Research and Development Strategies

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									This document provides an overview of the strategies employed for research and
development. The document defines research and development and explains: the new
product design and development process, the commercial benefits of research and
development, and research and development strategies. Such strategies include
exploring ideas and managing the research, design, and development process. The
document also provides strategic advice and reasoning regarding investing in research
and development and the risks posed by such investments.
Research r c Development Strategies
R e s e aand h & D e v e l o p m e n t
        Research and Development Strategies

Table of Contents
Introduction ......................................................................................... 1
What is Research and Development? ....................................................... 1
  Product Research and Development ..................................................... 2

  New Product Design and Development ................................................. 3

The Commercial Benefits of Research and Development ............................ 5
Exploring Your Ideas ............................................................................. 8
Manage Your Research, Design and Development ................................... 10
  The Commercial Benefits of Research and Development ....................... 10

  Protecting Intellectual Property .......................................................... 11

  The Basics of Branding ..................................................................... 11

Research and Development Investments and Risks ................................. 13
  Investments .................................................................................... 13

  Government Support ........................................................................ 13

  The Risks of Research and Development ............................................. 14

Funding Your Research and Development .............................................. 16
Knowing When to Stop ........................................................................ 17
Summary .......................................................................................... 18
  Research and Development Strategic Innovations ................................ 18

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        Research and Development Strategies

What is Research and Development?

             hen most people think of research and development (R & D), they immediately
             associate it with the part of the company that is responsible for inventing new
             products. This is very important; however, further developing existing products is
equally as important. This is true because consumer preferences constantly change. The chief job
of product research and development is to come up with goods and services that meet the needs
of the consumers of tomorrow.

       In a company that is well run, research and development have
functions that are firmly commercial.               Their function is to come up with
better products, to improve operational processes and to provide expert
advice to the rest of the company and to customers.

                Production design and               Market research to find out what is
                    development                                  wanted


                 Pre production run?                         Test marketing?


    Information   source:    
          Research and Development Strategies

Product Research and Development

      A lot of research is not expected to pay for itself within a foreseeable
span of time. Large sized companies can allot as much as one-tenth of their
research budgets to what is referred to as ‘blue-sky’ investigations. This is
the research that’s contribution is most likely to end up in the development
of new products, and possibly pay off sometime in the distant future.

      Personnel who work directly on a project, and who affect your work
either upwards or downwards is viewed as an internal customer. If there are
no internal customers for work from any area of the company, the research
project does not fit in to the company’s development process, and it will not

      Product research and development goes together with market research
and development. These two teams must be constant liaisons, and as such,
their processes should be standardized. Establishing a production process or
a new line may involve substantial expenditures. The vigilant work that is
done in the earlier stages helps to ensure that profits are actually realized.
Product    researchers   use   marketing   information   to   assist   them   with
developing products or services, and with choosing appropriate designs.

      Simply put, design is the art of taking things that are of quality, and/or
attractively packaging or presenting them for consumers to buy. For
example, the layout of a supermarket, a bookstore, or a drive up fast food
restaurant has to be designed. A consumer has to be able to quickly find
what they want. In circumstances like this, the proper use and allocation of
space is vital in order to guarantee a profit. The idea of service is a major
factor.    Many quality retailers give significance to various aspects of their
customer service programs, like making sure the help desks are clearly
visible, or that there are greeters at the doors on standby and ready to
          Research and Development Strategies

assist.    In addition, product researchers have to also consider production
costs, how easy it is to manufacture the configuration, which will ultimately
drive the selling price.

      An agency may be reluctant to change an earlier design, especially if it
gives them status, for example a designer label on a man’s suit or a
woman’s shoe. Small cosmetic changes can be made to a product in order
to bring them back up-to-date like slightly modifying the logo of a leading
company      to   give   them     a    trendier

      After a design is finished, the
product     researchers    will       build     a
prototype for testing. Some prototypes
will be thrown away.       Others may be
modified and/or improved. Whenever a
product has been thoroughly tested,
and believed to be successful; and after
all of the marketing and production
questions have been answered, it will
then be necessary for the company to
gear up it’s production line.

