The Management of Research and Development
Research and development (R&D) refers to the investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures.
Consumer goods companies across all sectors and industries utilize R&D to improve on product lines, and corporations experience growth through these improvements and through the development of new goods and services. In general, pharmaceuticals, semiconductor and software/technology companies tend to spend the most on R&D.
There are two basic R&D structures that have emerged in companies throughout the commerce spectrum. One R&D model is a department that is staffed primarily by engineers who develop new products, a task that typically involves extensive research. The other model involves a department composed of industrial scientists or researchers, all tasked with applied research in technical, scientific or industrial fields, which is aimed at the facilitation of the development of future products or the improvement of current products and/or operating procedures.
R&D is different from most activities performed by a corporation in the process of operation. The research and/or development is typically not performed with the expectation or goal of immediate profit. Instead, it is focused on long-term profitability for a company. Companies that employ entire departments devoted to R&D commit substantial capital to the effort. They must estimate the risk-adjusted return on their R&D expenditures, which inevitably involve risk of capital, as no immediate payoff is experienced and the general return on investment (ROI) is somewhat uncertain. The level of capital risk increases as more is spent on R&D.
Basic research is systematic study aiming at fuller, more complete knowledge and understanding of the fundamental aspects of a concept or a phenomenon. Basic research is generally the first step in research and development, performed to give a comprehensive understanding of information without directed applications toward products, policies or operational processes.
Applied research is the systematic study and gleaning of knowledge and understanding to apply to determining and developing products, policies or operational processes. While basic research is time-consuming, applied research is painstaking and more costly due to its detailed and complex nature.
High numbers of employees, large fixed-asset bases, and a large base of existing customers or supplier contracts can also be sources of inertia, making it difficult for the firm to change course quickly. As the number of employees grows, communication and coordination may become more difficult and prone to decision-making delays.
When large firms have large fixed-asset bases and/or significant fixed costs, they often prefer to stick with existing sources of cash flow rather than gambling on big changes. Strategic commitments to customers and suppliers can also tie the firm to its existing businesses and technologies, making it more difficult to respond to technological change. Strategic commitments can thus lead to an a firm’s prior success in the market can hinder its ability to respond to new technological generations.
R&D performance can be assessed in a variety of ways and can include evaluation of effective use of resources, efficiency, timeliness, revenues from new product/processes, and production cost reductions. Aware of the problems of measuring the return to research of all types, companies are careful to ensure that the most appropriate methods of research evaluation are used for different forms of research.