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13.1: An Introduction to Research and Development (R&D)

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Learning Objectives

• Know what constitutes research and development (R&D).
• Understand the importance of R&D to corporations.
• Recognize the role government plays in R&D.

Research and development (R&D) refers to two intertwined processes of research (to identify new knowledge and ideas) and development (turning the ideas into tangible products or processes). Companies undertake R&D in order to develop new products, services, or procedures that will help them grow and expand their operations. Corporate R&D began in the United States with Thomas Edison and the Edison General Electric Company he founded in 1890 (which is today’s GE). Edison is credited with 1,093 patents, but it’s actually his invention of the corporate R&D lab that made all those other inventions possible.Andrea Meyer, “High-Value Innovation: Innovating the Management of Innovation,” Working Knowledge (blog), August 20, 2009, accessed February 22, 2011, http://workingknowledge.com/blog/?p=594 . Edison was the first to bring management discipline to R&D, which enabled a much more powerful method of invention by systematically harnessing the talent of many individuals. Edison’s 1,093 patents had less to do with individual genius and more to do with management genius: creating and managing an R&D lab that could efficiently and effectively crank out new inventions. For fifty years following the early twentieth century, GE was awarded more patents than any other firm in America.Gary Hamel, “The Why, What and How of Management Innovation,” Harvard Business Review , February 2006, accessed February 24, 2011, http://hbr.org/2006/02/the-why-what-and-how-of-management-innovation/ar/1 .

Edison is known as an inventor, but he was also a great innovator. Here’s the difference: an invention brings an idea into tangible reality by embodying it as a product or system. An innovation converts a new idea into revenues and profits. Inventors can get patents on original ideas, but those inventions may not make money. For an invention to become an innovation, people must be willing to buy it in high enough numbers that the firm benefits from making it.A. G. Lafley and Ram Charan, The Game-Changer (New York: Crown Publishing Group, 2008), 21.

Edison wanted his lab to be a commercial success. “Anything that won’t sell, I don’t want to invent. Its sale is proof of utility and utility is success,”A. G. Lafley and Ram Charan, The Game-Changer (New York: Crown Publishing Group, 2008), 25. Edison said. Edison’s lab in Menlo Park, New Jersey, was an applied research lab, which is a lab that develops and commercializes its research findings. As defined by the National Science Foundation, applied research is “systematic study to gain knowledge or understanding necessary to determine the means by which a recognized and specific need may be met.”National Science Foundation, “Definitions of Research and Development,” Office of Management and Budget Circular A-11, accessed March 5, 2011, http://www.nsf.gov/statistics/randdef/fedgov.cfm . In contrast, basic research advances the knowledge of science without an explicit, anticipated commercial outcome.

History and Importance

From Edison’s lab onward, companies learned that a systematic approach to research could provide big competitive advantages. Companies could not only invent new products, but they could also turn those inventions into innovations that launched whole new industries. For example, the radio, wireless communications, and television industry grew out of early-twentieth-century research by General Electric and American Telephone and Telegraph (AT&T, which founded Bell Labs).

The heyday of American R&D labs came in the 1950s and early 1960s, with corporate institutions like Bell Labs, RCA labs, IBM’s research centers, and government institutions such as NASA and DARPA. These labs funded both basic and applied research, giving birth to the transistor, long-distance TV transmission, photovoltaic solar cells, the UNIX operating system, and cellular telephony, each of which led to the creation of not just hundreds of products but whole industries and millions of jobs.Adrian Slywotzky, “How Science Can Create Millions of New Jobs,” BusinessWeek , September 7, 2009, accessed May 11, 2011, http://www.businessweek.com/magazine/content/09_36/b4145036678131.htm . DARPA’s creation of the Internet (known at its inception as ARPAnet) and Xerox PARC’s Ethernet and graphical-user interface (GUI) laid the foundations for the PC revolution.Adrian Slywotzky, “How Science Can Create Millions of New Jobs,” BusinessWeek , September 7, 2009, accessed May 11, 2011, http://www.businessweek.com/magazine/content/09_36/b4145036678131.htm .

Companies invest in R&D to gain a pipeline of new products. For a high-tech company like Apple, it means coming up with new types of products (e.g., the iPad) as well as newer and better versions of its existing computers and iPhones. For a pharmaceutical company, it means coming out with new drugs to treat diseases. Different parts of the world have different diseases or different forms of known diseases. For example, diabetes in China has a different molecular structure than diabetes elsewhere in the world, and pharmaceutical company Eli Lilly’s new R&D center in Shanghai will focus on this disease variant.“2011 Global R&D Funding Forecast,” R&D Magazine , December 2010, accessed February 27, 2011, www.battelle.org/aboutus/rd/2011.pdf . Even companies that sell only services benefit from innovation and developing new services. For example, MasterCard Global Service started providing customers with emergency cash advances, directions to nearby ATMs, and emergency card replacements.Lance Bettencourt, Service Innovation (New York: McGraw-Hill, 2010), 99.

Innovation also includes new product and service combinations. For example, heavy-equipment manufacturer John Deere created a product and service combination by equipping a GPS into one of its tractors. The GPS keeps the tractor on a parallel path, even under hands-free operation, and keeps the tractor with only a two-centimeter overlap of those parallel lines. This innovation helps a farmer increase the yield of the field and complete passes over the field in the tractor more quickly. The innovation also helps reduce fuel, seed, and chemical costs because there is little overlap and waste of the successive parallel passes.Lance Bettencourt, Service Innovation (New York: McGraw-Hill, 2010), 110.

Did You Know?

Appliance maker Whirlpool has made innovation a strategic priority in order to stay competitive. Whirlpool has an innovation pipeline that currently numbers close to 1,000 new products. On average, Whirlpool introduces one hundred new products to the market each year. “Every month we report pipeline size measured by estimated sales, and our goal this year is $4 billion,” said Moises Norena, director of global innovation at Whirlpool. With Whirlpool’s 2008 revenue totaling $18.9 billion, that means roughly 20 percent of sales would be from new products.Jessie Scanlon, “How Whirlpool Puts New Ideas through the Wringer,” BusinessWeek , August 3, 2009, accessed January 17, 2011, http://www.businessweek.com/innovate/content/aug2009/id2009083_452757.htm .

Not only do companies benefit from investing in R&D, but the nation’s economy benefits as well, as Massachusetts Institute of Technology (MIT) professor Robert Solow discovered. Solow showed mathematically that, in the long run, growth in gross national product per worker is due more to technological progress than to mere capital investment. Solow won a Nobel Prize for his research, and investment in corporate R&D labs grew.

Although R&D has its roots in national interests, it has become globalized. Most US and European Fortune 1000 companies have R&D centers in Asia.“2011 Global R&D Funding Forecast,” R&D Magazine , December 2010, accessed February 27, 2011, www.battelle.org/aboutus/rd/2011.pdf . You’ll see the reasons for the globalization of R&D in Section 13.3 .

The Role of Government

Governments have played a large role in the inception of R&D, mainly to fund research for military applications for war efforts. Today, governments still play a big role in innovation because of their ability to fund R&D. A government can fund R&D directly, by offering grants to universities and research centers or by offering contracts to corporations for performing research in a specific area.

Governments can also provide tax incentives for companies that invest in R&D. Countries vary in the tax incentives that they give to corporations that invest in R&D. By giving corporations a tax credit when they invest in R&D, governments encourage corporations to invest in R&D in their countries. For example, Australia gave a 125 percent tax deduction for R&D expenses. The Australian government’s website noted, “It’s little surprise then, that many companies from around the world are choosing to locate their R&D facilities in Australia.” The government also pointed out that “50 percent of the most innovative companies in Australia are foreign-based.”Committee on Prospering in the Global Economy of the 21st Century (U.S.), Committee on Science, Engineering, and Public Policy (U.S.), Rising Above the Gathering Storm (Washington, DC: National Academies Press, 2007), 195.

Finally, governments can promote innovation through investments in infrastructure that will support new technology and by committing to buy the new technology. China is doing this in a big way, and it is thus influencing the course of many companies around the world. Since 2000, China has had a policy in place “to encourage tech transfer from abroad and to force foreign companies to transfer their R&D operations to China in exchange for access to China’s large volume markets,” reported R&D Magazine in its 2010 review of global R&D.“2011 Global R&D Funding Forecast,” R&D Magazine , December 2010, accessed February 27, 2011, www.battelle.org/aboutus/rd/2011.pdf . For example, any automobile manufacturer that wants to sell cars in China must enter into a partnership with a Chinese company. As a result, General Motors (GM), Daimler, Hyundai, Volkswagen (VW), and Toyota have all formed joint ventures with Chinese companies. General Motors and Volkswagen, for example, have both formed joint ventures with the Chinese company Shanghai Automotive Industry Corporation (SAIC), even though SAIC also sells cars under its own brand.Brian Dumaine, “China Charges into Electric Cars,” Fortune , November 1, 2010, 140. The Chinese government made another strategic decision influencing innovation in the automobile industry. Because no Chinese company is a leader in internal combustion engines, the government decided to leapfrog the technology and focus on becoming a leader in electric cars.Bill Russo, Tao Ke, Edward Tse, and Bill Peng, China’s Next Revolution: Transforming The Global Auto Industry , Booz & Company report, 2010, accessed February 27, 2011, www.booz.com/media/file/China’s_Next_Revolution_en.pdf . “Beijing has pledged that it will do whatever it takes to help the Chinese car industry take the lead in electric vehicles,” notes industry watcher Brian Dumaine. Brian Dumaine, “China Charges into Electric Cars,” Fortune , November 1, 2010, 140. That includes allocating $8 billion in R&D funds as well as another $10 billion in infrastructure (e.g., installing charging stations).Gordon Orr, “Unleashing Innovation in China,” McKinsey Quarterly , January 2011, accessed January 2, 2011, www.mckinseyquarterly.com/Strategy/Innovation/Unleashing_innovation_in_China_2725 . The government will also subsidize the purchase of electric cars by consumers and has committed to buying electric cars for government fleets, thus guaranteeing that there will be buyers for the new electric vehicles that companies invent and develop.

