RESEARCH & DEVELOPMENT
New product design and development is more often than not a crucial factor in the survival of an institution. In an industry that is changing fast, firms must continually revise their design and range of products. This is necessary due to continuous technological change and development as well as other competitors and the changing preferences 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’s 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 centres belonging to an institution or can be outsourced 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.
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 40% of 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.[2]
R&D is a component of Innovation and is situated at the front end of the Innovation lifecycle. Innovation builds on R&D and includes commercialization phases. The activities that are classified asR&D differ from institution to institution, but there are two primary models, with an R&D department being either staffed by engineers and tasked with directly developing new products, or staffed with industrial scientists and tasked with applied research in scientific or technological fields which may facilitate future product development. In either case, R&D differs from the vast majority of corporate activities in that it is not often intended to yield immediate profit, and generally carries greater risk and an uncertain return on investment.
