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Research and development (R&D, R+D), known in
Europe Europe is a continent A continent is any of several large landmasses. Generally identified by convention (norm), convention rather than any strict criteria, up to seven geographical regions are commonly regarded as continents. Ordered ...

Europe
as research and technological development (RTD), is the set of innovative activities undertaken by corporations or governments in developing new services or products and improving existing ones.
Research Research is "creative and systematic work undertaken to increase the stock of knowledge". It involves the collection, organization and analysis of information to increase understanding of a topic or issue. A research project may be an expa ...

Research
and development constitutes the first stage of development of a potential new service or the production process. R&D activities differ from institution to institution, with two primary models of an R&D department either staffed by
engineers Engineers, as practitioners of engineering Engineering is the use of scientific method, scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The dis ...

engineers
and tasked with directly developing new products, or staffed with industrial scientists and tasked with
applied research Applied science is the use of the scientific method The scientific method is an Empirical evidence, empirical method of acquiring knowledge that has characterized the development of science since at least the 17th century. It involves caref ...
in scientific or technological fields, which may facilitate future product development. R&D differs from the vast majority of corporate activities in that it is not intended to yield immediate profit, and generally carries greater risk and an uncertain
return on investment Return on investment (ROI) or return on costs (ROC) is a ratio between net income In business Business is the activity of making one's living or making money by producing or buying and selling Product (business), products (such as goods an ...
. However R&D is crucial for acquiring larger shares of the market through the marketisation of new products. R&D&I or R&D&i are also acronyms with the same general meaning of R&D and stand for research, development and innovation.


Background

New product design and development is often a crucial factor in the survival of a company. In a global industrial landscape that is changing fast, firms must continually revise their design and range of products. This is necessary as well due to the fierce competition and the evolving preferences of consumers. Without an R&D program, a firm must rely on
strategic allianceA strategic alliance (also see strategic partnership) is an agreement between two or more parties to pursue a set of agreed upon objectives needed while remaining independent organizations. The alliance is a cooperation or collaboration which aims ...
s,
acquisitions In corporate finance, mergers and acquisitions (M&A) are transactions in which the ownership of Company, companies, other business organizations, or their operating units are transferred or Consolidation (business), consolidated with other entit ...

acquisitions
, and networks to tap into the innovations of others. A system driven by
marketing Marketing is the process of intentionally stimulating demand for and purchases of goods and services; potentially including selection of a target audience; selection of certain attributes or themes to emphasize in advertising; operation of adv ...

marketing
is one that puts the customer needs first, and produces goods that are known to sell.
Market research Market research is an organized effort to gather information about target markets A target market is a group of customers within a business Business is the activity of making one's living or making money by producing or buying and selling Pr ...

Market research
is carried out, which establishes the needs of consumers and the potential
niche market A niche market is the subset of the market on which a specific product is focused. The market niche defines the product features aimed at satisfying specific market needs, as well as the price A price is the (usually not negative) quantit ...
of a new product. If the development is technology driven, R&D is directed toward developing products to meet the unmet needs. In general, research and development activities are conducted by specialized units or centers belonging to a company, or can be out-sourced to a contract research organization,
universities A university () is an of (or ) and which awards s in several . Universities typically offer both and programs in different schools or faculties of learning. The word ''university'' is derived from the ''universitas magistrorum et scholari ...
, or
state State may refer to: Arts, entertainment, and media Literature * ''State Magazine'', a monthly magazine published by the U.S. Department of State * The State (newspaper), ''The State'' (newspaper), a daily newspaper in Columbia, South Carolina, Un ...
agencies. In the context of
commerce Commerce is the exchange of goods and services Goods are items that are usually (but not always) tangible, such as pens, salt, apples, and hats. Services are activities provided by other people, who include doctors, lawn care workers, denti ...

commerce
, "research and development" normally refers to future-oriented, longer-term activities in
science Science () is a systematic enterprise that Scientific method, builds and organizes knowledge in the form of Testability, testable explanations and predictions about the universe."... modern science is a discovery as well as an invention. ...

science
or
technology Technology ("science of craft", from Greek#REDIRECT Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. I ...

technology
, using similar techniques to scientific research but directed toward desired outcomes and with broad forecasts of commercial yield.
Statistics Statistics is the discipline that concerns the collection, organization, analysis, interpretation, and presentation of data Data (; ) are individual facts, statistics, or items of information, often numeric. In a more technical sens ...

Statistics
on organizations devoted to "R&D" may express the state of an
industry Industry may refer to: Economics * Industry (economics) In macroeconomics, an industry is a branch of an economy that produces a closely related set of raw materials, goods, or services. For example, one might refer to the wood industry ...
, the degree of
competition Competition is a rivalry A rivalry is the state of two people or groups engaging in a lasting competitive relationship. Rivalry is the "against each other" spirit between two competing sides. The relationship itself may also be called "a riv ...
or the lure of
progress upright=1.14, alt=Painting depicting a woman draped in white robes flying westward across the land with settlers and following her on foot, John Gast, ''American Progress'', Progress is the movement towards a refined, improved, or otherwise de ...
. Some common measures include:
budget A budget is a financial plan In general usage, a financial plan is a comprehensive evaluation of an individual's current pay and future financial state by using current known variables to predict future income, asset values and withdrawal p ...

budget
s, numbers of
patent A patent is a type of intellectual property Intellectual property (IP) is a category of property Property is a system of rights that gives people legal control of valuable things, and also refers to the valuable things themselves. Depe ...

patent
s or on rates of peer-reviewed
publication To publish is to make content Content or contents may refer to: Media * Content (media), information or experience provided to audience or end-users by publishers or media producers ** Content industry, an umbrella term that encompasses comp ...

publication
s. Bank ratios are one of the best measures, because they are continuously maintained, public and reflect risk. In the United States, 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 High technology (high tech) or frontier technology (frontier tech) is technology Technology ("science of craft", from Ancient Greek, Greek , ''techne'', "art, skill, cunning of hand"; and , ''wikt:-logia, -logia'') is the sum of Art techni ...
company, such as a computer manufacturer, might spend 7% or a
pharmaceutical companies The pharmaceutical industry discovers, develops, produces, and markets drug Uncoated tablets, consisting of about 90% acetylsalicylic acid, along with a minor amount of inert fillers and binders. Aspirin is a pharmaceutical drug A me ...
such as Merck & Co. 14.1% or
Novartis Novartis International AG is a Swiss multinational Multinational may refer to: * Multinational corporation, a corporate organization operating in multiple countries * Multinational force, a military body from multiple countries * Multinational ...

Novartis
15.1%. Anything over 15% is remarkable, and usually gains a reputation for being a high technology company such as engineering company
Ericsson (lit. "Telephone Stock Company of LM Ericsson"), commonly known as Ericsson, is a Swedish Swedish or ' may refer to: * Anything from or related to Sweden, a country in Northern Europe * Swedish language, a North Germanic language spoken prim ...

Ericsson
24.9%, or
biotech Biotechnology is a broad area of biology Biology is the natural science that studies life and living organisms, including their anatomy, physical structure, Biochemistry, chemical processes, Molecular biology, molecular interactions, Physi ...
company
Allergan Allergan plc is an American, Irish-domiciled pharmaceutical company that acquires, develops, manufactures and markets brand name drugs and medical devices in the areas of medical aesthetics, eye care, central nervous system, and gastroenterology. ...
, which tops the spending table with 43.4% investment. All figure
UK R&D Scoreboard
.
Such companies are often seen as
credit risk A credit risk is risk of default Default may refer to: Law * Default (law), the failure to do something required by law ** Default (finance) In finance Finance is the study of financial institutions, financial markets and how they oper ...
s because their spending ratios are so unusual. Generally such firms prosper only in markets whose customers have extreme high technology needs, like certain prescription drugs or special chemicals,
scientific instrument A scientific instrument is a device or tool used for scientific purposes, including the study of both natural phenomena and theoretical research. History Historically, the definition of a scientific instrument has varied, based on usage, laws, and ...
s, and
safety-critical system A safety-critical system (SCS) or life-critical system is a system whose failure or malfunction may result in one (or more) of the following outcomes: * death (1906) Death is the permanent, Irreversible process, irreversible cessation of ...
s in medicine,
aeronautics Aeronautics is the science or art involved with the study, design process, design, and manufacturing of air flight–capable machines, and the techniques of operating aircraft and rockets within the atmosphere. The British Royal Aeronautical So ...