Another role of government is to set high targets that require innovation. In the 1960s, the US Apollo space program launched by President John F. Kennedy inspired US corporations to work toward putting a man on the moon. The government’s investments in the Apollo program sped up the development of computer and communications technology and also led to innovations in fuel cells, water purification, freeze-drying food, and digital image processing now used in medical products for CAT scans and MRIs.Adrian Slywotzky, “How Science Can Create Millions of New Jobs,” BusinessWeek , September 7, 2009, accessed May 11, 2011, http://www.businessweek.com/magazine/content/09_36/b4145036678131.htm . Today, government policies coming from the European Union mandate ambitious environmental targets, such as carbon-neutral fuels and energy, which are driving global R&D to achieve environmental goals the way the Apollo program drove R&D in the 1960s.Martin Grueber and Tim Studt, “A Battelle Perspective on Investing in International R&D,” R&D Magazine , December 22, 2009, http://www.rdmag.com/Featured-Articles/2009/12/Global-Funding-Forecast-A-Battelle-Perspective-International-R-D .

After the 1990s, US investment in R&D declined, especially in basic research. Governments in other countries, however, continue to invest. New government-corporate partnerships are developing around the world. IBM, which for years closely guarded its R&D labs (even IBM employees were required to have special badges to enter the R&D area), is now setting up “collaboratories” around the world. These collaboratories are partnerships between IBM researchers and outside experts from government, universities, and even other companies. “The world is our lab now,” says John E. Kelly III, director of IBM Research.Steve Hamm, “How Big Blue Is Forging Cutting-edge Partnerships around the World,” BusinessWeek , August 27, 2009, accessed January 2, 2010, http://www.businessweek.com/print/magazine/content/09_36/b4145040683083.htm . IBM has deals for six future collaboratories in China, Ireland, Taiwan, Switzerland, India, and Saudi Arabia.

The reason for the collaboratory strategy is to share R&D costs—IBM’s partners must share 50 percent of the funding costs, which means that together the partners can participate in a large-scale effort that they’d be hard pressed to fund on their own. An example is IBM’s research partnership with the state-funded Swiss university ETH Zurich. The two are building a $70 million semiconductor lab for nanotech research with the goal of identifying a replacement for the current semiconductor-switch technology.Steve Hamm, “How Big Blue Is Forging Cutting-Edge Partnerships around the World,” BusinessWeek , August 27, 2009, accessed January 2, 2010, http://www.businessweek.com/print/magazine/content/09_36/b4145040683083.htm . Such a breakthrough could harken the creation of a whole new industry.

Of all the countries in the world, the United States remains the largest investor in R&D. One-third of all spending on R&D comes from the United States. Just one government agency—the Department of Defense—provides more funding than all the nations of the world except China and Japan. Nonetheless, other countries are increasing the amounts of money they spend on R&D. Their governments are funding R&D at higher levels and are giving more attractive tax incentives to firms that spend on R&D.

Governments can also play a big role in the protection of intellectual property rights, as you’ll see in Section 13.2 .

KEY TAKEAWAYS

• R&D refers to two intertwined processes of research (to identify new facts and ideas) and development (turning the ideas into tangible products and services.) Companies undertake R&D to get a pipeline of new products. Breakthrough innovations can create whole new industries, which can provide thousands of jobs.
• Invention is the creation of a new idea embodied in a product or process, while innovation takes that new idea and commercializes it in a way that enables a company to generate revenue from it.
• Government support of R&D plays a significant role in innovation. It has been generally accepted that it’s desirable to encourage R&D for reasons of economic growth as well as national security. This has resulted in massive support from public funds for many sorts of laboratories. Governments influence R&D not only by providing direct funding but also by providing tax incentives to companies that invest in R&D. Governments also stimulate innovation through supporting institutions such as education and providing reliable infrastructure.

(AACSB: Reflective Thinking, Analytical Skills)

• What benefits does a company get by investing in R&D?
• Why do organizations make a distinction between basic research and applied research?
• Describe three ways in which government can influence R&D.

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What Is Research and Development (R&D) and Why It's Important for Businesses

Rebecca woolf.

The practice of research and development (R&D) may help your company expand and flourish. R&D is the process of generating new, better goods and services to meet the demands of your customers after investigating your market and your client base.

Businesses with an R&D plan are more likely to succeed than those without one. An R&D plan may raise efficiency, foster innovation, and strengthen your company's competitive edge.

In-Depth Understanding of Research and Development (R&D)

Importance of research and development (r&d) for business.

R&D is frequently used to refer to innovation in the business and public sectors. It enables a business to maintain a competitive edge. Without a R&D program, a business might not be able to exist on its own. Instead, it may need to rely on alternative innovation methods, such as collaborations or mergers and acquisitions (M&A). Through R&D, companies can produce new products and improve their existing offerings.

Most of a corporation's operational tasks are distinct from R&D. Normally, research and/or development are not carried out with the hope of making money immediately. Instead, it is anticipated to help a firm become more profitable over the long run. Companies that focus to set up and employ entire R&D departments commit a sizable sum of money to the project.

There is no immediate payout, and the return on investment (ROI) is unpredictable. Thus they must estimate the risk-adjusted return on their R&D investment, which inherently entails capital risk. Although, R&D requires a considerable investment, so the level of capital risk increases.

The ability to do research and development (R&D) is not limited to large enterprises. R&D is another tool that small businesses may use to enhance operations, develop fresh, superior goods and services, boost profits, and become more competitive. Here are seven ways that R&D may help you realise an original concept for a new good or service:

Improve Productivity and Differentiate Products

Businesses get a competitive edge by outperforming their rivals in a way that is difficult for them to imitate. It is simpler to outperform competitors if R&D activities result in an enhanced business process—reducing marginal costs or raising marginal productivity.

R&D Tax Credits

The IRS began providing tax advantages to businesses in 1981, so they could spend money and hire people for research and development. Along with a special 20-year carry-forward provision for the credit, such costs may be applied to reduce tax liability.

Mergers and Buyouts

By offering their outstanding ideas to well-established companies with ample resources, many small company owners and entrepreneurs have amassed substantial sums of money quickly. Although buyouts are more frequent among Internet businesses, they can occur wherever there is a strong incentive for innovation.

R&D Advantages in Marketing and Advertising

Advertising is rife with boasts of ground-breaking new methods or previously unseen goods and technology. Customers frequently desire new and improved items only because they are brand-new. In the proper market, R&D departments may serve as advertising wings.

Leveraging R&D initiatives, companies may develop very successful marketing plans to introduce new products or updated versions of existing products. A business might develop cutting-edge marketing strategies that complement its imaginative items and boost market involvement. Innovative new things or features can grow market share by offering clients something they've never seen before.

Competitive Edge

You may get an edge over rivals and become the industry leader through research and development (R&D). The creation of new goods and services can also lead to the creation of new intellectual property for your company, which may have financial advantages for you as well.

Collaboration

R&D projects may benefit greatly from collaboration, which is frequently essential to its success. For example, your company may collaborate with another firm, a university, or a college. It enables the sharing of talents and knowledge, as well as access to resources, knowledge, and maybe fresh ideas that would not otherwise be available to your company.

Your brand and reputation may be strengthened by participating in R&D. The economic success of the ensuing goods and services might gain from the engagement of a reliable, trustworthy partner or a powerful scientific organisation.

Companies invest in R&D for various reasons, including improved market participation, cost management advantages, improvements in marketing capabilities, and trend-matching. A corporation may stay current by using R&D to track or stay ahead of market trends. While resources must be set aside for R&D, the innovations developed via this research can help to save costs by resulting in more efficient goods or production methods.

Given the degree of competition and the constant advancement of manufacturing techniques and procedures, research and development are crucial to a business. It is particularly critical in marketing, where companies maintain a sharp watch on competitors and clients to stay on top of current trends and assess their clientele's requirements, requests, and preferences. The outcomes are certain to be positive if a business has contributed significantly to R&D, but more R&D investment does not equate to increased inventiveness, profit, or market share.

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What is the Research and Development (R&D) Process?

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The present-focused, future-ready R&D organization

Across engineered industries, the explosion in software has increased product complexity by an order of magnitude. Along with rapidly evolving technologies, fast-changing consumer preferences, accelerated product cycles, and the practical realities of globalized operations and markets, R&D departments are under unprecedented strain. As product variation grows and product portfolios expand, updating existing products compounds the already heavy load R&D organizations bear.

Yet amid these 21st-century challenges, R&D units are still following 20th-century models of organization—models not designed for today’s need for speed and the expanding web of interdependencies among all of the moving parts. The traditional component-based approach to R&D is no longer sensible in an era when digital and electronic systems are so thoroughly integrated with hardware. Still many companies struggle to shift toward an approach that focuses more on the function the customer wants, rather than the components that make the desired function work.

There is no one right way to organize R&D. But there are certain fundamentals that can help R&D organizations in advanced industries act more responsively and meet the burgeoning challenges they face today. From our work with clients and our extensive research, we’ve distilled a set of core design principles for R&D organizations and identified the important ones. By following these principles, companies can help their R&D organization serve as engines of innovation for outpacing competitors. And they can foster the agility organizations need in supporting collaboration among remote, distributed teams—as has become more important than ever in response to unpredictable external events.

A growing mismatch between design and function

Determining the right structure for the R&D organization has never been easy. The division of responsibility is a balancing act between the project-management organization and the R&D line organization, with inevitable trade–offs. Today’s R&D teams don’t have the luxury of following a sequential, piece-by-piece approach in which finished, designed components are handed off to testing at the end. Moreover, the teams need to be appropriately protected from the external and internal disruptions that the broader organization experiences, which today come with greater frequency.

As they’ve grown organically, many R&D organizations continue to operate with the same structures and processes they’ve used for years. Despite (or perhaps because of) the increasing inadequacy of those structures and processes, organizations don’t follow them consistently. Pet projects are often hard to kill, even long after their diminished promise becomes apparent. And because research effectiveness is hard to measure—and companies often don’t understand R&D costs or ways of working—the black-box image persists without challenge.

