Pharmaceutical companies typically spend 20 to 35 percent of their annual revenue on research and development.
Research and development (R&D) is the process of developing and growing new products. Manufacturing, product design, and information technology companies have an R&D strategy. These industries are driven by consumer demand for their products. New products or enhancements to existing products are needed to keep the business going. The best R&D strategy takes a long-term view, focuses on cost containment, and has a specific set of deliverables.
Cosmetics companies have seen controversy over some of their R&D methods.
The costs associated with research and development have a large effect on the selection of strategies. In many cases, R&D is a central aspect of the business model and a specific percentage of revenue is allocated to this expense. For example, pharmaceutical companies typically spend 20-35% of their annual revenue on R&D. This is absolutely essential, because developing new products and obtaining patents allows a company to establish ownership of a product line and ensure a long-term revenue stream.
Research and development (R&D) is the process of developing and growing new products.
The first step in selecting an R&D strategy is to determine where the business should be in 10 to 20 years. Focus on issues related to product specialization and target customer group. The next step is to develop a logical plan to achieve that goal. For example, a motorcycle shop that wants to become an industry leader in creating custom motorcycles for customers over the age of 50 has a clear focus. The research and development strategy to achieve this goal must include the creation of new parts, accessories and designs that appeal to this target market.
Knowing what equipment might be needed is part of an R&D strategy.
Solid and unbiased 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 identify the steps necessary to achieve that goal. Metrics on target customer group size, median income level, product interest, and general 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 parts and supplies used on a project, along with staff time. Costs are regularly reviewed and compared to the status of the project. This can be a time-consuming practice, but it produces the most accurate results.
Budget management is used in large companies. The principal investigator receives a specific amount of money in different categories, such as supplies, personnel, and equipment. The project is regularly reviewed to determine progress and potential feasibility. Expenses must be justified and projects that are not progressing well must be 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 timeline for producing 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 the ones most likely to be successful.