Production Development: the importance of R & D to a company

To illustrate the importance of research and development to some firms, the level of annual investment in research and development by the top ten listed corporations in the States can serve as a telling indicator: each of these firms typically spends more than $1 billion on research and development per year. The question is, why?

First of all, firms invest funds in research and development primarily in order to design new products. For instance, Procter and Gamble’s R & D resulted in its two-in-one shampoo and conditioner technology.  This new technology has been used in its famous Pantene, Head & Shoulders products, which now enjoy a significant market share in various countries.

On the other hand, companies also use R & D to improve the products they already produce. Again, Procter and Gamble has improved the technology of Tide detergent more than seventy times. And not surprisingly, Tide is now the leading detergent in North America. 

What’s more, R & D can allow one firm a huge competitive advantage and therefore improve revenue streams dramatically. For example, Pfizer, one of the pharmaceutical titans, has successfully obtained patents for such best selling drugs as Benadryl, Listerine and Viagra.  In other words, Pfizer now has the monopoly in these lucrative drugs. This ‘license to print money’ comes directly from Pfizer’s R & D activities.

In short, firms that spend money on R & D have found to their delight that the benefits almost always exceed the expenses.