Thus, adhering to an existing structure isn’t enough: the shifting demands, the sheer volume of work and the growing complexity (much of it the result of software integration) make it incumbent on R&D organizations to reappraise their design. Instead, they can create new mechanisms to provide the coordination, transparency, governance, and risk protection R&D needs in the digital era.

A set of winning design principles

In the ideal R&D organization, responsibilities are clearly established, and interfaces between and among teams (internal and external) are seamless and transparent. These requirements, although not new, have become even more important of late, particularly when more teams are working remotely. R&D organizations that fulfill them can better meet further requirements—managing complexity actively and efficiently while staying focused on the future, and also maintaining the tools and capabilities for adapting to change.

Clearly delineate responsibilities for systems and end-to-end work

Historically, the R&D function has been organized according to field of expertise, components, or location, which has the effect of creating silos. Product properties are defined at the start of the development process, without being analyzed according to larger internal systems or user functions. Little attention is given to thinking in terms of the overarching goals customers want to achieve, or to the growing interdependencies as software and digital functions have pervaded almost every engineered product.

Many of the complications R&D organizations encounter today are the result of organizational interfaces that don’t match the product, along with a lack of transparency between groups. Take, for example, a feature such as lane-assistance for vehicles. Developing further advances in this function depends on a high level of coordination among teams developing steering systems, brake systems, and electrical systems. But too often that coordination occurs only late in design, perhaps even the final testing phase, by which point addressing problems becomes expensive and time-consuming. R&D organizations are more effective when they shift their orientation from components to user function, while keeping platform development stable to ensure a core of commonly used modules.

With such a shift, assigning end-to-end responsibility for functionality has become imperative. Companies can assign responsibility for the complete product, as well as for the individual system layers, under the “V” model shown in Exhibit 1, which imposes oversight as ideas progress from concept through to market release, series development, and finally upgrades.

The process moves from left to right. Under “Conception,” individual systems and their associated software are defined to fit customer demands and budget. Through early testing in the development process, issues and challenges become apparent early on. The right side of the V comprises testing and integration, which are conducted along the system layers. By breaking a product’s properties into requirements for systems and functions, the activities become transparent to everyone involved in development.

This approach enables iterative handshakes—more frequent interactions between concept owners and developers. Teams work together to translate properties into functional requirements. The approach also establishes dedicated responsibilities for complex functions and keeps the development process transparent. To coordinate and manage the interaction points, automotive companies tend to introduce central units that manage the whole integration process along the different development steps. These departments can be seen as a “stable backbone” within a dynamic development process, which helps improve planning for milestones and facilitates early failure detection. One machinery company, for example, set up quarterly integration meetings to align on priorities; the one to two days team members spend planning together gets them aligned for the next quarter’s work.

Perhaps the biggest benefit to assigning end-to-end responsibility is that it enables R&D to manage the interfaces and different development cycles between hardware and software development. Functionality owners coordinate the development of complex and interdependent components and features, creating technical guidelines and specifications that support consistency. They effectively safeguard the implementation and validate that the solution fulfills its requirements over its entire lifecycle.

Would you like to learn more about our Operations Practice ?

Keep functional interfaces across work sites to a minimum.

Companies can most effectively conceive of interfaces in terms of R&D’s geographic footprint—a balance taking into account which activities are performed where, and how the locations must interact. Minimizing functional interfaces across multiple sites and avoiding duplication of similar work are both important as well. Furthermore, to be cost-effective, location design can identify best-cost country sourcing for repetitive tasks, keeping in mind end-to-end responsibilities.

Dividing projects up among sites is usually less ideal, as people who work together in the same place tend to work more efficiently: earlier research found that with each additional development site for a given software product, productivity fell by about 14 percent (Exhibit 2.) Just the difference between one site and three sites amounts to a 37 percent decline in productivity.

Minimizing the number of handovers between sites—and making those that remain as smooth as possible—also helps. Distance between sites is not what matters; without the right management practices, a site across the city can seem as distant to employees as one clear across the country. But virtual teams can be as efficient as co-located teams, as long as the tools supporting the virtual work are utilized properly, communication is adapted accordingly, and everyone can participate on an equal basis.

R&D leaders can consider future roles and competencies when thinking about the physical design of the department. Where should the development of next-generation products start? How could a transition to new products be built for sites currently focused on legacy products? How will cost and availability figure into the overall network structure? The answers form a long-term site strategy that can help avert a talent crunch.

The right footprint model also builds in a detailed understanding of local requirements, such as interactions with suppliers, local regulations, and internally, the interdependencies with other departments or components. The sophistication of the design work, and the degree of conceptual work that will be done in a particular location, will inform the kind of competencies and technologies that will be needed. For example, one white-goods manufacturer carried out almost all development in its home market, later building a few local development centers in key markets to help adjust the products for local preferences, such as for refrigerator and freezer sizes, configurations, and color schemes.

Synchronize software and hardware development

Complexity in all its forms has increased markedly—product variations alone have exploded over the past two to three decades, driven largely by the rise of embedded software and digital capabilities.

But R&D protocols often fail to account for the unique challenges of managing the development of integrated software and hardware. Software and hardware development follow different development cycles and require different approaches to project steering. And when digital features or components aren’t explicitly considered in milestone planning, integration problems and delays are almost inevitable.

As essential as synchronizing development may be, it isn’t easy. In automotive, for example, map software generally takes about a year to develop, with frequent updates, while apps or innovative vehicle-control features (such as autopilot) may be updated monthly, with ongoing development and improvement. Contrast these cycle times with the hardware that runs navigation systems (which take two to three years to design and build), vehicle platforms (about seven years in the making) and basic vehicle components, such as heating systems and airbags—mature components that typically have a 10-year lifespan.

With such wide disparities in cycle times, transparency becomes crucial. The lack of it is a problem not only in concept development, but in delaying product launches as well. For complex functions, such as lane assistance, R&D units may have limited ability to measure how mature the product really is. When changes are made, teams may therefore fail to assess the implications on other features currently in development. Beyond cost overruns, delays, and risks to product integrity, poorly managed complexity invariably leads to finger-pointing among system teams as well as conflict between R&D and the project-management team.

R&D organizations have two options for managing the complexities of synching software and hardware development.

• Embedding software development within existing departments. This approach promotes integrated development—but in practice, processes are often designed from a hardware point of view, and software complexity is not managed effectively.
• Keeping development separate but coordinated. With this arrangement, individual technology components don’t get short shrift. The onus is on leaders to establish synchronization points to identify potential conflicts that would require escalation to senior management.

The approach to take is generally determined by the nature of the product, as well as the organization’s experience with software—bearing in mind that complexity will likely grow. Increasingly, services are developed not only within the engineering department but also within IT, creating still more interfaces and responsibilities, with implications for organization design.

Strike a balance between old and new technologies

When it comes to developing new technologies, R&D managers have three choices: segregate them completely in a separate unit; include them in the R&D organization, but keep them separate; or integrate them fully into the core R&D organization (Exhibit 3).

Taking supplier collaboration to the next level

Segregating the current and new technologies has its advantages. Unfettered by standard processes, separated units are free to realize their full potential. The R&D organization keeps budgets separate and shields the new technology from the noise of existing projects.

But this option can be a hard sell to management, as creating a new unit can be costly, labor-intensive, and harder to absorb into the existing structure. Beyond the break-in time to adapt to existing products and processes, segregation also limits the broader organization’s ability to transfer capabilities and knowledge, particularly given that cutting-edge technologies call for special (at times rare) expertise and training time for employees.

Short of total separation, there are essentially two ways to include new technology development within the R&D organization. Integrating new technologies fully into the existing organization helps transfer knowledge, and lets the new part of the organization tap into existing capabilities and processes, all of which helps in reaching scale faster. However, in this arrangement, there are risks—new technologies could be prematurely quashed by senior management, or if developed according to current methodologies, could yield less-than-optimal results.

An R&D makeover to sustain market leadership

A global production-equipment manufacturer had long viewed its R&D organization as a crucial source of competitive advantage. But the company’s rapid growth and increasingly complex product portfolio meant that more products were being developed in parallel. That led to even greater specialization among engineers and more technical interdependencies across modules. As the number of engineers and management layers grew, so did the number and complexity of interfaces, threatening the company’s rapid growth.

Historically, R&D groups had been organized in two types of departments.

• System functions, which handled the functionalities that met system specs and customer requirements, such as for productivity and machine precision.
• Engineering functions, encompassing specialties such as electronics, mechanics, software, and environmental controls.

These functions were required for developing the system modules and the system architecture needed for the integrity of the assembled machine.

Cutting complexity

As a first step in redesigning the R&D organization, R&D leaders made system function leaders responsible for tangible and testable machine modules. System leaders’ reports were given responsibility for the respective submodules. In that way, every production module and submodule would have a clear owner with end-to-end responsibility, from new-product introduction to third-line field-service support. Whereas before, each engineer worked on multiple products, under the new system each now works on only one business line and handles only one submodule at a time (Exhibit).

System-function departments are now primarily business-line dedicated. Each system function has a central architecture team that promotes commonality in the system modules’ roadmaps and the maximum reuse of module elements among business lines.

Engineering-function teams (such as software teams) are largely dedicated to modules or submodules. Leaders have the authority to deliver their technical roadmap with more stable, focused, and experienced people. Within each engineering function is a central architecture department that’s responsible for system design and standards (the left side of the V in Exhibit 1 in the main text) and for setting guardrails for module design and development. This structure also ensures integrity in the final product.

Responsive and future-ready

To maintain system integrity, shared platforms, and innovation- and knowledge-sharing across business lines, the company established several central teams. To manage competence (and continue building needed skills), the organization developed a taxonomy of critical competencies, assigned to VPs and managers and governed through an annual planning cycle.

