The phrase research and development (also known as R and D, R 'N' D, Research 'N' Development or, more often, R&D), according to the Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications".[1]
Research and development is often scientific or towards developing particular technologies and is frequently carried out as corporate or governmental activity.
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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 it is a matter of selling what it is possible to make. The product range is developed so that production processes are as efficient as possible and the products are technically superior, hence possessing a natural advantage in the market place.
The top eight spenders in terms of percentage of GDP were Israel (4.53%), Sweden (3.73%), Finland (3.45%) Japan (3.39%), South Korea (3.23%), Switzerland (2.9%), Iceland (2.78%) and United States (2.62%).[2] The Commitment to Development Index ranks these countries, rewarding them for research and development that support the creation and dissemination of innovations of value to developing countries.
In general, R&D activities are conducted by specialized units or centers belonging to companies, universities and 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 without predetermined 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. A high technology company such as a computer manufacturer might spend 7%. Although Allergan (a biotech company) 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. (14.1%) or Novartis (15.1%), and engineering companies like Ericsson (24.9%).[3] 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 (aircraft) 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 only 40% revenues.
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 programme.[4]
Research often refers to basic experimental research; development refers to the exploitation of discoveries. Research involves the identification of possible chemical compounds or theoretical mechanisms. In the United States, universities are the main provider of research level products. In the United States, corporations buy licences from universities or hire scientists directly when economically solid research level products emerge and the development phase of drug delivery is almost entirely managed by private enterprise. Development is concerned with proof of concept, safety testing, and determining ideal levels and delivery mechanisms. Development often occurs in phases that are defined by drug safety regulators in the country of interest. In the United States, the development phase can cost between $10 to $200 million and approximately one in ten compounds identified by basic research pass all development phases and reach market. Pharmaceuticals market, however are extremely complex in many respects. Large public sector investment in biomedical R & D influence private companies' choices about what to work and how intensively to invest in research and development. The returns on private sector R & D are attractive, on average but they vary considerably from one drug to the next. Consumer demand for prescription drug is often indirect, mediated by doctors and health insurers. New drug must undergo costly and time consuming testing before they sold.
Research and development is nowadays 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".[5]
An R&D alliance is a mutually beneficial formal relationship between two or more parties to pursue a set of agreed goals while remaining independent organisations, where acquiring new knowledge is a goal by itself. The different parties agree to combine their knowledge to create new innovative products. Thanks to funding from government organizations, like the European Union's Seventh Framework Programme (FP7), and modern advances in technology, R&D alliances have now become more efficient. Every company has their own research and develop department.
Industrial sector is transforming from vertical integration to horizontal structure. So far this transformation has taken place in manufacturing, but now it’s the turn for R&D to make a paradigm shift. The restructuring trends of manufacturing predict the future of R&D to be focused, financially independent, universally expanded and distributed.
In 2003 on July the 25th with their article titled Reorienting R&D for a Horizontal Future Downey, Greenberg and Kapur illustrated that a horizontal structure of development in all industrial disciplines is required because of emerging markets, cost cutting needs and globalization. Collaborative networks in a decentralized environment are producing better results because of flexibility and cost reduction. R&D is spreading across the globe for faster development and unique innovations. Building block structure is getting popular in R&D because it is more manageable and focused.
In a challenging market environment after manufacturing now companies are eyeing to reduce the development cost where R&D needs to justify its existence as an independent profit center with increased productivity and reduced operational costs. This can only be achieved through collaboration and trade-offs. Formation of horizontal collaborative network is challenging because it incorporates the issues of adaptability, security, cultural differences, varying standards, trust and ownership. Globalization is pushing R&D to concentrate on global design approach with the design flexibility where products can be tailored as per different geographic markets.
Innovating products in response to market requirements will keep organizations in business whereas knowing their own productivity and capacity will enable them to operate more effectively. Firms can make better investment decisions if they can predict their development cost. This will directly add to the bottom line of the business. In a race to improve the productivity, lower the cost and save time, firms should not forget to retain the expertise of their core competencies. The proper synchronization of global resources must be addressed in order to save time and money. Companies must support the development of innovation management system for future growth.
Companies are decentralizing their R&D units across the globe to extract the time and diversity benefits. Customer centric orientation is most profitable approach for any firm to operate in a competitive environment. R&D is an area where ‘The World is Flat’ theory applies perfectly. World is shrinking with the increasing pace of information technology, and the same time decentralization is making our days longer. In this fast pace environment managing intellectual property is more critical for businesses to keep themselves in the race. Never ending attempts should be made to optimize the development with minimal resources. Flattening the innovation process will result in technological development with greater profits and efficiency.
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