The research and development is a specific group of activities within a business. The
activities that are classified as R&D differ from company to company, but there are two
primary models. In one model, the primary function of an R&D group is to develop new
products; in the other model, the primary function of an R&D group is to discover and
create new knowledge about scientific and technological topics for the purpose of uncovering
and enabling development of valuable new products, processes, and services. Under both models,
R&D differs from the vast majority of a company's activities which are intended to yield nearly
immediate profit or immediate improvements in operations and involve little uncertainty
as to the return on investment. The first model of R&D is generally staffed by engineers
while the second model may be staffed with industrial scientists. R&D activities are
carried out by corporate or governmental entities. R&D is a form of applied research.
Background New product design and development is more
often than not a crucial factor in the survival of a company. In an industry that is changing
fast, firms must continually revise their design and range of products. This is necessary
due to continuous technology change and development as well as other competitors and the changing
preference of customers. Without an R&D program, a firm must rely on strategic alliances, acquisitions,
and networks to tap into the innovations of others.
A system driven by marketing is one that puts the customer needs first, and only produces
goods that are known to sell. Market research is carried out, which establishes what is
needed. If the development is technology driven then R&D is directed toward developing products
that market research indicates will meet an unmet need.
In general, R&D activities are conducted by specialized units or centers belonging to
a company, or can be out-sourced to a contract research organization, universities, or state
agencies. In the context of commerce, "research and development" normally refers to future-oriented,
longer-term activities in science or technology, using similar techniques to scientific research
but directed toward desired outcomes and with broad forecasts of commercial yield.
Statistics on organizations devoted to "R&D" may express the state of an industry, the
degree of competition or the lure of progress. Some common measures include: budgets, numbers
of patents or on rates of peer-reviewed publications. Bank ratios are one of the best measures,
because they are continuously maintained, public and reflect risk.
In the U.S., a typical ratio of research and development for an industrial company is about
3.5% of revenues; this measure is called "R&D intensity". A high technology company such
as a computer manufacturer might spend 7%. Although Allergan tops the spending table
with 43.4% investment, anything over 15% is remarkable and usually gains a reputation
for being a high technology company. Companies in this category include pharmaceutical companies
such as Merck & Co. or Novartis, and engineering companies like Ericsson. Such companies are
often seen as credit risks because their spending ratios are so unusual.
Generally such firms prosper only in markets whose customers have extreme needs, such as
medicine, scientific instruments, safety-critical mechanisms or high technology military armaments.
The extreme needs justify the high risk of failure and consequently high gross margins
from 60% to 90% of revenues. That is, gross profits will be as much as 90% of the sales
cost, with manufacturing costing only 10% of the product price, because so many individual
projects yield no exploitable product. Most industrial companies get 40% revenues only.
On a technical level, high tech organizations explore ways to re-purpose and repackage advanced
technologies as a way of amortizing the high overhead. They often reuse advanced manufacturing
processes, expensive safety certifications, specialized embedded software, computer-aided
design software, electronic designs and mechanical subsystems.
Research has shown that firms with a persistent R&D strategy outperform those with an irregular
or no R&D investment program. Business
Present-day R&D is a core part of the modern business world. Major decisions in firms are
made on base of research and development. Research and development is of great importance
in business as the level of competition, production processes and methods are rapidly increasing.
It is of special importance in the field of marketing where companies keep an eagle eye
on competitors and customers in order to keep pace with modern trends and analyze the needs,
demands and desires of their customers. Unfortunately, research and development are
very difficult to manage, since the defining feature of research is that the researchers
do not know in advance exactly how to accomplish the desired result. As a result, higher R&D
spending does not guarantee "more creativity, higher profit or a greater market share".
Benefit of research and development by sector In general, it has been found that there is
a positive relationship between research and development and firm productivity across all
sectors, but that this positive relationship is much stronger in high-tech firms than in
low-tech firms. In research done by Francesco Crespi and Cristiano Antonelli, high-tech
firms were found to have "virtuous" Matthew effects while low-tech firms experienced "vicious"
Matthew effects, meaning that high-tech firms were awarded subsidies on merit while low-tech
firms most often were given subsidies based on name recognition, even if not put to good
use. While the strength of the relationship between R&D spending and productivity in low-tech
industries is less than in high-tech industries, studies have been done showing non-trivial
carryover effects to other parts of the marketplace by low-tech R&D.
Government expenditures United States
President Barack Obama requested $147.696 billion for research and development in FY2011.
Much of this spending is devoted to basic research on the mechanisms of disease.
European Union The funding from government organizations,
like the European Union's Seventh Framework Program, and their alliance with R&D has made
their research more efficient. However, government-funded research that paid for the work in discovering
the human genetic code has patent-restrictions. See also
Basic research Demonstration
Innovation List of countries by research and development
spending List of business and finance abbreviations
Neglected Tropical Disease Research and Development Science of science policy
Science policy Technological revolution
Technology life cycle Notes
External links Levy, David M.. "Research and Development".
In David R. Henderson. Concise Encyclopedia of Economics. Library of Economics and Liberty.
OCLC 317650570, 50016270 and 163149563 U.S. Federal Investments in Energy R&D: 1961-2008
R&D Magazine: R&D 100 Awards.
DOE Funded Research Projects Win 30 R&D Awards for 2008
USA Today May 2008 Q&A with Texas Instruments CEO about Bayh-Dole Act
OECD Science, Technology and Industry Outlook 2008
2010 Science and Engineering Indicators – Research and Development: National Trends and International
Linkages Scientific Grant Awards Database Contains
details of over 2,000,000 scientific research projects conducted over the past 25 years.
RAND R&D Methods Used by Federal Agencies in USA
Crossing the Border to the Future of Education Center for Strategic and International Studies
| Defense Industrial Initiatives Group | Internal R&D Productivity in Aerospace and Defense