The stable, multidisciplinary teams that characterize the new design have created a solid foundation for piloting and scaling agile ways of working in the product development teams. Since the launch of the new organization, more than 2,000 engineers have migrated to agile methods. But engineers aren’t the only ones working in new ways. By forging and executing the redesign as a team, R&D leaders have developed adaptive muscle, with the ability to adjust their organization to fast-changing requirements and environments.

Most often, the best bet is a happy medium, in which new technologies are assigned to a separate team but explored within the current R&D organization (see sidebar, “An R&D makeover to sustain market leadership”).

The right approach is also a function of the situation and the culture. Consider the electric powertrain in the automotive industry—the different manufacturers offer a sample of all of the archetypes.

To be future-ready, adopt new ways of working

The traditional waterfall development model that some organizations still follow is so protracted that products can be obsolete by the time they are released. Long development times become impracticable when businesses factor in the out-of-sync cycle times of software and hardware components. In addition, a siloed and fragmented organizational structure makes it hard to respond nimbly to new process requirements.

Fast-changing customer demands and rapidly evolving technologies have increased the premium for enterprises and their R&D organizations to be adaptable, flexible, and future-oriented. And the coordination, integration, and speed needed in R&D today call for new ways of working. These include agile methods that enable fast iterations and cross-functional, flexible teams that ensure that the concerns of all relevant stakeholders—people from different functional units, as well as the different engineering teams, project managers, and customer representatives—are addressed. For example, a team working on autonomous driving would include not only software engineers but also hardware engineers from the steering, brake-system, and overall car-design teams, as well as those working on user interface design.

To foster a future orientation within the R&D function, companies can adopt certain design features and practices, in particular those structures that promote agility:

• A flat organization in which teams are granted full responsibility to design solutions. This creates a strong sense of ownership among individuals
• End-to-end, cross-functional teams whose talent is drawn from all the relevant and traditional R&D functions. Often, teams are supported by individuals outside of R&D, such as marketing managers or customer representatives. Team membership is stable and changes only when projects are finished or strategic priorities change
• Pools of experts (both internal and external) that support projects with the talent they need
• Resource allocation that is flexible, shifting as needs change
• More co-location time for teams, wherever possible
• Role descriptions and rewards that align with the new organizational structure and targets

These practices usually suggest that the company might consider changing certain roles in the organization—particularly in light of the widespread need for more architects, as leaders are charged with empowering teams to foster innovation more than ever before. In fact, an automotive manufacturer saw its leadership transformation as a driving force for putting in place its new R&D organization.

A further question we are hearing is: how does all of this work in a remote working environment? The bulk of these practices can be implemented in a digitally enabled organization if co-location is not an option, with priority for practical matters such ensuring teams have sufficient bandwidth to connect as often as needed. Clear roles and targets will be especially important as well, as will an emphasis on empowering teams and individuals.

With ever-expanding product portfolios—from more product variation to additional software embedded in engineered products—R&D organizations tell us they are struggling to keep up pace. That makes the shift from a traditional, component-based approach to a functional all the more essential.

Change isn’t easy for this traditionally black-box area of the organization. Engineers themselves struggle with how to reengineer their own work processes, often not knowing where to start. To determine the right blueprint, it helps to step back and reflect on current performance and future needs by asking a few central questions:

• Do we have a clear way of addressing the complexity that comes from interfaces?
• How are we handling interdependencies between systems? Is complexity increasing, and if so, are we well set up for the future demands?
• Do we have what it takes to adapt to a larger proportion of software development in our R&D?
• Are we sufficiently agile and flexible to adjust our focus based on changing demand? Could we handle more frequent changes in demand?
• How prepared are we for future technologies? Do we have the right structure in place to acquire and scale them?
• Do we have sufficiently clear roles, interfaces, and end-to-end responsibilities within R&D between teams and sites and to other departments?

There is no master formula for making this shift—nor could there be, given the differences across industries and from organization to organization—but certain principles prevail. Abiding by the principles outlined here can provide a blueprint needed for integration at the right points, and the much-needed transparency across R&D. If R&D is the company’s engine of innovation, its own transformation is more than a matter of securing market share, it’s about being built for a fast-changing present in order to secure the future.

Anne Hidma is an associate partner in McKinsey’s Amsterdam office, where Vendla Sandström is a consultant, and Sebastian Küchleris a partner in the Munich office.

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SCIENCE & ENGINEERING INDICATORS

Research and development: u.s. trends and international comparisons.

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Executive Summary

Key takeaways:

• The U.S. research and experimental development (R&D) performance reached $667 billion in 2019 and an estimated $708 billion in 2020, reflecting increases in all sectors (business, higher education, the federal government, nonprofit organizations, and others) but mostly in the business sector.
• Adjusted for inflation, growth of the U.S. R&D total averaged 3.8% annually from 2010 to 2019, well above the 2.2% growth of U.S. gross domestic product (GDP) over the same period.
• The U.S. national R&D intensity (R&D-to-GDP ratio)—a key measure of R&D investment—has also increased, from the highs of recent years of 2.79% in 2016 and 2.95% in 2018 to 3.12% in 2019 and then to an estimated 3.39% in 2020.
• The United States remains the global leader in R&D performance (28% of global R&D in 2019), followed by China ($526 billion, or 22% of global R&D). China’s current average annual rate of increase (2010–19), however, is almost double the U.S. rate.
• Global R&D performance is concentrated in a few countries. The United States, China, Japan, Germany, South Korea, France, India, and the United Kingdom jointly accounted for about 75% of global R&D performance in 2019. The global concentration of R&D performance continues to shift from the United States and Europe to East-Southeast and South Asia.
• Businesses are the predominant performers (75% in 2019) and funders (72%) of U.S. R&D. This sector performs most of U.S. R&D classified as experimental development, more than half of applied research, and a sizable (and increasing) share of basic research (32% in 2019).
• Higher education institutions (12% in 2019) and the federal government (9%) are the second- and third-largest performers of U.S. R&D. Higher education institutions are the largest performers of basic research. Both have experienced declines in their shares of the U.S. performance total since 2010.
• The federal government continues to be an important source of support for all R&D-performing sectors and remains the largest funder of basic research. The share of federally funded R&D, however, has been on a path of decline since 2010 (from 31% in 2010 to 20% in 2019), and the share of federally funded basic research has also consistently declined (from 52% in 2010 to 41% in 2019). These declines stem, in part, naturally from the large increases in R&D funding and performance by the business sector in recent years. This trend, however, indicates that federal funding has not kept up with the increases in other sectors.

Scientific discoveries, new technologies, and inventive applications of cutting-edge knowledge are essential for success in the competitive global economy and in addressing challenges and opportunities in diverse societal areas such as health, environment, and national security. Consequently, the strength of a country’s overall R&D enterprise—both the public and private sectors—is an important marker of current and future national economic advantage and of the prospects for societal improvements at the national and global levels.

The U.S. R&D enterprise comprises the R&D efforts of various sectors, including businesses, the federal government, nonfederal governments, higher education institutions, and nonprofit organizations. U.S. R&D performance totaled $667 billion in 2019 and an estimated $708 billion in 2020, compared to $407 billion in 2010. (All amounts are reported in current dollars, unless otherwise noted.) These most recent increases in the performance total ($50 billion or more each year in 2018 and 2019) are much larger than the average annual increases over the 2010–16 period ($19 billion each year). The main driver of these sizable increases is business R&D performance. Adjusted for inflation, average annual growth in the U.S. R&D total has outpaced average GDP growth for nearly two decades—3.8% compared to 2.2% average growth in GDP from 2010 to 2019, and 2.1% compared to 1.8% growth in GDP in the prior decade. As a result, the national R&D intensity has been on a rising path, from 2.79% in 2016 (a high point at the time) and 2.95% in 2018 to 3.12% in 2019 (the first time the U.S. exceeded 3.0%), and it is estimated to be 3.39% in 2020.

Globally, R&D expenditures have risen substantially since 2000 to an estimated $2.4 trillion in 2019—a more than threefold increase from $725 billion in 2000 (not adjusted for inflation). This expansion reflects the increasing importance of R&D in contributing to economic growth and competition as well as the significant role of R&D in addressing national and global challenges. Global R&D performance, however, is concentrated in a few countries. The United States leads the world’s nations in R&D performance with a 28% global share in 2019, followed by China (22%). Together with Japan (7%), Germany (6%), South Korea (4%), France (3%), India (2%), and the United Kingdom (2%), these top eight R&D-performing countries account for about 75% of the global total R&D. Other countries with sizable R&D performance are (in decreasing order) Russia, Taiwan, Italy, Brazil, Canada, Spain, Turkey, the Netherlands, and Australia.

In this report, a larger gap is evident between the U.S. and China R&D totals than reported in earlier editions. S cience and Engineering Indicators 2020 puts China’s R&D at 90% (and increasing) of the U.S. level in 2017. Updated data in this report show China’s 2019 R&D total at 79% of the U.S. level, and the 2017 comparison has been revised downward to 76%. These changes resulted primarily from a comprehensive update, released in May 2020, of the purchasing power parity ratios used to convert a country’s R&D expenditures to U.S. dollar expenditures as a common measure across all countries. These latest revisions had a more sizable effect on China than on other major R&D-performing countries.

Even so, the average annual rate of increase in China’s R&D total (10.6% from 2010–19) continues to greatly exceed that of the United States (5.6%) and the European Union (EU-27) (5.6%). China’s notable rise in R&D performance and the strong R&D performance by other Asian countries—Japan, South Korea, India, and Taiwan—are the drivers behind the sustained rise of R&D performance in East-Southeast and South Asia. The combined R&D performance across these Asian regions rose from 25% to 39% of the global total from 2000 to 2019, while the U.S. and EU-27 shares declined from 37% to 28% and from 22% to 18%, respectively. These broad trends in the global geography of R&D have been noted in earlier editions of this report and are reinforced by the latest data, indicating that the prospects for a further global shift remain strong.