aeronautics
or military weapons. The extreme needs justify the high risk of failure and consequently high gross margins from 60% to 90% of revenues. That is,
gross profit For households and individuals, gross income is the sum of all wages A wage is the distribution from an employer Employment is the relationship between two party (law), parties, usually based on a employment contract, contract where work ...
s 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 from 2000 has shown that firms with a persistent R&D strategy outperform those with an irregular or no R&D investment program.


Business R&D

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". Research is the most risky financing area because both the development of an invention and its successful realization carries uncertainty including the profitability of the invention. One way entrepreneurs can reduce these uncertainties is to buy the licence for a franchise, so that the
know-how Know-how (or knowhow, or procedural knowledge) is a term for practical knowledge on how to accomplish something, as opposed to "know-what" (facts), "know-why" (science), or "know-who" (communication). It is also often referred to as street smarts ...
is already incorporated in the licence.


Benefit by sector

In general, it has been found that there is a positive
correlation In , correlation or dependence is any statistical relationship, whether or not, between two s or . In the broadest sense correlation is any statistical association, though it actually refers to the degree to which a pair of variables are rel ...

correlation
between the research and development and firm productivity across all sectors, but that this positive correlation is much stronger in high-tech firms than in low-tech firms. In research done by Francesco Crespi and Cristiano Antonelli, high-tech firms were found to have "virtuous"
Matthew effect The Matthew effect of accumulated advantage, Matthew principle, or Matthew effect for short, is sometimes summarized by the adage "the rich get richer and the poor get poorer". The concept is applicable to matters of fame or status, but may also b ...
s while low-tech firms experienced "vicious" Matthew effects, meaning that high-tech firms were awarded subsidies on merit while low-tech firms most often were given subsidies based on name recognition, even if not put to good use. While the strength of the correlation between R&D spending and productivity in low-tech industries is less than in high-tech industries, studies have been done showing non-trivial carryover effects to other parts of the marketplace by low-tech R&D.


Risks

Business R&D is risky for at least two reasons. The first source of risks comes from R&D nature, where R&D project could fail without residual values. The second source of risks comes from takeover risks, which means R&D is appealing to bidders because they could gain technologies from acquisition targets. Therefore, firms may gain R&D profit that co-moves with takeover waves, causing risks to the company which engages in R&D activity.


Global

Global R&D management is the discipline of designing and leading R&D processes globally, across cultural and lingual settings, and the transfer of knowledge across international corporate networks.


Government expenditures


United States

President
Barack Obama Barack Hussein Obama II ( ; born August 4, 1961) is an American politician and attorney who served as the 44th president of the United States The president of the United States (POTUS) is the head of state and head of government ...

Barack Obama
requested $147.696 billion for research and development in FY2012, 21% of which was destined to fund basic research. According to National Science Foundation in U.S., in 2015, R&D expenditures performed by federal government and local governments are 54 and 0.6 billions of dollars. The federal research and development budget for fiscal year 2020 was $156 billion, 41.4% of which was for the Department of Defense (
DOD The United States Department of Defense (DoD, USDOD or DOD) is an executive branch department of the federal government A federation (also known as a federal state) is a political entity characterized by a union of partially self-go ...
). DOD's total research, development, test, and evaluation budget was roughly $108.5 billion.


European Union

Research and innovation in Europe are financially supported by the programme
Horizon 2020 The Framework Programmes for Research and Technological Development, also called Framework Programmes or abbreviated FP1 to FP9, are funding programmes created by the European Union The European Union (EU) is a political and economic union ...
, which is open to participation worldwide. A notable example is the
European environmental research and innovation policyThe European environmental research and innovation policy is a set of strategies, actions and programmes to promote more and better research and innovation for building a resource-efficient and climate Climate is the long-term average of weather, ...
, based on the
Europe 2020 Europe 2020 is a 10-year strategy proposed by the European Commission The European Commission (EC) is the executive branch The executive is the branch of government exercising authority in and holding Moral responsibility, responsibility f ...
strategy which will run from 2014 to 2020, a multidisciplinary effort to provide safe, economically feasible, environmentally sound and socially acceptable solutions along the entire value chain of human activities.


