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 man, culture and society, and the use of this stock of knowledge to devise new applications".

Research and development is often scientific or towards developing particular technologies
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...

 and is frequently carried out as corporate or governmental activity.


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
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...

 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
The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...

 (4.53%), Sweden
Sweden , officially the Kingdom of Sweden , is a Nordic country on the Scandinavian Peninsula in Northern Europe. Sweden borders with Norway and Finland and is connected to Denmark by a bridge-tunnel across the Öresund....

 (3.73%), Finland
Finland , officially the Republic of Finland, is a Nordic country situated in the Fennoscandian region of Northern Europe. It is bordered by Sweden in the west, Norway in the north and Russia in the east, while Estonia lies to its south across the Gulf of Finland.Around 5.4 million people reside...

 (3.45%) Japan
Japan is an island nation in East Asia. Located in the Pacific Ocean, it lies to the east of the Sea of Japan, China, North Korea, South Korea and Russia, stretching from the Sea of Okhotsk in the north to the East China Sea and Taiwan in the south...

 (3.39%), South Korea
South Korea
The Republic of Korea , , is a sovereign state in East Asia, located on the southern portion of the Korean Peninsula. It is neighbored by the People's Republic of China to the west, Japan to the east, North Korea to the north, and the East China Sea and Republic of China to the south...

 (3.23%), Switzerland
Switzerland name of one of the Swiss cantons. ; ; ; or ), in its full name the Swiss Confederation , is a federal republic consisting of 26 cantons, with Bern as the seat of the federal authorities. The country is situated in Western Europe,Or Central Europe depending on the definition....

 (2.9%), Iceland
Iceland , described as the Republic of Iceland, is a Nordic and European island country in the North Atlantic Ocean, on the Mid-Atlantic Ridge. Iceland also refers to the main island of the country, which contains almost all the population and almost all the land area. The country has a population...

 (2.78%) and United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

 (2.62%). The Commitment to Development Index
Commitment to Development Index
The Commitment to Development Index , published annually by the Center for Global Development, ranks the world’s richest countries on their dedication to policies that benefit the five billion people living in poorer nations. Rich and poor countries are linked in many ways; thus the Index looks...

 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
Sovereign state
A sovereign state, or simply, state, is a state with a defined territory on which it exercises internal and external sovereignty, a permanent population, a government, and the capacity to enter into relations with other sovereign states. It is also normally understood to be a state which is neither...

 agencies. In the context of commerce
While business refers to the value-creating activities of an organization for profit, commerce means the whole system of an economy that constitutes an environment for business. The system includes legal, economic, political, social, cultural, and technological systems that are in operation in any...

, "research and development" normally refers to future-oriented, longer-term activities in science
Science is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe...

 or technology
Technology is the making, usage, and knowledge of tools, machines, techniques, crafts, systems or methods of organization in order to solve a problem or perform a specific function. It can also refer to the collection of such tools, machinery, and procedures. The word technology comes ;...

, using similar techniques to scientific
Science is a systematic enterprise that builds and organizes knowledge in the form of testable explanations and predictions about the universe...

 research without predetermined outcomes and with broad forecasts of commercial yield.

Statistics is the study of the collection, organization, analysis, and interpretation of data. It deals with all aspects of this, including the planning of data collection in terms of the design of surveys and experiments....

 on organizations devoted to "R&D" may express the state of an industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...

, the degree of competition
Competition is a contest between individuals, groups, animals, etc. for territory, a niche, or a location of resources. It arises whenever two and only two strive for a goal which cannot be shared. Competition occurs naturally between living organisms which co-exist in the same environment. For...

 or the lure of progress
Scientific progress
Scientific progress is the idea that science increases its problem solving ability through the application of some scientific method.-Discontinuous Model of Scientific Progress:...

. Some common measures include: budget
A budget is a financial plan and a list of all planned expenses and revenues. It is a plan for saving, borrowing and spending. A budget is an important concept in microeconomics, which uses a budget line to illustrate the trade-offs between two or more goods...

s, numbers of patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....

s or on rates of peer-reviewed publication
To publish is to make content available to the public. While specific use of the term may vary among countries, it is usually applied to text, images, or other audio-visual content on any medium, including paper or electronic publishing forms such as websites, e-books, Compact Discs and MP3s...

s. 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
Allergan, Inc., is a global specialty pharmaceutical company. Their product ranges include ophthalmic pharmaceuticals, dermatology products, and neurological products.-Profile:...

 (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
Pharmaceutical company
The pharmaceutical industry develops, produces, and markets drugs licensed for use as medications. Pharmaceutical companies are allowed to deal in generic and/or brand medications and medical devices...

 such as Merck & Co.
Merck & Co.
Merck & Co., Inc. , also known as Merck Sharp & Dohme or MSD outside the United States and Canada, is one of the largest pharmaceutical companies in the world. The Merck headquarters is located in Whitehouse Station, New Jersey, an unincorporated area in Readington Township...

 (14.1%) or Novartis
Novartis International AG is a multinational pharmaceutical company based in Basel, Switzerland, ranking number three in sales among the world-wide industry...

 (15.1%), and engineering companies like Ericsson
Ericsson , one of Sweden's largest companies, is a provider of telecommunication and data communication systems, and related services, covering a range of technologies, including especially mobile networks...

 (24.9%). 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 profit
Gross profit
In accounting, gross profit or sales profit is the difference between revenue and the cost of making a product or providing a service, before deducting overhead, payroll, taxation, and interest payments...

s 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
Amortizing loan
In banking and finance, an amortizing loan is a loan where the principal of the loan is paid down over the life of the loan, according to some amortization schedule, typically through equal payments....

 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.


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".

R&D alliance

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.

R&D Reorientation

Industrial sector is transforming from vertical integration
Vertical integration
In microeconomics and management, the term vertical integration describes a style of management control. Vertically integrated companies in a supply chain are united through a common owner. Usually each member of the supply chain produces a different product or service, and the products combine to...

 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.

See also

  • Basic research
    Basic Research
    Basic Research is an herbal supplement and cosmetics manufacturer based in Salt Lake City, Utah that distributes products through a large number of subsidiaries. In addition, their products are sold domestically and internationally through a number of high-end retailers. Dennis Gay is the...

  • ERD3 (Energy research, development, demonstration and deployment)
  • Demonstration
  • Deployment
  • Innovation
    Innovation is the creation of better or more effective products, processes, technologies, or ideas that are accepted by markets, governments, and society...

  • List of countries by research and development spending
  • List of business and finance abbreviations
  • Research
    Research can be defined as the scientific search for knowledge, or as any systematic investigation, to establish novel facts, solve new or existing problems, prove new ideas, or develop new theories, usually using a scientific method...

  • R&D 100 Awards
  • Science of science policy
    Science of science policy
    The science of science policy is an emerging interdisciplinary research area that seeks to develop theoretical and empirical models of the scientific enterprise...

  • Science policy
    Science policy
    Science policy is an area of public policy concerned with the policies that affect the conduct of the science and research enterprise, including the funding of science, often in pursuance of other national policy goals such as technological innovation to promote commercial product development,...

  • Technology Life Cycle
  • Neglected Tropical Disease Research and Development
    Neglected tropical disease research and development
    Neglected tropical diseases are a set of infectious diseases affecting an estimated 1.4 billion people worldwide. The classification of this group of neglected diseases is linked to their frequent neglect in public and private sector expenditure and attention at local, national, and international...

External links

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