In the United States, the business sector is the predominant force behind the R&D enterprise (75% of performance and 72% of funding of U.S. R&D in 2019). Since 2010, about 80% or more of the increase in the U.S. total R&D each year is attributable to businesses. Consequently, annual changes in business R&D greatly influence the overall U.S. R&D total. Business R&D performance is concentrated in five industries: chemicals manufacturing; computer and electronic products; transportation equipment; information services; and professional, scientific, and technical services. Businesses perform most of the R&D classified as experimental development (90% in 2019) and more than half of the applied research (58%). The business share of basic research has been increasing significantly in recent years (from 21% in 2010 to 32% in 2019).

The other sectors also make important contributions to the U.S. R&D enterprise but represent a fraction of the spending by the business sector. Higher education institutions and the federal government are the second- and third-largest performers of U.S. R&D. In 2019, higher education institutions performed 12% of the U.S. R&D total, over 60% of which was basic research. That same year, federal intramural R&D—through federal agencies and federally funded R&D centers—accounted for about 9% of the U.S. total R&D. Both, however, have experienced declines in their shares since 2010. (Higher education institutions performed 14%, and the federal government 13%, of U.S. total R&D in 2010.)

The federal government plays a larger role in R&D funding compared to performance and supports all sectors, particularly higher education institutions and federal intramural R&D. The federal government remains the largest source of support for the nation’s basic research, although the share has dropped from 52% in 2010 to 41% in 2019. The federal government is also a sizable supporter of the nation’s applied research—32% in 2019, compared to 56% of the support from the business sector. Despite its widespread role of funding, the share of federally funded R&D has been in decline for most of the past decade. In 2010, federal funding supported 31% of the total of U.S. R&D performance but dropped to 20% in 2019—and is estimated to drop further in 2020. This decline is, in part, a consequence of the large increases in R&D funding from the business sector in recent years, indicating that federal funding has not kept up with increases in other sectors.

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• Research and Development (R&D) | Overview & Process

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Companies often spend resources on certain investigative undertakings in an effort to make discoveries that can help develop new products or way of doing things or work towards enhancing pre-existing products or processes. These activities come under the Research and Development (R&D) umbrella.

R&D is an important means for achieving future growth and maintaining a relevant product in the market . There is a misconception that R&D is the domain of high tech technology firms or the big pharmaceutical companies. In fact, most established consumer goods companies dedicate a significant part of their resources towards developing new versions of products or improving existing designs . However, where most other firms may only spend less than 5 percent of their revenue on research, industries such as pharmaceutical, software or high technology products need to spend significantly given the nature of their products.

© Shutterstock.com | Alexander Raths

In this article, we look at 1) types of R&D , 2) understanding similar terminology , 3) making the R&D decision , 4) basic R&D process , 5) creating an effective R&D process , 6) advantages of R&D , and 7) R&D challenges .

TYPES OF R&D

A US government agency, the National Science Foundation defines three types of R&D .

Basic Research

When research aims to understand a subject matter more completely and build on the body of knowledge relating to it, then it falls in the basic research category. This research does not have much practical or commercial application. The findings of such research may often be of potential interest to a company

Applied Research

Applied research has more specific and directed objectives. This type of research aims to determine methods to address a specific customer/industry need or requirement. These investigations are all focused on specific commercial objectives regarding products or processes.

Development

Development is when findings of a research are utilized for the production of specific products including materials, systems and methods. Design and development of prototypes and processes are also part of this area. A vital differentiation at this point is between development and engineering or manufacturing. Development is research that generates requisite knowledge and designs for production and converts these into prototypes. Engineering is utilization of these plans and research to produce commercial products.

UNDERSTANDING SIMILAR TERMINOLOGY

There are a number of terms that are often used interchangeably. Thought there is often overlap in all of these processes, there still remains a considerable difference in what they represent. This is why it is important to understand these differences.

The creation of new body of knowledge about existing products or processes, or the creation of an entirely new product is called R&D. This is systematic creative work, and the resulting new knowledge is then used to formulate new materials or entire new products as well as to alter and improve existing ones

Innovation includes either of two events or a combination of both of them. These are either the exploitation of a new market opportunity or the development and subsequent marketing of a technical invention. A technical invention with no demand will not be an innovation.

New Product Development

This is a management or business term where there is some change in the appearance, materials or marketing of a product but no new invention. It is basically the conversion of a market need or opportunity into a new product or a product upgrade

When an idea is turned into information which can lead to a new product then it is called design. This term is interpreted differently from country to country and varies between analytical marketing approaches to a more creative process.

Product Design

Misleadingly thought of as the superficial appearance of a product, product design actually encompasses a lot more. It is a cross functional process that includes market research, technical research, design of a concept, prototype creation, final product creation and launch . Usually, this is the refinement of an existing product rather than a new product.

MAKING THE R&D DECISION

Investment in R&D can be extensive and a long term commitment. Often, the required knowledge already exists and can be acquired for a price. Before committing to investment in R&D, a company needs to analyze whether it makes more sense to produce their own knowledge base or acquire existing work. The influence of the following factors can help make this decision.

Proprietariness

If the nature of the research is such that it can be protected through patents or non-disclosure agreements , then this research becomes the sole property of the company undertaking it and becomes much more valuable. Patents can allow a company several years of a head start to maximize profits and cement its position in the market. This sort of situation justifies the cost of the R&D process. On the other hand, if the research cannot be protected, then it may be easily copied by a competitor with little or no monetary expense. In this case, it may be a good idea to acquire research.

Setting up a R&D wing only makes sense if the market growth rate is slow or relatively moderate. In a fast paced environment, competitors may rush ahead before research has been completed, making the entire process useless.

Because of its nature, R&D is not always a guaranteed success commercially. In this regard, it may be desirable to acquire the required research to convert it into necessary marketable products. There is significantly less risk in acquisition as there may be an opportunity to test the technology out before formally purchasing anything.

Considering the long term potential success of a product, acquiring technology is less risky but more costly than generating own research. This is because license fees or royalties may need to be paid and there may even be an arrangement that requires payments tied to sales figures and may continue for as long as the license period. There is also the danger of geographical limitations or other restrictive caveats. In addition, if the technology changes mid license, all the investment will become a sunk cost. Setting up R&D has its own costs associated with it. There needs to be massive initial investment that leads to negative cash flow for a long time. But it does protect the company from the rest of the limitations of acquiring research.

All these aspects need to be carefully assessed and a pros vs. cons assessment needs to be conducted before the make or buy decision is finalized.

BASIC R&D PROCESS

Foster Ideas

At this point the research team may sit down to brainstorm. The discussion may start with an understanding and itemization of the issues faced in their particular industry and then narrowed down to important or core areas of opportunity or concern.

Focus Ideas

The initial pool of ideas is vast and may be generic. The team will then sift through these and locate ideas with potential or those that do not have insurmountable limitations. At this point the team may look into existing products and assess how original a new idea is and how well it can be developed.

Develop Ideas

Once an idea has been thoroughly researched, it may be combined with a market survey to assess market readiness. Ideas with true potential are once again narrowed down and the process of turning research into a marketable commodity begins.

Prototypes and Trials

Researchers may work closely with product developers to understand and agree on how an idea may be turned into a practical product. As the process iterates, the prototype complexity may start to increase and issues such as mass production and sales tactics may begin to enter the process.

Regulatory, Marketing & Product Development Activities

As the product takes shape, the process that began with R&D divides into relevant areas necessary to bring the research product to the market. Regulatory aspects are assessed and work begins to meet all the criteria for approvals and launch. The marketing function begins developing strategies and preparing their materials while sales, pricing and distribution are also planned for.

The product that started as a research question will now be ready for its biggest test, the introduction to the market. The evaluation of the product continues at this stage and beyond, eventually leading to possible re-designs if needed. At any point in this process the idea may be abandoned. Its feasibility may be questioned or the research may not reveal what the business hoped for. It is therefore important to analyze each idea critically at every stage and not become emotionally invested in anything.

CREATING AN EFFECTIVE R&D PROCESS

A formal R&D function adds great value to any organization. It can significantly contribute towards organizational growth and sustained market share. However, all business may not have the necessary resources to set up such a function. In such cases, or in organizations where a formal R&D function is not really required, it is a good idea to foster an R&D mindset . When all employees are encouraged to think creatively and with a research oriented thought process, they all feel invested in the business and there will be the possibility of innovation and unique ideas and solutions. This mindset can be slowly inculcated within the company by following the steps mentioned below.

Assess Customer Needs

It is a good idea to regularly scan and assess the market and identify whether the company’s offering is doing well or if it is in trouble. If it is successful, encourage employees to identify reasons for success so that these can then be used as benchmarks or best practices. If the product is not doing well, then encourage teams to research reasons why. Perhaps a competitor is offering a better solution or perhaps the product cannot meet the customer’s needs effectively.

Identify Objectives

Allow your employees to see clearly what the business objectives are. The end goal for a commercial enterprise is to enhance profits. If this is the case, then all research the employees engage in should focus on reaching this goal while fulfilling a customer need.

Define and Design Processes

A definite project management process helps keep formal and informal research programs on schedule. Realistic goals and targets help focus the process and ensures that relevant and realistic timelines are decided upon.

Create a Team

A team may need to be created if a specific project is on the agenda. This team should be cross functional and will be able to work towards a specific goal in a systematic manner. If the surrounding organizational environment also has a research mindset then they will be better prepared and suited to assist the core team when ever needed.

Whenever needed, it may be a good idea to outsource research projects. Universities and specific research organizations can help achieve research objectives that may not be manageable within a limited organizational budget.

ADVANTAGES OF R&D

Though setting up an R&D function is not an easy task by any means, it has its unique advantages for the organization. These include the following.

Research and Development expenses are often tax deductible. This depends on the country of operations of course but a significant write-off can be a great way to offset large initial investments. But it is important to understand what kind of research activities are deductible and which ones are not. Generally, things like market research or an assessment of historical information are not deductible.

A company can use research to identify leaner and more cost effective means of manufacturing. This reduction in cost can either help provide a more reasonably priced product to the customer or increase the profit margin.

