Investigative activities that a business chooses to conduct with the intention of making a discovery that can either lead

to the development of new products or procedures, or to improvement of existing products or procedures.

Research and development is one of the means by which business can experience future growth by developing new products or processes to improve and expand their operations.

 Research and development (R&D) represents a large and rapidly growing effort in both industrialized and semiindustrialized nations. In 1997 the United States spent $151 billion on industrial R&D and $32 billion on military R&D, for a total of $183 billion, equal to 2.5 percent of the gross national product (GNP). Similar ratios exist for economically advanced countries, such as Germany, France, the United Kingdom, and Japan. In order to compete in the international marketplace, rapidly industrializing countries such as South Korea, Indonesia, and Brazil have national policies in place for developing indigenous R&D. The goal is substitution of strategic imports and development of exports

While R&D is often thought of as synonymous with high-tech firms that are on the cutting edge of new technology, many established consumer goods companies spend large sums of money on improving old products. For example, Gillette spends quite a bit on R&D each year in ongoing attempts to design a more effective shaver. On average, most companies spend only a small percentage of their revenue on R&D (usually under 5%). However, pharmaceuticals, software and semiconductor companies tend to spend quite a bit more.

 The reason for this increased emphasis on R&D is that it creates new or improved technology that in turn can be converted through technological management into a competitive advantage at the business, corporate, and national level

 obtain new knowledge, which may or may not be applied to practical uses. In contrast, the objective of industrial R&D is to obtain new knowledge applicable to the company's business needs, that eventually will result in new or improved products, processes, systems, or services that can increase the company's sales and profits.

 The National Science Foundation defines three types of R&D

basic research

applied research
development

 In many cases, technology required for industrial purposes is available in the marketplace, usually for a price. Before embarking on the lengthy and risky process of performing its own R&D, a company should perform a "make or buy" analysis and decide whether or not the new R&D project is strategically and economically justified.

 There are four factors:

1) PROPRIETARINESS 2) TIMING 3) RISK 4) COST

 If a technology can be safeguarded as proprietary, and protected by patents , trade secrets, nondisclosure agreements, etc., the technology becomes the exclusive property of the company and the value is much higher
the secret of commercial success is staying ahead of the competition by developing continuously improved software packages, supported by a strong marketing effort

 If the market growth rate is slow or moderate, inhouse or contracted R&D may be the best means to obtain the technology. if the market is growing very fast and competitors are rushing in, the "window of opportunity" may close before the technology has been developed by the new entrant

 the time to project completion will be stretched out, and that the R&D and manufacturing cost will be higher than forecasted
Regardless of whether the technology is acquired or developed, there is always the risk that it will soon become obsolete and be displaced by a superior technology

 The costs that are incurred during the development and introduction of new products to market or during the improvement of existing products. Although R&D costs tend to penalize current profits, they eventually benefit the firm's future profits when new products developed as a result of the research become profitable themselves. Many analysts regard a high proportion of sales revenue devoted to R&D as a positive sign relative to a firm's profit potential and future stock price.