Research and development - The process by which a business works to obtain new knowledge and understandings that it might use to create new technologies, products, services, or systems that it will either use or sell. The primary purpose of R&D is to innovate or improve current operations in order to enhance performance and efficiency to gain a competitive advantage.
First-Mover Advantage - Especially in sunrise industries where competition is intense, gaining a first-mover advantage by innovating a successful new product or process will grant the business greater market participation to attract new customers, and the potential to gain market leadership and power.
Efficiency - R&D not only aims to innovate new products, but improve the systems and processes of the business. Gaining greater efficiency in operations will allow businesses to cut costs while maintaining the same level of output and performance, thereby increasing the profitability of the business.
Costs - R&D is a cost center for the business, meaning it does not contribute directly to revenue or cash inflow; the business must invest its profits from profit centers into R&D to cover its costs, leaving the business with less capital to invest in other operations.
Risk - As with any product-oriented process, the market reaction to the output from R&D may not be successful. Furthermore, if other businesses invest more into R&D and develop patented technology that interferes with the R&D efforts of others, the costs of their R&D may never be recouped.
Innovation - The process of commercially pioneering new ideas and creations in the production process.
Innovation can be divided into:
Product Innovation - Developing new, redesigned, or substantially improved products that meet the same needs of customers in a different way.
Process Innovation - Implementation of a new or significantly improved method of production or delivery.
Positioning Innovation - Changing the market’s perception of an established product.
Paradigm Innovation - A radical change that affects an entire industry.
Adaptive Creativity - Category of incremental innovation that adjusts or develops something that already exists. Generally, adaptive ideas build on the continuity of practices and organisational norms to make them more efficient and productive.
Innovative Creativity - Radical form of creativity that involves creating something entirely new by redefining problems and cultural norms.