When an investor sets out to put their resources into any company, they tend to prefer those who can become market leaders and innovate constantly. An effective R&D function goes a long way in helping to achieve these objectives for a company. Investors see this as a proactive approach to business and they may end up financing the costs associated with maintaining this R&D function.

Recruitment

Top talent is also attracted to innovative companies doing exciting things. With a successful Research and Development function, qualified candidates will be excited to join the company.

Through R&D based developments, companies can acquire patents for their products. These can help them gain market advantage and cement their position in the industry. This one time product development can lead to long term profits.

R&D CHALLENGES

R&D also has many challenges associated with it. These may include the following.

Initial setup costs as well as continued investment are necessary to keep research work cutting edge and relevant. Not all companies may find it feasible to continue this expenditure.

Increased Timescales

Once a commitment to R&D is made, it may take many years for the actual product to reach the market and a number of years will be filled with no return on continued heavy investment.

Uncertain Results

Not all research that is undertaken yields results. Many ideas and solutions are scrapped midway and work has to start from the beginning.

Market Conditions

There is always the danger that a significant new invention or innovation will render years of research obsolete and create setbacks in the industry with competitors becoming front runners for the customer’s business.

It is important for any business to understand the advantages and disadvantages of engaging in Research and Development activities. Once these are studied, then the step can be taken towards becoming and R&D organization.

In the meanwhile, it is good practice to inculcate a research mind set and research oriented thinking within all employees, no matter what their functional area of expertise. This will help bring about new ideas, new solutions and an innovative way of approaching all business problems, whether small or large.

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Research and Development (R&D) vs. Product Development

What Is Research and Development (R&D)?

Research and development is the practice or business unit involved with developing or enhancing new products and services. Often in research and development, companies or governments conceptualize new products. The research portion occurs when a company's R&D team tests the viability of a potential product. This is the act of discovering new sciences that can be used to create new products. The development portion comes after the research and is the act of turning the discovered science into a useful product that the company can market and sell.

Companies invest in research and development when their product lines become outdated, to gain or maintain a competitive edge, or when competitors create similar or superior products. Research and development is vital for the sustained growth and success of a company.

Research and development activities can differ among companies within an industry and across different industries, and they can be assigned in-house or to contracted third-parties. Many companies contain their R&D responsibilities in-house to protect intellectual property.

What Is Product Development?

On the other hand, product development is the entire process of researching, designing, creating, testing , marketing, and selling new products. Research and development is essentially the first step in developing a new product, but product development is not exclusively research and development. It is the entire product life cycle , from conception to sale.

Product development is also not exclusive to designing, implementing, and selling new products. Existing products can go through product development to revamp old features or add new features so the product sells better or adds greater value to consumers. Any time a new product is created and sold—or any time an existing product has added features and is resold—it is going through product development.

Research and Development vs. Product Development

The difference between research and development and product development is that research and development is the conception phase in the product life cycle , while product development is the entire process of designing, creating, and marketing new products or existing products with new features.

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This article explains the accounting treatment for research and development (R&D) costs under both UK and International Accounting Standards. Both UK and International Accounting Standards recognise the importance of accounting for R&D, but take a different viewpoint as to the method used

WHY SPEND MONEY ON R&D?

Many businesses in the commercial world spend vast amounts of money, on an annual basis, on the research and development of products and services. These entities do this with the intention of developing a product or service that will, in future periods, provide  significant amounts of income for years to come.

THE ACCOUNTING PREDICAMENT

If, in the future, economic benefit is expected to flow to the entity as a result of incurring R&D costs, then it can be argued that these costs should be treated as an asset rather than an expense, as they meet the definition of an asset prescribed by both the Statement of Principles and the IASB Framework for the Preparation  and Presentation of Financial Statements.

Equally, the argument exists that it may be impossible to predict whether or not a project will give rise to future income. As a result, both the UK and International Accounting Standards provide accountants with more information in order to clarify the situation.

INTANGIBLE ASSETS

Intangible assets are business assets that have no physical form. Unlike a tangible asset, such as a computer, you can’t see or touch an  intangible asset.

There are two types of intangible assets: those that are purchased and those that are internally generated. The accounting treatment of purchased intangibles is relatively straightforward in that the purchase price is capitalised in the same way as for a tangible asset. Accounting for internally-generated  assets, however, requires more thought.

R&D costs fall into the category of internally-generated intangible assets, and are therefore subject to specific recognition criteria under both the UK and  international standards.

R&D – DEFINITIONS

Research is original and planned investigation, undertaken with the prospect of gaining new scientific or technical knowledge and understanding. An example of research could be a company in the pharmaceuticals industry undertaking activities or tests aimed at obtaining new knowledge to develop a new vaccine. The company is researching the unknown, and therefore, at this early stage, no future economic benefit can be expected to flow to the entity.

Development is the application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems, or services, before the start of commercial production or use. An example of development is a car manufacturer undertaking the design, construction, and  testing of a pre-production model.

UK TREATMENT OF R&D

So far we have established that expenditure on R&D can fall into the category of intangible assets. Under UK accounting standards, intangible assets are accounted for using the rules from FRS 10, Goodwill and Intangibles .

Even though R&D can be an intangible asset in the UK, accounting for R&D is governed by its own accounting standard – SSAP 13, Accounting for Research and  Development .

Recognition  

Research SSAP 13 states that expenditure on research does not directly lead to future economic benefits, and capitalising such costs does not comply with the accruals concept. Therefore, the accounting treatment for all research expenditure is to write it off to the profit and  loss account as incurred.

Development As a basic rule, expenditure on development costs should be written off to the profit and loss account as incurred, as with the expenditure on research. However, under SSAP 13, there is an option to defer the development expenditure and carry it forward as an intangible asset if the following criteria are met: 

• there is a clearly defined project
• expenditure is separately identifiable
• the project is commercially viable
• the project is technically feasible
• project income is expected to outweigh cost
• resources are available to complete  the project.

If these criteria are met, the entity may choose to either capitalise the costs, bringing them ‘on balance sheet’, or maintain the policy to write the costs off to the profit and loss account. Note that if an accounting policy of capitalisation is adopted it should be applied consistently to all development projects that  meet that criteria.

Treatment of capitalised development costs SSAP 13 requires that where development costs are recognised as an asset, they should be amortised over the periods expected to benefit from them. Amortisation should begin only once commercial production has started or when the developed product or service  comes into use.

Every capitalised project should be reviewed at the end of every accounting period to ensure that the recognition criteria are still met. Where the conditions no longer exist or are doubtful, the capitalised costs should be written off to the profit and loss  account immediately.

Problems with SSAP 13 SSAP 13 is not in line with the newer International Accounting Standard covering this area. As seen previously, the UK allows a choice over capitalisation; this can lead to inconsistencies between companies and, as some of the criteria are subjective, this ‘choice’ can be manipulated by companies wishing to  capitalise development costs.

INTERNATIONAL TREATMENT OF R&D

One notable difference between the UK and international treatment is that the UK has a separate standard for the treatment of R&D (SSAP 13), whereas under International Accounting Standards the accounting for R&D  is dealt with under IAS 38, Intangible Assets .

Recognition   IAS 38 states that an intangible asset is to be recognised if, and only if, the following criteria  are met:

• it is probable that future economic benefits from the asset will flow to the entity
• the cost of the asset can be reliably  measured.

The above recognition criteria look straightforward enough, but in reality it can prove to be very difficult to assess whether or not these have been met. In order to make the recognition of internally-generated intangibles more clear-cut, IAS 38 separates an R&D project into a research phase and a development phase.

Research phase It is impossible to demonstrate whether or not a product or service at the research stage will generate any probable future economic benefit. As a result, IAS 38 states that all expenditure incurred at the research stage should be written off to the income statement as an expense when incurred, and will never  be capitalised as an intangible asset.

Development phase Under IAS 38, an intangible asset arising from development must be capitalised if an entity  can demonstrate all of the following criteria:

• the technical feasibility of completing the intangible asset (so that it will be available  for use or sale)
• intention to complete and use or sell  the asset
• ability to use or sell the asset
• existence of a market or, if to be used internally, the usefulness of the asset 
• availability of adequate technical, financial, and other resources to complete  the asset
• the cost of the asset can be measured  reliably.

If any of the recognition criteria are not met then the expenditure must be charged to the income statement as incurred. Note that if the recognition criteria have been met,  capitalisation must take place.

Treatment of capitalised development costs Once development costs have been capitalised, the asset should be amortised in accordance with the accruals concept over its finite life. Amortisation must only begin when commercial production has commenced (hence matching the income and expenditure  to the period in which it relates).

Each development project must be reviewed at the end of each accounting period to ensure that the recognition criteria are still met. If the criteria are no longer met, then the previously capitalised costs must be written off  to the income statement immediately.

EXAMPLE A company incurs research costs, during one year, amounting to $125,000, and development costs of $490,000. The accountant informs you that the recognition criteria (as prescribed by both SSAP 13 and IAS 38) have been met. What effect will the above transactions have on the financial statements when following either the UK or International Accounting Standards? (See  'Related links' for the solution.)

Bobbie Retallack is a lecturer at Kaplan  Financial in Birmingham, UK

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• Technical Report
• Published: 27 May 2024

A single-vector intersectional AAV strategy for interrogating cellular diversity and brain function

• Alex C. Hughes   ORCID: orcid.org/0000-0001-6083-5884 1 , 2 ,
• Brittany G. Pittman   ORCID: orcid.org/0009-0009-9092-084X 1 ,
• Beisi Xu   ORCID: orcid.org/0000-0003-0099-858X 3 ,
• Jesse W. Gammons 1 ,
• Charis M. Webb 1 ,
• Hunter G. Nolen 1 ,
• Phillip Chapman 1 ,
• Jay B. Bikoff 1 &
• Lindsay A. Schwarz   ORCID: orcid.org/0000-0002-0613-5518 1  

Nature Neuroscience ( 2024 ) Cite this article

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• Molecular engineering
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As discovery of cellular diversity in the brain accelerates, so does the need for tools that target cells based on multiple features. Here we developed Conditional Viral Expression by Ribozyme Guided Degradation (ConVERGD), an adeno-associated virus-based, single-construct, intersectional targeting strategy that combines a self-cleaving ribozyme with traditional FLEx switches to deliver molecular cargo to specific neuronal subtypes. ConVERGD offers benefits over existing intersectional expression platforms, such as expanded intersectional targeting with up to five recombinase-based features, accommodation of larger and more complex payloads and a vector that is easy to modify for rapid toolkit expansion. In the present report we employed ConVERGD to characterize an unexplored subpopulation of norepinephrine (NE)-producing neurons within the rodent locus coeruleus that co-express the endogenous opioid gene prodynorphin ( Pdyn ). These studies showcase ConVERGD as a versatile tool for targeting diverse cell types and reveal Pdyn -expressing NE + locus coeruleus neurons as a small neuronal subpopulation capable of driving anxiogenic behavioral responses in rodents.

