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.
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. 2010 Research r c Development Strategies R e s e aand h & D e v e l o p m e n t Strategies 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 © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 2 Research and Development Strategies Introduction What is Research and Development? W 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 1 advice to the rest of the company and to customers. Production design and Market research to find out what is development wanted Prototypes Pre production run? Test marketing? Production 1 Information source: http://www.thetimes100.co.uk/theory/theory--research- development--276.php 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 succeed. 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 appearance. 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 © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 3 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. © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 4 Research and Development Strategies The Commercial Benefits of Research and Development 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%. 2 Information source: http://en.wikipedia.org/wiki/Research_%26_development 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. © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 6 Research and Development Strategies © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 7 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 unfamiliar? 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. © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 9 Research and Development Strategies Manage Your Research, Design and Development 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 to: 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 product. 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'. 3 Information source: http://blackpoolunlimited.businesslink.gov.uk/portal/action/detail?type=RESOURCES&itemId=1073792205 © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 11 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 markets. © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 12 Research and Development Strategies Research and Development Investments and Risks Investments 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 grants: 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 Development 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. 4 Information source: http://blackpoolunlimited.businesslink.gov.uk/portal/action/detail?type=RESOURCES&itemId=1073792205 © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 14 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. © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 15 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 window. 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. 5 Information source: http://blackpoolunlimited.businesslink.gov.uk/portal/action/detail?type=RESOURCES&itemId=1073792205 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 are: 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 unrealistic. 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 Summary 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. © Copyright 2010 Docstoc Inc. registered document proprietary, copy not 19 Research and Development Strategies
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