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How Do I Choose the Best R&D Strategy?

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  • Written By: Carol Francois
  • Edited By: A. Joseph
  • Last Modified Date: 25 July 2014
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Research and development (R&D) is the process for development and cultivation of new products. Manufacturing, product design, and information technology companies all have an R&D strategy. These industries are driven by consumer demand for their products. New products or improvements on existing products are required to maintain the company. The best R&D strategy has a long-term view, is focused on cost containment and has a specific set of deliverable items.

The costs associated with research and development have a huge effect on strategy selection. In many cases, R&D is a core aspect of the business model, and a specific percentage of revenue is allocated to this expense. For example, pharmaceutical companies typically spend between 20 percent and 35 percent of their annual revenue on R&D. This is absolutely essential, because the development of new products and securing of patents allows the company to establish ownership of a product line and secure a long-term revenue stream.

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The first step in selecting an R&D strategy is to determine where the business should be in 10 or 20 years. Focus on questions surrounding product specialization and the target client group. The next step is to develop a logical plan to achieve that goal. For example, a motorcycle shop that wants to become the industry leader for creating custom bikes for clients age 50 or older has a clear focus. The research and development strategy to achieve this goal must include creation of new parts, accessories and designs that will appeal to this target market.

Sound, impartial research is absolutely necessary when creating an R&D strategy. Companies invest in professional research services to determine the feasibility of the long-term goal and to identify the steps necessary to reach this goal. Metrics about the size of the target customer group, median income level, product interest and overall trends are essential to avoid costly mistakes.

Cost containment is the most important part of any R&D strategy. The methods used to manage this aspect of the business vary, but the most popular options are cost accounting and budget management. Cost accounting tracks the costs of all of the parts and supplies used on a project, together with staff time. On a regular basis, costs are reviewed and compared to the status of the project. This can be a time-consuming practice, but it yields the most accurate results.

Budget management is used in large companies. The lead researcher is allocated a specific amount of money in different categories, such as supplies, staffing and equipment. The project is reviewed on a regular basis to determine progress and potential viability. Expenses must be justified, and projects that are not progressing well are stopped.

An effective R&D strategy allows for a combination of creative freedom and focused efforts. Most companies have a process for reviewing research ideas and proposals. The proposal must include a time line for the production of a viable product, a cost estimate and a target market. In many organizations, there is a committee of senior staff members who review the proposals and select those that are most likely to be successful.

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