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RNA-seq data are deposited in the NCBI Gene Expression Omnibus database with accession no. GSE224285 . Source data are provided with this paper.

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Acknowledgements

We thank H. Sanders and K. Lowe for technical support, the St. Jude Vector Core Lab for generating ConVERGD AAVs, G. Neale and S. Olsen in the St. Jude Hartwell Center for Biotechnology for guidance with sequencing and members of the L.A.S. laboratory for helpful feedback. We also thank H. Zeng, A. Cetin, S. Yao, T. Zhou and M. T. Mortrud of the Allen Institute for sharing the N2c ΔG -H2B-eGFP virus for trans-synaptic tracing experiments and G. Zhong of Scripps Research, Florida for providing the initial sequence information for the T3H48 ribozyme. This work was supported by a NARSAD Young Investigator Grant from the Brain & Behavior Research Foundation (to L.A.S.), the NIH (grant no. 1DP2NS115764 to L.A.S.), institutional funds from St. Jude Children’s Research Hospital (to B.G.P., B.X., J.W.G. and L.A.S.) and funding from the St. Jude Graduate School of Biomedical Sciences (to A.C.H.). Single-cell sequencing was performed at the Hartwell Center at St. Jude, which is supported in part by the National Cancer Institute of the NIH under award no. P30 CA021765.

Author information

Authors and affiliations.

Department of Developmental Neurobiology, St. Jude Children’s Research Hospital, Memphis, TN, USA

Alex C. Hughes, Brittany G. Pittman, Jesse W. Gammons, Charis M. Webb, Hunter G. Nolen, Phillip Chapman, Jay B. Bikoff & Lindsay A. Schwarz

Human Cell Types, Allen Institute for Brain Science, Seattle, WA, USA

Alex C. Hughes

Center for Applied Bioinformatics, St. Jude Children’s Research Hospital, Memphis, TN, USA

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Contributions

A.C.H. and L.A.S. conceived the project. A.C.H. designed ConVERGD, generated and tested viral constructs in vitro and in vivo and performed rabies tracing and behavioral studies. B.G.P. assisted with the cloning of viral constructs and in vitro testing. B.X. performed sequencing analysis. J.W.G. piloted manual sequencing methods and collected cells for sequencing. C.M.W. assisted with in vitro testing. H.G.N. assisted with behavioral testing. P.C. and J.B.B. provided the protocol and starter virus for generating N2c-rabies. L.A.S. generated viruses, performed in situ hybridization experiments, in vitro assessment of leak expression and in vivo testing and rabies-tracing experiments, and supervised the project. A.C.H. and L.A.S. wrote and edited the paper with feedback from the other authors.

Corresponding author

Correspondence to Lindsay A. Schwarz .

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The authors declare no competing interests.

Peer review

Peer review information.

Nature Neuroscience thanks Ryoji Amamoto, Els Henckaerts, Bernardo Sabatini and the other, anonymous, reviewer(s) for their contribution to the peer review of this work.

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Extended data

Extended data fig. 1 comparison of convergd-based constructs with varying promoter and posttranscriptional elements..

a , FACS quantification of N2a cells co-transfected with an EYFP- or eGFP-expressing plasmid alone (Control, grey bars) or with recombinase plasmids expressing Cre (yellow bars), Flp (blue bars), or Cre and Flp (pDIRE, green bars). ConVERGD was tested in pAAV backbones containing different promoters and 3′ posttranscriptional regulatory elements. b , FACS quantification as in a but represented as percent of live, single cells that were counted positive for fluorescence. Bars represent the mean of all experiments. Error bars are SEM. CV - ConVERGD. Data points represent independent transfections with the following constructs: 56 (FLEx(FRT)eGFP alone or +pDIRE), 6 (CV-eGFP-W3SL +Flp, +pDIRE; CV-eGFP-WPRE, +Flp, +pDire; Ef1a-CV-eGFP-WPRE, +pDIRE) 5 (INTRSECT-EYFP, +Cre, +Flp, +pDIRE; CV-eGFP-W3SL, +Cre; CV-eGFP-WPRE+Cre; nEF-CV-eGFP-WPRE, +pDIRE) 4 (CV-EYFP, +Flp; CAG-CV-eGFP-W3SL, +Cre, +Flp, +pDIRE; CAG-CV-eGFP-WPRE; Ef1a-CV-eGFP-W3SL, +Cre, +Flp, +pDIRE; Ef1a-CV-eGFP-WPRE+Cre, +Flp; nEF-CV-eGFP-W3SL, +Cre, +Flp, +pDIRE; nEF-CV-eGFP-WPRE+Cre, +Flp) 3 (CV-EYFP+Cre, +pDIRE; CAG-CV-eGFP-WPRE+Cre, +Flp, +pDIRE).

Extended Data Fig. 2 Assessment of leaky expression from ConVERGD and INTRSECT constructs.

a , Schematics for ConVERGD and INTRSECT constructs where no recombination has occurred, or upon Cre, Flp, or Cre and Flp-mediated recombination. Expected band sizes via PCR with specified primers are listed below. b , PCR of pAAV-hSyn-ConVERGD-eGFP-W3SL and pAAV-hSyn-INTRSECT-eYFP plasmids using the primer pairs described in a . c , Schematics for ConVERGD vectors where no recombination has occurred, or upon Cre, Flp, or Cre and Flp-mediated recombination. Schematics for vectors undergoing partial Flp-mediated recombination are also included. Expected band sizes via PCR with specified primers are listed below. d , Amplified PCR product from N2a cells transfected with hSyn-ConVERGD-eGFP-W3SL alone or with Cre, Flp, or Cre and Flp (pDIRE) expressing plasmids. mRNA extracted from these samples underwent a reverse transcriptase (RT) reaction to generate cDNA, or a no reverse transcriptase (no RT) reaction as a control. Each gel displays PCR products from template arising from the RT and no RT reactions. The gels are representative of results obtained across four independent sets of transfections. CV - ConVERGD; INTR – INTRSECT.

Source data

Extended data fig. 3 different recombination sites did not improve convergd performance..

a , FACS quantification of N2a cells co-transfected with ConVERGD-eGFP construct variants containing different recombinase recognition sites alone (Control, grey bars) or with recombinase plasmids expressing Cre (yellow bars), Flp (blue bars), or Cre and Flp (pDIRE, green bars). Data represented as the fold change of median fluorescence intensity (MFI) of transfection condition compared to the average control MFI for each construct. b , The same FACS quantification as in a but represented as percent of live, single cells that were counted positive for eGFP fluorescence. Data points represent individual transfection experiments. In a and b , results represent data from 7 (FRT5/FRT;loxP), 3 (FRT5/FRT;lox43/44), 6 (FRT5/FRT(min);loxP), 6 (FRT5/FRT(min);lox43/44) separate transfection experiments. Bars represent the mean of all experiments. Error bars are SEM.

Extended Data Fig. 4 Assessment of ConVERGD expression as percent of live N2a cells.

a , FACS quantification of N2a cells co-transfected with ConVERGD-ConFoff-eGFP (left) or ConVERGD-CoffFon-eGFP (right) either alone or with recombinase-expressing plasmid. b , FACS quantification of N2a cells co-transfected with ConVERGD-ConFonvCon-eGFP either alone or with recombinase-expressing plasmid. c , FACS quantification of N2a cells co-transfected with ConVERGD-ConFonvConNon-eGFP either alone or with recombinase-expressing plasmid. Data points in all panels represent the percent of live cells that contain eGFP from individual transfections. Data points represent independent transfections with the following constructs: 3 (CV-ConFoff-eGFP control; CV-ConFonvConNon-eGFP +Flp/Nigri, +vCre/Nigri, +vCre/Flp/Nigri, +Cre/Flp/vCre/Nigri), 4 (CV-ConFoff-eGFP +Cre, +Flp, +pDire; all conditions for ConFonvCon; CV-ConFonvConNon-eGFP +Cre/Flp/Nigri), 5 (CV-CoffFon-eGFP all conditions; CV-ConFonvConNon-eGFP +Cre/vCre, +Cre/Nigri, +Cre/Flp/vCre), 6 (CV-ConFonvConNon-eGFP, +Cre, +Flp, +vCre, +Cre/vCre/Nigri), 7 (CV-ConFonvConNon-eGFP +Nigri, +Flp/vCre), and 9 CV-ConFonvConNon-eGFP +Cre/Flp. Bars represent the mean of all experiments. Error bars are SEM.

Extended Data Fig. 5 ConVERGD-based constructs are easily amenable and allow specific expression of diverse transgenes.

a , ConVERGD-based toolkit for modulating neuronal activity. b , ConVERGD-based toolkit for trans-synaptic rabies tracing. c , ConVERGD-based construct for in vivo calcium imaging (GCaMP8m; GC8m). d , ConVERGD-based construct for a dual-expressing transgene that labels pre-synaptic sites and axons (synaptophysin-GreenLantern and GAP43-mScarlet). All images show transfected N2a cells counterstained with DAPI (blue) and are representative of results observed across at least two separate transfections. FR - FusionRed; mChr - mCherry; GL - GreenLantern; mSc - mScarlet. Scale bar in a is 100μm and applies to all images.