New Product Design and Development

      New product design and development is one of the most critical parts
of a company’s survival. In an industry that continually changes, agencies
have to constantly change their design and their range of products. This is
necessary because of the technological changes and developments that
constantly take place, and because your competitors are making these
changes at the preference of the customers.                      A system that is driven by

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      Research and Development Strategies

marketing is one that places the consumer’s needs first, and that only
produces goods and products that are known to sell. Market research that
defines what is needed is established.              If the development is driven by
technology, then it is simply a matter of selling whatever it is possible to
make. The product range is developed so that productions processes are as
efficient as possible.     This ensures that the products will be technically
superior, and gives the company a natural advantage in the market place.

      In   addition   to   its   predictable        association           with   scientific       and
technological development, research and development also has a particular
economic significance. The research and development investments usually
replicate a government’s or company’s willingness to give up current
operations or profits so as to improve future performances or returns; and
the ability to carry out further research and development.

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         Research and Development Strategies

The         Commercial                Benefits           of     Research        and
         In 2006, the world's four largest spenders of R&D were the United
States (US$343 billion), the EU (US$231 billion), China (US$136 billion), and
Japan (US$130 billion). In terms of percentage of GDP, the order of these
spenders for 2006 was China (US$115 billion of US$2,668 billion GDP),
Japan, United States, EU with approximate percentages of 4.3, 3.2, 2.6, and
1.8 respectively. The top 10 spenders in terms of percentage of GDP were
Israel (4.53%), Sweden (3.73%), Finland (3.45%), Japan (3.39%), South
Korea (3.23%), Switzerland (2.9%), Iceland (2.78%), United States
(2.62%), Germany (2.53%) and Austria (2.45%).2

         Research and development activities are usually carried out by
specialized units or centers that belong to companies, universities, and 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 that of scientific research, without
predetermined outcomes and with broad forecasts of commercial yield.

         Statistics on organizations dedicated to research and development
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 constantly maintained, they are public,
and they reveal risk. In the United States, a typical ratio of research and
development for an industrial company is approximately 3.5% of revenues.
A high tech company like a computer manufacturer might spend 7%.

    Information source:
        Research and Development Strategies

        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 tops the
spending      table      at     43.4%           investment,
anything over 15% is remarkable. Usually
these    figures      will    get   a     company          the
reputation     of     being     a   high        technology
company.        Companies,          in    this    category
include pharmaceutical companies like Merck
& Co. (14.1%), or Novartis (15.1%), and
engineering         companies            like      Ericsson
(24.9%).      These companies are viewed as
poor credit risks because their spending
ratios are so unusual.

        These firms usually only show a profit
in   markets       involving    medicine,         scientific
instruments,         safety-critical        mechanisms
(aircraft)    or      high     technology           military
armaments, the markets where consumers
have extreme needs. The extreme needs
justify the high risk of failure, and result in
high gross margins from 60% to 90% of
revenues.     That means gross profits will be
as much as 90% of the sales cost, and
manufacturing only 10% of the product price
because so many individual projects yield no exploitable product.                       Most
industrial companies acquire only 40% revenues.

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  Research and Development Strategies

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         Research and Development Strategies

Exploring Your Ideas
        Successfully developing new initiatives is crucial to a business’s ability
to progress, to bring new and improved products on board, and to market
them.        It also increases efficiency.   Most importantly, it improves the
company’s profitability. It is important for companies to continue to invest
in innovation during a downswing, so that they are better able to compete in
the subsequent upswing.

        You can save yourself considerable time and money by examining
ideas in greater depth before you commit to investing resources into
research and development.          It is easy to get passionate about new and
exciting ideas, and put money into projects with no realistic change for
success.      Before investing in products that won’t sell, or that cannot be
produced realistically, take a step back and look at what is achievable.

        Marketplaces        are
becoming more global and
much     more      competitive.
The      competition        has
enlarged because of open
access            to        new
technologies, and because
of the increase in trading
and     knowledge       sharing
opportunities that are put
forward by the Internet.

        To     start   exploring
ideas before even starting the research process, use the following sample
questions as a guidance tool.
      Research and Development Strategies

      The underlying objective is to spark initiative as to how you should
outline the various approaches that you can take. The questions must
directly relate to the market survey objectives. They must be confined to
what needs to be known and not to what it would be nice to learn.

   1. Will the product or service fill a marketing gap or need?

   2. Does it fit in with the present business strategy?

   3. Would it be necessary to risk diverting into other markets that are

   4. Is the product technically feasible?

   5. Will additional expertise or technology
      be necessary?

   6. Will the product be unique, or will there
      be competition from rivals?

      With your market research and industry
experience, you can answer some of these
questions.   However,     you     may         require
additional   expertise   or     further technical,
market or product information to help you assess the new ideas.

      By filtering ideas before making a commitment to developing a new
product or service you can circumvent wasting money on products that are
not likely to get off the ground. This allows you to explore a wider range of
possible ideas and options in the early stages.

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          Research and Development Strategies

Manage                 Your          Research,               Design           and

The Commercial Benefits of Research and Development

          Sound research and development practices will help your company to
stay competitive and will build customer loyalty. The products and services
that you develop will assist you to:

         acquire a reputation as an innovative business
         attract external finance
         attract the best employees through your enhanced reputation
         build your profitability
         discover new business partnerships
         further develop your brand
         heighten sales
         launch in new local and international markets

          Assessing    the   business   process   gives   you   the   capability   to
manufacture, market, and sell your products or services. It also enables you

         decrease costs
         get your product line to market more efficiently
         improve the quality of your product, goods, or services
          The research can also bring about benefits that are less tangible.
Learning new things about your market is always useful to your business in
terms of the future. The information gleaned can be saved and used at a
later time.       You must also remember that if you do not devote enough
resources to research and development, your business may wind up loosing
its competitive edge. You must protect any intellectual property that you
          Research and Development Strategies

create through your research, development, and through the design of your

     Search the Intellectual Property Office designs registers to
make sure your design isn't already registered on the Intellectual
Property Office website - Opens in a new window.3

Protecting Intellectual Property

         Every business has intellectual property (IP). It
doesn’t matter what size the business is, or what
business      sector      the   company    is   affiliated        with.
Intellectual property can be the name of your
business, your copyright, your designs, your patents
and your other trade marks.

         Your intellectual property is most likely one of your most valuable
assets. Protecting your IP is vital to the future success of your business. You
must understand your rights, and you need to know exactly how the law can
help you.

The Basics of Branding

         Every business wants to be a customer's first pick. Building and
managing a brand can play a major part in making that happen. The thought
of a brand extends from your company logo, to the very core of your
businesses main values, and into every interaction that you have with your
customers and suppliers. In effect, your brand creates and maintains your
business character and is reflected by the experiences that your customers
have when they do business with your company. A brand is really your
company’s reputation – it is your company’s 'personality'.

    Information source:

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      Research and Development Strategies

     Customers and employees can build up emotional attachments and
loyalties to certain brands. This can even give loyal consumers a strong a
sense of ownership. It can help to maintain employee motivation and
increase your sales.   It can also cause problems if you don't consult with
these stakeholders as your business grows.

     Your brand is what you are really selling to your customers, not just a
product or service that they can get just about anywhere. A strong brand
can make any business stand out in a crowd, and particularly in competitive

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       Research and Development Strategies

Research and Development Investments and


       There are no hard-and-fast rules about how much you should or
should not spend on research and development and product design.          The
rationale is based on a variety of factors that include:

      How important the project is to the future success of your business.
      How large or small your business is.
      The commercial prospects of a project.
      The project’s length or duration.
      What your competitors are doing.
      Your market sector.

       You always want to take into consideration how research and
development fits in to your business strategy overall when making decisions
about how much of an investment to make.
Your business plan will outline your strategy,
and should include spending budgets.

Government Support

       Government grants to help business with
research    and   development     are      available
through two Solutions for Business Products

      Grant for Research and Development
       The Grant for Research and Development provides finance to research
       and develop technologically innovative products and processes.
      Collaborative Research and Development
        Research and Development Strategies

        This source provides a grant to help with the cost of bringing research
        to market. Projects must involve two or more collaborators; at least
        one of which must be a business.

