Research and Development(R&D) 101 / Basics

R&D is distinct from the vast majority of corporate activities in that it is not meant to generate immediate profit and, as a result, has a higher level of risk and uncertain return on investment. Corporations grow as a result of these enhancements and the development of new products and services. Pharmaceuticals, semiconductors, and software/technology firms spend the most on research and development. Instead of R&D expenditure corresponding to 5% or less of its total revenue, which is the industry standard, more expenditures are made in these fields. 

R&D expenditure as percentage of net sales in 2016 can be seen in Figure 1.(The 2016 EU Industrial R&D Investment Scoreboard, European Commission, JRC/DG RTD)

Figure 1

High&medium-high, medium, and low technology manufacturing industries can be classified into three categories based on their R&D intensity. Since the early 1990s, high-technology companies have had a higher rate of R&D investment increase than other manufacturing industries in the OECD area, especially in the mid-1990s and up until the Internet bubble burst in 2000.

According the OECD ISIC Rev.4, manufacturing industries by technological intensity can be found below.

Medium-high and high technology

Division 20      Chemicals and chemical products

Division 21      Pharmaceuticals

Division 26      Computer, electronic and optical products

Division 27      Electrical equipment

Division 28      Machinery and equipment n.e.c.

Division 29      Motor vehicles, trailers and semi-trailers

Division 30      Other transport equipment except ships and boats

Medium technology

Division 22      Rubber and plastics products

Division 23      Other non-metallic mineral products

Division 24      Basic metals

Division 32      Other manufacturing except medical and dental instruments

Division 33      Repair and installation of machinery and equipment

Low technology

Division 10      Food products

Division 11      Beverages

Division 12      Tobacco products

Division 13      Textiles

Division 14      Wearing apparel

Division 15      Leather and related products

Division 16      Wood and products of wood and cork

Division 17      Paper and paper products

Division 18      Printing and reproduction of recorded media

Division 19      Coke and refined petroleum products

Division 25      Fabricated metal products except weapons and ammunition

Division 31      Furniture

Types of R&D

According to US National Science Foundation, three different types are defined.

Basic Research

Basic research strives to gain a better understanding of a subject matter and add to the corpus of knowledge on the issue. This study has limited practical or commercial implications. The results of such study are frequently of potential relevance to businesses.

Applied Research

The goals of applied research are more explicit and directed. This type of study seeks to figure out how to respond to a certain customer or industry need or requirement. All of these experiments are centered on specific business goals for products or processes.

Development

When the results of a study are used to create specific goods, such as materials, systems, and procedures, this is known as development. This field also includes the design and development of prototypes and processes. The distinction between development and engineering or manufacturing is critical at this time. Development is the process of generating the necessary information and designs for manufacturing and converting them into prototypes. Engineering is the process of putting these concepts and studies into action in order to create commercial products.

Figure 2

Difference between R&D and Product Development(PD)

R&D is generally done in order to solve a problem that arises while carrying out a PD activity or to eliminate the deficiency in a PD activity (in the case of research in a certain direction). This deficiency, which is desired to be eliminated, may be experienced by the company carrying out the R & D activities. Similarly, this deficiency may also be a deficiency that the company carrying out R & D activities sees in the products of other companies.

The main purpose of product development activities is to produce a product, as the name suggests. It is often said that PD covers "development" activities in a product, i.e. incremental improvements. For example, if you are producing a construction machine, the design of the 5-year-old model, which is the facelift of this construction machine, is called PD. But if you are designing a new type of construction equipment, it is called R & D, not PD.

Scope of Product Development:

• Developing a new product
• Making design changes to an existing product
• Making serious changes to an existing product
• Converting an existing product into a product suitable for a different area

References:

• researchgate.net/figure/R-D-intensity-by-industry-average-across-ten-countries_fig4_237672129
• efpia.eu/publications/data-center/the-pharma-industry-in-figures-rd/rd-intensity/
• oecd.org/sti/ind/48350231.pdf
• en.wikipedia.org/wiki/Research_and_development
• cleverism.com/rd-research-and-development-overview-process/
• oecd-ilibrary.org/docserver/sti_scoreboard-2009-9-en.pdf?expires=1643197107&id=id&accname=guest&checksum=9C0C845FB39ED5C90739DE2B49F5441F