Worldwide

In 2015, research and development constituted an average 2.2% of the
global GDP The gross world product (GWP) is the combined gross national income The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of g ...
according to the
UNESCO Institute for Statistics The UNESCO Institute for Statistics (UIS) is the statistical office of UNESCO The United Nations Educational, Scientific and Cultural Organization (UNESCO) (french: Organisation des Nations unies pour l'éducation, la science et la culture) is ...
. By 2018, research and development constituted an average 1.79% of the
global GDP The gross world product (GWP) is the combined gross national income The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of g ...
according to the
UNESCO Institute for Statistics The UNESCO Institute for Statistics (UIS) is the statistical office of UNESCO The United Nations Educational, Scientific and Cultural Organization (UNESCO) (french: Organisation des Nations unies pour l'éducation, la science et la culture) is ...
. Countries agreed in 2015 to monitor their progress in raising research intensity (SDG 9.5.1), as well as researcher density (SDG 9.5.2), as part of their commitment to reaching the
Sustainable Development Goals The Sustainable Development Goals (SDGs) or Global Goals are a collection of 17 interlinked global goals designed to be a "blueprint to achieve a better and more sustainable Sustainability is the capacity to endure in a relatively ongoing wa ...

Sustainable Development Goals
by 2030. However, this undertaking has not spurred an increase in reporting of data. On the contrary, a total of 99 countries reported data on domestic investment in research in 2015 but only 69 countries in 2018. Similarly, 59 countries recorded the number of researchers (in full-time equivalents) in 2018, down from 90 countries in 2015. UNESCO Institute for Statistics is the global custodian of these R&D data; data can be freely obtained from th
UIS database


See also

*
Basic research Basic research, also called pure research or fundamental research, is a type of scientific research The scientific method is an Empirical evidence, empirical method of acquiring knowledge that has characterized the development of science sinc ...
* Demonstration * Industrial laboratory *
Innovation Innovation is the practical implementation of ideas A mental representation (or cognitive representation), in philosophy of mind Philosophy of mind is a branch of philosophy that studies the ontology and nature of the mind and its relation ...

Innovation
*
List of business and finance abbreviations This is a list of abbreviations used in a business of financial context. 0-9 *1H – 1st Half *24/7 - 24 hours a day, 7 days a week, 24 hours a day, seven days a week *80/20 – = Pareto Principle , for many events, roughly 80% of the effects c ...
*
List of companies by research and development spending The following list sorts companies with the highest expenditures for research and development (R&D) for different years, mostly taken from the american magazine Strategy+Business. 2018 top 50 The 50 companies with the highest research and de ...
* List of countries by research and development spending * Neglected tropical disease research and development *
Prototype A prototype is an early sample, model, or release of a product built to test a concept or process. It is a term used in a variety of contexts, including semantics Semantics (from grc, σημαντικός ''sēmantikós'', "significant") ...

Prototype
*
Science of science policyScience of science policy (SoSP) is an emerging interdisciplinary research area that seeks to develop theoretical and empirical models of the scientific enterprise. This scientific basis can be used to help government, and society in general, make be ...
*
Science policy Science policy is concerned with the allocation of resources for the conduct of science towards the goal of best serving the public interest. Topics include the funding of science, the careers of scientist A scientist is a person who conducts ...
*
Technological revolution A technological revolution is a period in which one or more technologies is replaced by another, novel technology in a short amount of time. It is an era of accelerated technological progress characterized by new innovation 190px, 1,093_ ...
*
Technology life cycle The technology life-cycle (TLC) describes the commercial gain of a product through the expense of research and development phase, and the financial return during its "vital life". Some technologies, such as steel, paper or cement manufacturing, h ...


References


Sources

*


External links

{{Authority control Innovation Product development
Development Development or developing may refer to: Arts *Development hell, when a project is stuck in development *Filmmaking#Development, Filmmaking, development phase, including finance and budgeting *Development (music), the process thematic material i ...