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What Is R&D?

Many automobile manufacturers use participation in motorsports to help drive and promote their R&D divisions.
The pharmaceutical industry often spends years on research and development of new drugs.
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  • Written By: Darlene Goodman
  • Edited By: Michelle Arevalo
  • Last Modified Date: 25 September 2014
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R&D, otherwise known as research and development, is typically the conception and implementation of new product ideas. The research portion of R&D refers to the investigation and experimentation stage of creating a new product or improving an existing product. The development portion is the process of designing and testing the effectiveness of the new product or product improvement. Worldwide, millions of dollars each year is spent on R&D by governments, non-governmental organizations, and corporations.

Research is typically an investigation of current knowledge about existing products in order to find a fresh idea for a new product. The theory behind this part of R&D is that without the discovery of innovative ideas, there may be no creation of new products. Basic research seeks to increase knowledge about a subject, while applied research often looks for creative ideas to design new products or ways to improve existing ones.

Development of these ideas into workable, saleable products also often comes under the R&D banner. Discoveries typically need to be tested and refined before they can be implemented in the marketplace. For example, the pharmaceuticals industry usually puts years of testing into new drugs to ensure they are safe for patients.

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Unlike scientists conducting experiments, researchers who work in an research and development department usually do not begin their tests with a predetermined hypothesis in mind. There are no guarantees that the research will produce any usable or marketable products, so it is risky to invest a great deal in it. This may be part of the reason that many corporations leave much of the research part of R&D to universities.

Many companies have an R&D department, but not many spend a large portion of revenue on it. Most of these companies spend less than 5% of profits on research and development initiatives, but a few, mostly in the pharmaceuticals or computer industries, can spend over 10%. Generally, the more an industry needs new products to keep up with technology, the greater that industry’s spending on research and development to create them.

Research and development is typically carried out in the R&D departments of many different organizations. For the most part, the research side is taken on by universities, governments, and non-profit organizations, while the development stage is undertaken by manufacturers and for-profit corporations. Some organizations may hire an independent research and development organization or pool their resources with similar companies to make their investments more effective.

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NathanG
Post 6

@hamje32 - I don’t think that it’s just drugs and electronics that eat up R&D budget—it’s the whole Internet. Google R&D budget spending has gone through the roof in recent years, in their forever quest to dominate the entire world.

Google not only has plans to put the whole world’s libraries online but also to invest significant spending in TV and smart phone related technologies. I think one day they’re going to become the next Microsoft-like behemoth and try to swallow everybody up.

hamje32
Post 5

@nony - I agree in principle to what you’ve said, however, I think it’s misleading to suggest that the United States alone leads the world in r&d in all sectors while everyone plays catch up or just tries to copy us.

I was in Japan a few years ago and traveled through this one district of Japan that is virtually “electronics alley.” I saw devices and electronics there that I had never seen in the U.S. That country was way ahead of us in consumer electronics, with wild variations of common products like radios, DVD players, televisions, etc.

I had never seen most of those products emerge in the U.S. until 6 months later. So that begs the question—when their goods finally make it to our shores, do we “reverse engineer” their products to save money building our own stuff as well? I think that plays both ways.

SkyWhisperer
Post 4

@nony- Yes, I agree, although we do still lead the world in computers, as far as processors go at least. However, the same phenomena you describe apply to other industries as well, like biotechnology R&D investments made in the pharmaceutical industry.

I once heard that these companies spend billions of dollars on a drug, perfecting it until it’s finally ready for sale to the public. Then people go to Canada to buy cheaper generic versions of the drug.

Canada is always held up as a model when people ask, why do our drugs in the U.S. have to be so expensive? The answer is just as you’ve described. They’re not spending our research dollars on the drug. Once they’ve got it, they can resell it cheaper.

nony
Post 3

R&D technologies require a significant investment of capital before returning any profit and it is one reason we are not as competitive with the rest of the world as we could be, in my opinion. Take computers for example. We lead the world in research and development to create the components that make up a computer system. When we’re done we wind up with a completed product.

However, our competitors in other countries don’t need to spend that amount of money to produce a computer. They can just take our computer apart, essentially reverse engineer it, and put together their own system far cheaper. Why? They don’t have to recoup R&D costs. They just benefit from the finished product and can produce the components more easily.

sarabear
Post 2

@SKahn - Most funding comes from government grants and non-profits. For instance, all those marathons and 5Ks that people run in the spring and summer on behalf of breast cancer foundations or AIDS provide a lot of funding for research in those areas.

SKahn
Post 1

As the article says, investing in research is risky because there's no guarantee it will result in a usable product. So most research is left to universities while the development side is done by companies. My question is, if funding research is so risky, who exactly is funding the research done by universities?

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