Extended Data Fig. 6 ConVERGD shows specific, intersectional expression in the hippocampus of Calb1 Cre ; Slc17a7 Flp mice.

a , Representative images of labeled cells in the hippocampus upon injection of Cre-dependent eGFP AAV in Calb1 Cre mice (left) or Flp-dependent mCherry AAV in Slc17a7 Flp mice (right). b , Representative images of AAV-hSyn-ConVERGD-eGFP or AAV-hSyn-INTRSECT-Con/Fon-EYFP injected into the hippocampus of Calb1 Cre , Slc17a7 Flp , and Calb1 Cre ; Slc17a7 Flp mice. Tissue sections in the top two rows reflect endogenous fluorescence while tissue sections in the bottom two rows were immunostained with GFP antibody. c , Representative images of AAV-hSyn-ConVERGD-ConFonvCon-eGFP injected into the hippocampus of Calb1 Cre ; Slc17a7 Flp mice in the absence (left) or presence (right) of vCre-expressing AAV. Tissue sections were immunostained with GFP antibody. d , Representative images of AAV-hSyn-ConVERGD-ConFoff-eGFP injected into the hippocampus of Calb1 Cre (left) or Calb1 Cre ; Slc17a7 Flp (right) mice. Tissue sections were immunostained with GFP antibody. e , Representative images of AAV-hSyn-ConVERGD-CoffFon-eGFP injected into the hippocampus of Slc17a7 Flp (left) or Calb1 Cre ; Slc17a7 Flp (right) mice. Tissue sections were immunostained with GFP antibody. Images in a , c, d , and e are representative of results across 2 mice for each genotype; images in b are representative of results across 3 mice for each genotype. Scale bars are 100μm. WT - wild-type; Calb1 - calbindin 1; Slc17a7 - solute carrier family 17 member 7; INTR - INTRSECT; CV - ConVERGD.

Extended Data Fig. 7 Top 100 most frequently detected genes in LC neurons using a Smart-seq2-based sequencing platform.

a , Heatmap of scaled (by cell) transcript abundance (transcripts per million, TPM) for the top 100 genes most frequently detected in 201 LC neurons by single-cell transcriptomic sequencing.

Extended Data Fig. 8 Increased single-recombinase induced expression observed with INTRSECT.

a , Representative images showing the LC (TH, white) of mice injected with AAV-hSyn-INTRSECT-Con/Fon-EYFP. All genotypes showed some level of YFP (green) expression. b , Quantification of INTRSECT-EYFP labeled cells in and around (~200μm radius) the LC across different genotypes. Points represent cell counts across 6 50μm LC brain sections. Bars represent the mean of the data. Error bars are SEM. All sections were immunostained against GFP. Images in a are representative of results observed across 4 ( Pdyn Cre ), 4 ( Dbh Flp ), and 5 ( Pdyn Cre ;Dbh Flp ) animals. Scale bars are 100μm. TH - tyrosine hydroxylase; LC - locus coeruleus; Pdyn - prodynorphin; Dbh - dopamine-β-hydroxylase.

Supplementary information

Supplementary information.

Supplementary Fig. 1.

Reporting Summary

Supplementary table 1.

Genetic space needed for intersectional machinery.

Supplementary Table 2

Key resource table.

Supplementary Code 1

Customized code used to analyze EZM experiments.

Supplemenatry Code 2

Source data fig. 7.

Source data for rabies-tracing experiments.

Source Data Fig. 8

Source data for behavior experiments.

Source Data Extended Data Fig. 2

Source gels for Extended Data Fig. 2.

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Hughes, A.C., Pittman, B.G., Xu, B. et al. A single-vector intersectional AAV strategy for interrogating cellular diversity and brain function. Nat Neurosci (2024). https://doi.org/10.1038/s41593-024-01659-7

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Spatial evolution and spatial production of traditional villages from “backward poverty villages” to “ecologically well-off villages”: Experiences from the hinterland of national nature reserves in China

• Original Article
• Published: 17 May 2024
• Volume 21 , pages 1100–1118, ( 2024 )

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• Yiyi Zhang   ORCID: orcid.org/0009-0003-4286-2696 1 &
• Yangbing Li   ORCID: orcid.org/0000-0002-8331-2709 1  

With the rapid urbanization process, the space of traditional villages in China is undergoing significant changes. Studying the spatial evolution of traditional villages is significant in promoting rural spatial transformation and realizing rural revitalization and sustainable rural development. Based on the traceability analysis of spatial production theory, this paper constructed an analytical framework for the spatial production evolution of traditional villages, analyzed the spatial evolution process and characteristics of traditional villages by using buffer analysis, spatial syntax, and other research methods, and revealed the characteristics of the spatial production evolution of traditional villages and the driving mechanism. The results show that: (1) The village spatial formation and development follow the village life cycle theory and usually develop from embryonic villages to diversified and integrated villages; (2) The evolution of village spatial production is characterized by the diversity of material space, the sublimation of daily life space, and the integration of social system space and generalization of emotional space; (3) The evolution of village spatial production from backward and poor village to ecologically well-off village is influenced by a combination of factors; (4) The village has formed a spatial structure of “people-land-scape-culture-industry”, realized comprehensive reconstruction and spatial reproduction. The study results reflect the spatial evolution characteristics of traditional villages in mountainous areas in a more comprehensive way, which helps to promote the protection and development of traditional villages in mountainous areas and, to a certain extent, provides a reference for the development of rural revitalization.

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Acknowledgments

This study was supported by the National Natural Science Foundation of China (Grant No. 42061035) and the Guizhou Provincial Program on Commercialization of Scientific and Technological Achievements ([2022]010). We are very grateful to the anonymous reviewers who helped to improve the clarity and relevance of our research presentation.

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ZHANG Yiyi: Methodology, Investigation, Writing-original draft, Visualization. LI Yangbing: Supervision, Project administration, Funding acquisition.

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Zhang, Y., Li, Y. Spatial evolution and spatial production of traditional villages from “backward poverty villages” to “ecologically well-off villages”: Experiences from the hinterland of national nature reserves in China. J. Mt. Sci. 21 , 1100–1118 (2024). https://doi.org/10.1007/s11629-023-8349-2

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Revised : 19 March 2024

Accepted : 22 March 2024

Published : 17 May 2024

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DOI : https://doi.org/10.1007/s11629-023-8349-2

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Prenatal exposure to air pollution associated with increased mental health risks.

Press release issued: 28 May 2024

A baby’s exposure to air pollution while in the womb is associated with the development of certain mental health problems once the infant reaches adolescence, new research has found. The University of Bristol-led study, published in JAMA Network Open today [28 May], examined the long-term mental health impact of early-life exposure to air and noise pollution.

Growing evidence suggests air pollution, which comprises toxic gases and particulate matter, might contribute to the onset of mental health problems. It is thought that pollution could negatively affect mental health via numerous pathways, including by compromising the blood-brain barrier, promoting neuroinflammation and oxidative stress, and directly entering the brain and damaging tissue.

Despite youth being a key period for the onset of these problems, until now, relatively few studies have investigated the associations of air and noise exposure during early life with mental health.

In this new study, researchers sought to examine the long-term impact of air and noise pollution exposure during pregnancy, early childhood and adolescence on three common mental health problems: psychotic experiences (including hallucinations, such as hearing or seeing things that others cannot, and delusions, such as having very paranoid thoughts), depression and anxiety.

To investigate this, the team used data from over 9,000 participants from Bristol’s Children of the 90s birth cohort study (also known as the Avon Longitudinal Study of Parents and Children), which recruited over 14,000 pregnant women from the Bristol area between 1991 and 1992, and has followed the lives of the women, the children and their partners ever since.

By linking participants’ early childhood data with their mental health reports at the ages of 13, 18 and 24 years, researchers were able to use this to map against outdoor air and noise pollution in South West England at different time points.

Researchers found that relatively small increases in fine particulate matter during pregnancy and childhood were associated with more psychotic experiences and depression symptoms many years later in teenage years and early-adulthood. These associations persisted after considering many related risk factors, such as family psychiatric history, socioeconomic status, and other area-level factors such as population density, deprivation, greenspace and social fragmentation.

The team found that every 0.72 micrograms per cubic meter increase in fine particulate matter (PM 2.5 ) during pregnancy and childhood was associated with an 11 per cent increased odds and 9 per cent increased odds for psychotic experiences, respectively; while exposure in pregnancy was associated with a 10 per cent increased odds for depression. In contrast, higher noise pollution exposure in childhood and teenage years was subsequently associated with more anxiety symptoms.

Dr Joanne Newbury , Sir Henry Wellcome Postdoctoral Research Fellow in the University’s Bristol Medical School: Population Health Sciences (PHS) and the study’s lead author, said: “Childhood, adolescence, and early adulthood are critical periods for the development of psychiatric disorders: worldwide, nearly two-thirds of those affected become unwell by the age of 25. Our findings add to a growing body of evidence – from different populations, locations, and using different study designs – suggesting a detrimental impact of air pollution (and potentially noise pollution) on mental health.

“This is a major concern, because air pollution is now such a common exposure, and rates of mental health problems are increasing globally. Given that pollution is also a preventable exposure, interventions to reduce exposure, such as low emissions zones, could potentially improve mental health. Targeted interventions for vulnerable groups including pregnant women and children could also provide an opportunity for more rapid reductions in exposure.

“It is important to emphasise that these findings, by themselves, do not prove a causal association. However, other recent studies have shown that low emissions zones appear to have a positive impact on mental health.”

The research, which involved researchers from King’s College London , University College London and Cardiff University , was funded by the University of Bristol, Wellcome , Economic and Social Research Council (ESRC), Medical Research Council (MRC), National Institute for Health and Care Research (NIHR), and the Natural Environment Research Council (NERC).

‘Air and noise pollution exposure in early life and mental health from adolescence to young adulthood’ by Dr Joanne Newbury et al. in JAMA Network Open [open access].