research and development

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Research and development (R&D)

Development of new products and services by a company in order to obtain a competitive advantage.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Research and Development

1. The process of discovering what goods and services best suit the company's needs and developing those products in order to sell them. For example, a vacuum cleaner company may conduct research into improvements to the vacuum cleaner most likely to be profitable, and then develop new vacuum cleaners in response to the research. It is important to note that not all research and development leads directly to a new product; that is, the developers may find it impossible to develop Product A, but the research generated from the project may lead to the development of Product B.

2. A department in a company that deals with research and development.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

research and development (R&D)

the commitment of resources by a firm to scientific research (both ‘pure’ and ‘applied’) and the refinement and modification of research ideas and prototypes aimed at the ultimate development of commercially viable processes and products. Thus, R&D is concerned both with invention (the act of discovering new methods and techniques of manufacture and new products) and innovation (the task of bringing these inventions to the marketplace).

Invention is often an inspirational act, and studies have shown that the large firm with its well-equipped laboratories and research teams has been no more successful than the individual inventor working alone with minimal facilities. Innovation, however, is usually very resource-intensive and the substantial capital outlays required to pursue development work, coupled with a high risk of failing to come up with a marketable product, tend to favour the larger business which is able to cross-subsidize R&D out of profits from existing products and also pool risks. Nonetheless, in many industries small innovative firms continue to coexist alongside large firms as in, for example, computer software and electronics.

From an organizational point of view, R&D activities may be performed within a separate department but with links with the main operating divisions of the firm. Alternatively, a more customized approach may be preferred, involving the decentralization of R&D and a close integration of R&D work with the firm's ongoing production and marketing operations.

In technologically dynamic industries the ability to develop new processes which lower supply costs and introduce innovative NEW PRODUCTS is often a critical factor in establishing COMPETITIVE ADVANTAGE over rival suppliers. Although it may be possible to buy in the latest technology and products from other firms through LICENSING deals, this may represent a poor substitute in competitive terms for the establishment of the firm's own internal pool of skills and experience; i.e. it is the difference between the firm being able to assume the position of technological leader in the industry and it becoming a ‘me too’ follower. See PATENT, DIVERSIFICATION, PRODUCT DIFFERENTIATION, SCIENCE PARK, SMART SCHEME, INDUSTRIAL POLICY, DEPARTMENT OF TRADE AND INDUSTRY, NEW-PRODUCT DEVELOPMENT, TECHNOLOGICAL FORECASTING.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson