Research and Development

                                                                                        R&D

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. R&D is a form of applied research.

MEASURING & COMPARING R&D ACTIVITY

The big profit in R&D tend to produce certain types of product-things, like precision scientific instruments, medicines, high tech weapons systems, navigation and safety devices for aircraft, etc. whereas, typically, a manufacturing company might make a profit of 40% on its sales, the profits of these R&D intensive companies can range from 60% to as high as 90%. In other words, manufacturing costs represent only 10% of the price that the Customer pays for the product, the remaining 90% being profitable.

One might ask how these companies can justify figures like these. The explanations lies in the fact that, for them, R&D carries a high risk of failure. A large part of the time and money that they  invest in R&D does not create any unprofitable products at all. 

So, the high profits of a handful of successful products serve to offset the cost of numerous  spenders  projects.

Cycle of Research and Development

By: Miguel Valencia Topete