Research and development is one of the major functional areas of an organization that is helpful in the identification of strengths & weaknesses of the organization after proper examination. There are certain organizations that are not involved in the research & development activities while there are certain other organizations whose survival depends on the effective research and development activities. When an organization formulates & implements product development strategy, then it strongly needs potential research and development activities. It is all about the research and development of business organization that its able to introduce a new idea or product in the market. So research & development have great importance in businesses.
Purpose of Research and Development
Research & development has very useful purposes which are discussed as below.
- To develop new product before starting of competition
- To improve the quality of product
- To improve manufacturing process so that the costs can be reduced
Mostly organizations are involved in the research & development function keeping in view consideration that they will get competitive advantage through their superior products or services. The expenditures on research & development are made so that new products should be developed before the competitors, the quality of existing products should be increased & to improve the production process which leads to costs reduction.
In order to perform the research and development function effectively, the activities of R&D should be integrated with the activities of other functional areas. When there is partnership & mutual trust between other managers & manager of research and development then the whole organization is managed effectively. In such successfully operating organizations, all the managers are systematically involved in the in the decision regarding what, why, when& how much in the area of R&D. All the risks, costs, benefits & rewards are communicated & shared openly. So the collective mission of research and development become broad based which includes helping existing business, supporting in launching of new products, development of new products, improving the quality of products, enhancing the manufacturing efficiency & increasing the technological capabilities of the organization.
Every organization has desire to finance a number of projects which makes R&D budget significant. Following are some of the basis for maintaining R&D budget.
- Development of a number of different products
- Application of percent of sales method
- Budgeting in relation to competitors
- Decision regarding the number of successful products required
The successfully managed organization finds out the ways through which it can link the separate activities of its R&D with the remaining working of the organization. In this way a spirit is partnership is created between the manager of other functional areas & R&D manager. All the plans & decisions of R&D should be integrated & coordinated throughout all other divisions & departments by sharing of information & experiences. This new cross functional approach is better managed through strategic management process in managing the functional area of R&D.
Internal & External Research and development
Different organization split their R&D costs in different proportions but the overall R&D costs are not more than the marketing & production startup costs. There are four approaches that are commonly used to ascertain the allocation budget of R&D and these approaches are as follow.
- Financing of a too many projects
- The allocated amount for R&D should be similar to the allocated amount of competitors
- Application of percent of sales method
- Decision regarding the number of new products that are required & to ascertain the required investment in R&D with backward working
There are two basic forms of R&D in the organizations which are as follow
- Internal R&D: In this form of research and development, an internal R&D department is operated by the organization
- Contract R&D: This form is external in nature in which an outside agency or researcher is hired by the organization for development of particular products.
Certain organizations employ both forms of R&D in order to develop effective products. Mostly organizations form joint ventures with other organizations for acquisition & working of contract form R&D. The strategy formulation & implementation is greatly affected by the strengths & weaknesses of the R&D.
The direction of R&D efforts differs on the basis of the competitive strategy of the organization. There are certain organizations decide to become market leaders & for this purpose they develop new innovating products. Other organizations may decide to be market follower and resultantly develop the current products of the market. The R&D serves as driving force that work with other basic skills in making certain competitive strategy of the organization. In certain situations a driving force of introduction of new product exerts pressure on the R&D to perform extensive activities for the development of new product for the organization. Therefore the R&D should be involved in certain activities like advancement in technological & scientific knowledge, exploitation of that knowledge and managing the risks that are linked with the products, services, ideas & production requirements of the organization.