Research and development
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The research and development (R&D, also called research and technical development or research and technological development, RTD in Europe) is a specific group of activities within a business. The activities that are classified as R&D differ from company to company, but there are two primary models. In one model, the primary function of an R&D group is to develop new products; in the other model, the primary function of an R&D group is to discover and create new knowledge about scientific and technological topics for the purpose of uncovering and enabling development of valuable new products, processes, and services. Under both models, R&D differs from the vast majority of a company's activities which are intended to yield nearly immediate profit or immediate improvements in operations and involve little uncertainty as to the return on investment (ROI). The first model of R&D is generally staffed by engineers while the second model may be staffed with industrial scientists. R&D activities are carried out by corporate (businesses) or governmental entities.
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 a 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 R&D is directed toward developing that market research indicates will meet an unmet need.
In general, R&D activities are conducted by specialized units or centers belonging to a company, or can be out-sourced 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.
In the U.S., a typical ratio of research and development for an industrial company is about 3.5% of revenues; this measure is called "R&D intensity". 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%). 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 40% 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.
Present-day R&D is core part of the modern business world. Major decisions in firms are made on base of research and development.
Research and development is 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".
President Obama requested $147.696 billion for research and development (R&D) in FY2011.  Much of this spending is devoted to basic research on the mechanisms of disease, which acts as the foundation for the pharmaceutical industry’s research where the Federal government supports graduate students and postdoctoral researchers in academic labs. March 14, 2000, The United States and Britain signaled solidarity against the aspirations of private companies looking to profit from early discoveries in the race to map the basic human genetic code (DNA). Pharmaceutical also hired students as interns while they are still at under the Federally grant provisions of the University.
The funding from government organizations, like the European Union's Seventh Framework Program (FP7), and their alliance with R&D has made their research more efficient. However, government-funded research that paid for the work in discovering the human genetic code (DNA) has patent-restrictions.
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