        Solutions for Business Innovation Vouchers give small and medium-
sized businesses the ability to purchase support from an academic institution
for the purpose of exploring opportunities
and collaborating on devising innovative
products, processes and services.             To find
out if Innovation Vouchers could help you,
contact your local Business Link Helpline at
Tel 0845 600 9 006. Solutions for Business
is only available in England. Government
support     for   businesses      is   different       in
Scotland, Wales and Northern Ireland.4

The       Risks       of     Research             and

        Research      and     development           will
always carry an element of risk because it
involves trying out new ideas that have not
been tested. Some of the more common
risks include:

       A product or service was developed
        that was not commercially successful.

       New or modified products or services prove to be more difficult or
        costly to develop than anticipated.

                                         Information                                          source:

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      Research and Development Strategies

     The product wound up to be non functional after initiating the
      product’s development

      It can be useful to view research and development costs as an
investment because there will not always be a return, and sometimes you
can lose your expenditure entirely.

      On the other hand, returns from research and development can be
much greater than it is for other types of investments; it could even
guarantee your business' future survival.

      A research and development project that has been designed to
improve a product or a service has a far greater chance for success than one
that is aimed at creating a new product or service. The rewards are likely to
be much lower.

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          Research and Development Strategies

Funding Your Research and D evelopment
         The following some of the many ways that you can fund your research
and development project:5

        Acquiring a loan from your bank – this requires a business plan that is
         well thought out.

        Attracting investments from business investors –
         wealthy     individuals    who     invest   in    private
         companies. You must be prepared to surrender
         some control of your business.

        Applying for grant funding to help finance
         portions of your project.

        Contacting       your   regional   development       agency      (RDA)     or   local
         enterprise company. Many actively fund research and development.
         The amount that is available will vary from region to region. Find your
         local RDA through England's RDAs website - Opens in a new

        Claiming the tax relief and credits available to small and medium-sized
         businesses for appropriate research and development spending. Use
         our interactive tool to find out whether your business is eligible
         for research and development tax relief.

    Information source:
       Research and Development Strategies

Knowing When to Stop
       Some products will never be financially or technically feasible. This can
apply to the modification of existing products or to developing new ones. It
is important that you establish this before you invest too much and before
risking financial problems. Some key steps you can take to help avoid this

      Conduct a patents search to make sure that your idea is new.

      Conduct an in depth market research. There is no point in making a product that
       consumers do not want or that costs to make than they are willing to pay.

      Devise business plans and budgets that are clear,
       and review them regularly.

      Don't be afraid to drop projects that are

      Involve people with relevant skills and knowledge
       who can advise you on what is feasible and what
       is not.

      Listen to the advice you are given!

      Split the project up into stages or phases and evaluate the project at the end of each.
      Research and Development Strategies

Research and Development Strategic Innovation s

      Innovation is a term that describes a new way of doing something. It
may reference changes that are incremental and emergent, or radical and
revolutionary.   Innovation can change thinking, products, processes or
organizations. Contributors to the scholarly literature on innovation generally
differentiate between invention, an idea made manifest, and innovation,
ideas applied successfully in practice.

      In many fields, something new must be substantially different in order
to be innovative, not an insignificant change, like that which occurs in the
arts, economics, business and government policy. In economics the change
must increase value, customer value, or producer value. The goal of
innovation is positive change, with the focus on making someone or
something better. Innovation leading to increased productivity is the
fundamental source of increased wealth in an international economy.

      When    economics,    business,     design,   technology,   sociology,   and
engineering are studied, innovation is a very important topic that must be
included as a part of that curriculum. The word "innovation" is often viewed
the same as the output of the process. However, economists have a
tendency to focus on the process itself, from the origination of an idea to its
transformation into something useful, to its implementation; and on the
system within which the process of innovation unfolds. Since innovation is
also considered a major driver of the economy, especially when it leads to
increased productivity, the factors that lead to innovation are also
considered to be essential for policy makers. In particular, individuals who
      Research and Development Strategies

follow innovation economics will stress using public policy to spur that
innovation and growth.

      Those who are directly responsible for applying the innovations are
often referred to as pioneers in their field, be they individuals or companies.

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           Research and Development Strategies

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