The innovative products being released each year don’t come from the void. From the newest iPhone, to construction materials, all of the products in the market today are a result of product development, and usually, a research and development (R&D) process.
But how do these processes work and how can businesses ensure R&D is undertaken effectively and in ways that will generate returns? In this article, we look at some of the complexities involved in R&D, and how R&D impacts the wider economy.
R&D, also known as research and technological development - RTD - is the first step of product development. It encompasses the innovative activities undertaken by start-ups, corporations and governments to optimise existing products, or develop new ones.
The specifics of the R&D process can differ from organisation to organisation, but it’ll usually be undertaken by technical specialists, either engineers or scientists. Engineers develop new products. The amount of guidance or direction will differ from project to project, but the main purpose of such a team is to get something to market.
On the other hand, the focus of the R&D may be scientific and led by scientists. In this case, the team will apply research to technological or scientific fields. This is usually done in industries that require complex processes to create something new, like advanced hardware, chemical and drug production, etc. Even in this scenario, the purpose of the applied research is to develop new products down the line.
As we can see, the R&D process is reliant upon technical expertise and isn’t something that anyone can tackle. It’s an expensive process and this is part of the reason why bigger companies and corporates often have an advantage here, as they can afford to maintain substantial R&D programs.
Usually, these in-company teams are specialised units that deal with nothing else. But this entire process can also be outsourced to other companies, or even universities. The needs of R&D usually align with the purpose of existing research units, it’s just the outcome that needs a little tweaking.
Why Is R&D Important?
Research and development is crucial in giving companies with a competitive edge in the market. Without new and/or improved products, an enterprise is sure to start losing market capitalisation over time. The process can also give entire nations a competitive edge and it's often the case that the biggest research programs are driven by geopolitical forces as much as commercial forces - look for example at the technological development that followed from the cold war, or from the current jostling between the US and China to lead the world on technologies such as AI and quantum computing.
So research and development is important to improve the competitive edge in a market. But that’s not the only benefit it has. It also helps companies respond to customer needs. Big corporations spend millions of dollars on market research, to understand exactly what their target audience expects in a product or service.
All of that hard-earned data directly fuels the direction of R&D programs.
Research And Development Statistics
Each year, more than 30,000 new products are launched. Out of them, 95% fail. That’s a very small success rate, and it goes to show how important and thorough R&D processes need to be.
On top of this, only 11% of products have an engaged customer base after 52 weeks. This means that even when a product is successful in the beginning, it requires a lot of work to maintain its relevance.
And it’s not just market forces that mandate investments in R&D. 90% of customers agree that innovation needs to impact society. So people expect research and development processes to have an effect on their life.
So how much money is spent on R&D?
A large amount of funds for R&D actually comes from the government. Hundreds of billions of dollars are spent by countries each year on research and development. It’s important to note though that these funds don’t all go to help corporate interests. A lot of it is spent to develop solutions that help societies without a profit incentive. South Korea and Israel are the top spenders on R&D in the world.
But private companies aren’t too far behind. The top 40% companies by spending on R&D invest as much as $900 billion on it each year.
So it’s a very big part of business processes.
But how does it integrate into corporate processes?
R&D In Product Development
The latest business theory formulates a 5-step plan for successful product development. It’s not a rigid structure, different companies will approach the process differently. But in general, this is what product development is broken up into:
- Idea Generation. In this step, companies will focus on market research and brainstorming to formulate ideas for new products. In most cases, these ideas aren’t rigid. They’re an initial grounding for the product (or products) that will eventually hit the market. Businesses will also create variations for the product they want to launch. This is also the step where R&D processes are employed to create MVPs (Minimum Viable Products).
- Testing. Here, companies will screen the initial product ideas. Ideally, focus groups will be brought in to get a feel for the products and provide feedback. When this step is completed, companies will settle on one variation of the product, based on customer response.
- Conceptualization. In this step, companies analyse the potential of their final product variation. A SWOT (strength, weakness, opportunity and threat) analysis is common here, as are other principles that figure out the positioning of a new product in the market.
- Product Development. Here, companies begin manufacturing the product based on the prototype. Depending on the complexity of the product, this step can be extremely complex, involving a lot of factories and supply chains.
- Product Launch. After this entire process, companies are ready to go to market with their new product. Depending on the distribution type, this step could also be pretty complex. If it’s just being sold online, a warehouse is the only thing required. If the product will be available in retail stores, it’s a bit more complicated.
As we can see then, R&D is a complicated process with far-reaching implications. It can change the fortunes of companies as well as nations. For businesses looking to compete on technology, good R&D is vital but it is a delicate, and expensive process and any investment in R&D should be backed up by extensive research beforehand. The story of Google glass shows what can happen when it goes wrong, and vast sums of money are ploughed into developing a product that ultimately fails. A company of Google's size of course can absorb such a loss, but for a smaller business, such a mistake could be fatal.