- Research and development
The phrase research and development (also R and D 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 (hu)man, culture and society, and the use of this stock of knowledge to devise new applications [sic] " OECD [http://lysander.sourceoecd.org/vl=5134145/cl=23/nw=1/rpsv/factbook/070101.htm OECD Factbook 2008: Economic, Environmental and Social Statistics] .]
New product design and development is more than often a crucial factor in the survival of a company. In an industry that is fast changing, 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.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.
R&D has a special economic significance apart from its conventional association with scientific and technological development. R&D investment generally reflects a government's or organization's willingness to forgo current operations or profit to improve future performance or returns, and its abilities to conduct research and development.
In 2006, the world's four largest spenders of R&D were the
United States(US$343 billion), the EU(US$231 billion), Japan(US$130 billion), and China (US$115 billion). In terms of percentage of GDP, the order of these spenders for 2006 was China (US$115 billion of US$2,668 billion GDP), Japan, United States, EU with approximate percentages of 4.3, 3.2, 2.6, and 1.8 respectively. The top spenders in terms of percentage of GDP were China, Sweden, Finland, Japan, South Korea, Switzerland, Iceland, United States, followed by 9 other countries, and then the EU. [http://www.oecd.org/dataoecd/49/45/24236156.pdf]
In general, R&D activities are conducted by specialized units or centers belonging to
companies, universitiesand stateagencies. In the context of commerce, "research and development" normally refers to future-oriented, longer-term activities in scienceor technology, using similar techniques to scientific research without predetermined outcomes and with broad forecasts of commercial yield. Statisticson organizations devoted to "R&D" may express the state of an industry, the degree of competitionor 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 biotechcompany) tops the spending table 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%).All figures [http://www.innovation.gov.uk/rd_scoreboard/ UK R&D Scoreboard] as of 2006.]
Such companies are often seen as poor 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 organisations 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 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.
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 especial 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.
An R&D alliance is a mutually beneficial formal relationship formed between two or more parties to pursue a set of agreed upon 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.
List of business and finance abbreviations
* [http://www.rdmag.com R&D Magazine] :
** [http://www.rdmag.com/awards.aspx R&D 100 Awards] .
* [http://www.energy.gov/news/6423.htm DOE Funded Research Projects Win 30 R&D Awards for 2008]
* [http://www.usatoday.com/money/companies/management/2008-05-18-texas-instruments-rich-templeton_N.htm USA Today May 2008 Q&A with Texas Instruments CEO about Bayh-Dole Act]
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