architecture. Macintosh computers were an R&D revolution with their graphical interfaces, embedded displays and keyboards. However, R&D and material costs and prices were very high. The Commodor64, the cheap home computer of the market, could not destroy the 8-bit Atari and IBM clone market.

Jobs positioned powerful Macs in printing, laboratory analysis and graphics, areas where other computers lacked the operating capability. Although this positioning confined the Macintosh to a niche market, it also kept it out of the industry's personal home and office PC wars.

Perhaps this is why, when Jobs left Apple in 1985, he turned to educational institutions by founding NeXT Computers, a company that produced high-powered workstations, again with R&D. In later years, NeXT computers and their libraries of object-oriented development tools were even used at the European Center for Nuclear Research (CERN).

In 1986, when Jobs bought Pixar, a computer-based animation company founded in 1979, everyone thought it was an out-of-field expansion. In fact, it was a reflection of Jobs' prediction that the future would be computer-based multimedia. At Pixar, Jobs did the R&D for digitally based animation applications that would be transferred to computers and even other media in the future. 

As David Cohen put it, "it wasn't the only [studio] working on [computer animation] for movies." But "they were the ones who succeeded both technologically and creatively and showed everybody how to do it, and it's hard to overstate [the extent to which] it changed the entertainment landscape." 

This logic forced all of Hollywood to change the way they made movies (https://www.cnet.com/news/with-pixar-steve-jobs-changed-the-film-industry-forever/).

In 1997, when Apple, now marginalized in the PC market, bought NeXT to recover, Jobs returned to the company, first as a consultant and then as CEO. 

However, the PC market was nearing the end of its youth and had entered a period of maturity. The new trend was internet applications. That's why Jobs launched the iMac in 1998, which Ken Segall refers to as a reference to the Internet (https://tr.wikipedia.org/wiki/%C4%B0Mac). This "i" prefix became the standard for all subsequent internet-connected devices.

But iMacs were designed as desktop devices. However, the walkman fever that started at Sony in 1979 was relentless and people wanted to carry their music with them at all times. So Jobs gave up on high-performance computers in 2001 and launched a smaller version, the iPad. Powered by iTune, an online music store, and uploadable from desktop computers, it allowed people to listen to music on headphones as they wished.

By 2007, Apple was no longer a computer company. Jobs removed the word computer from the company's name. 

But people still did not want to give up the benefits of the computer and even wanted to carry it with them. Siemens Nixdorf produced the first portable computer in 1985. However, even though these computers were sized enough to fit in a bag, it was still not possible to carry them in your hand all the time. 

According to Jobs, computers had to be small and portable for people to have easily accessible entertainment. That's why he introduced the iPad in 2010 (today it can take videos and photos, play music, browse the web, send e-mails, connect to social networks, play games, etc.).

In the same year, he added telephony to this capability and launched the iPhone, supported by the AppStore. It was a big hit, making Apple the company with the highest market capitalization in history until 2011, when Jobs left the company (Yoffie and Cusumano, 2015, 31).

Let us now move on to another company that combines innovation and R&D in equal measure. For example, have you ever heard of Blue Ribbon Sports?

This company, founded in 1963 by American athlete Phil Knight (right and center) with his partner, Olympic National Team Coach Bill Bowerman, to sell Japanese Outsuke Tiger shoes, has an interesting story.

For one thing, Bowerman is a true researcher, dedicated to the advancement of athletics. He even invented the tartan track and drinkable solutions to replenish the body's electrolyte needs. 

So he's not just interested in distributing the shoes that the Japanese send. He disassembles the samples; he reassembles them. He directs the manufacturer to make the shoes more effective. He even named the shoes for the 1968 Summer Olympics in Mexico: Cortez.

So what happens? The company constantly borrows money because it doesn't have enough equity capital to expand. But despite doubling its sales volume every year, it is unable to develop its sales channel as fast as the manufacturing company would like. On a business trip, the Japanese realized that the company was walking on a tightrope. So they turn to new suppliers. On the other hand, they plan to take over the company. 

So the company's management is looking for alternative sources of supply. They start selling their own designed products from different Japanese, Chinese and Mexican factories under a brand of their own design: Nike.

In conclusion, a marketing company's greatest capability is its distribution channel. The buyers in the distribution channel stand behind the company.

Even better, because of the innovation processes they are already used to, they use all their performance to design good shoes. For example, air-compressed soles emerged in this period. But some innovations backfire. For example, flat heels, which were developed to provide balance to the runner, cause greater injuries in unintended accidents. So they are recalled. This further increases their credibility in the eyes of the user. 

However, especially for those struggling to make a living at the top of the professional sports industry, where the big money is spinning, the matter of remembrance only goes so far.

This is where the strategy that they know very well but cannot implement due to lack of cash comes into play. As you know, people always find the products used by well-known personalities more reliable. That's why the company makes sponsorship deals with star athletes. 

For Michael Jordan, the best player of all time in the US professional basketball league, the Air Jordan, produced under his name since 1984, was born from such a deal. 

Reference

Phil Knight (2017) Shoe Guru (original title Shoe Dog), Pegasus Publications, Istanbul