R&D is vital for product development and long-term revenue streams. A clear focus and logical plan are necessary, along with unbiased research and cost containment methods. Proposals should include timelines, cost estimates, and target markets, and be reviewed by senior employees.
Research and development (R&D) is the process of developing and growing new products. All 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 improvements to existing products are needed to keep the company going. The best R&D strategy takes a long-term view, is focused on cost containment, and has a specific set of deliverables.
The costs associated with research and development have a huge effect on strategy selection. 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 between 20% and 35% of their annual revenue on R&D. This is absolutely essential, because new product development and patent protection allow a company to establish ownership of a product line and secure a long-term revenue stream.
The first step in selecting an R&D strategy is to determine where the business should be in 10 or 20 years. Focus on questions related to product specialization and target customer group. The next step is to develop a logical plan for achieving that goal. For example, a motorcycle shop that wants to become an industry leader in creating custom bikes for customers age 50 and older has a clear focus. The research and development strategy to achieve this goal must include creating new parts, accessories and designs that will appeal to this target market.
Solid, 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 needed to achieve that goal. Metrics about target customer group size, average 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 project status. This can be a time-consuming practice, but it produces the most accurate results.
Budget management is used in large companies. The lead researcher 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 viability. Expenses must be justified and projects that are not progressing well are 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 should include a timeline for producing a viable product, a cost estimate and a target market. In many organizations, there is a committee of senior employees that reviews proposals and selects those most likely to be successful.
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