Overview and definition of research and development

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In this section, the study will be proceed to discuss about the previous chapter which background of the study is to be concerned. Meanwhile, for earlier this section, this chapter will reviewing the previous literature and overview of the definition of Research and Development (R&D), R&D activities, types of research, research process, research methods and the definition of Multi-Level Marketing. Besides, this chapter study will be relevant to the factors that influence the product generation and the definition for measurement of R&D performance.

2.1 Overview and Definition of Research and Development (R&D)

Nowadays, new product design and development is more than often a crucial factor for the survival of a company. In a firm or an industry that is fast changing, those firms must take a precise action continually to revise their design and the range of products produced. This is necessary due to the continuous of changes and development as well as other competitors and the changing preference of customers. The product range is developed so that production process are as efficient as possible and the market research is carried out, which established what is needed by customers. Hence, R&D is great importance for a company to come out with the latest innovation products or even new commodity to market. Furthermore, it is essential in the field of marketing where companies need to keep an eagle eye on competitors and customers in order to keep the modern trend and analyze the needs and demands of their customers.

According to Crown (2004), R&D can be defined as any project to resolve scientific or technological uncertainty aimed at achieving an advance in science or technology. It advances include such as new or improved products, processes and services. Further, if an increase in the levels of R&D, it will led and give the stimulation to the business innovation and help in the raise of productivity, particularly in the manufacturing sector which undertakes by the majority of R&D in the United Kingdom.

Meanwhile, according to Crown (2004) in the United Kingdom, the accounting definiton of R&D is contained in the Statement of Accounting Practice (SSAP) 13 and for international companies, International Accounting Standard (IAS 38) both of which are based on the OECD 'Frascati' manual. This definition is modified for tax purposes by the guidelines on the meaning of R&D for tax purposes issued by the Secretary of State for Trade and Industry.

Aside, according to Nordic Space (1984) R&D are creative activities being carried out systematically to attain increasing knowledge- including knowledge about the humans, culture and society and also comprise the usage of this knowledge to find new applications. As a general rule all activities under the cover of R&D include an element of news. However, according to Queensland Government (2009) the chief scientist of Queensland has provided further clarification adapted from Australian Bureuau of Statistics (ABS) that research activity includes:

Provision of professional, technical, administrative or clerical support and assistance to staff directly engaged in R&D.

Management of staff who are either directly engaged in R&D or are providing professional, technical or clerical support or assistance to those staff.

Activities relating to supervision or monitoring of students undertaking postgraduate research course.

Computer programming, systems work or sofware maintenance where there are technological uncertanties to be resolved.

Research in the social science and humanities.

but excludes ( except where used primarily for the support of or as part of, R&D activities) are as follows:

Scientific and technical information services.

Engineering and technical services.

General purpose and routine data collection.

Standardisation and routine testing.

Feasibility studies (except into R&D projects).

Specialised routine medical care.

Commercial, legal and administrative aspects of patenting, copyrighting or licensing activities.

Routine computer programming, systems work or software maintenance where there are no technological uncertanties to be resolved.

On the other hands, R&D defintions are have quite a wide range while according to Nordic Space (1984), R&D can been divided in the following types of activities:

Basis research is experimental or theoritical activities primarily being carried out to get new knowledge about underlying bases for phenomena and facts without the aims of special application or use.

Application research is also an activity of original character being carried out to find new knowledge, but primarily pointed towards definite practical goals and applications.

Developing works is systematic activities employing existing knowledge from research and practical experience pointed towards:

Produce new or essentially improved materials, products or arrangements

To introduce new or essentially improved processes, systems or services.

Meanwhile, Unesco (1984) also defined R&D as a systematic work, drawing on existing knowledge gained from research and or practical experience, which is directed to producing new materials, products or devices, to installing new process. Systems and services or improving substantially those already produced or installed. Besides, according to Unesco (1984) R&D activities in the mechanical engineering industry often have a close connection with design and drawing work. In small and medium size enterprises (SMEs) in this industry, there is usually no special R&D department and R&D problems are mostly dealt with under the general heading 'design and drawing'. If calculations, design, working setting up and operating of pilot plants and prototypes, they should be included in R&D. If they carried out for the preparation, execution, and maintenance of poduction those standization (e.g jigs, machine tools or promote the sales of products (e.g. offers, leavetlets, catalogues, of spare parts they should for divide.

Nevertheless, there are some of the facts that not to be counted as R&D which identified by Unesco (1984) such as follows:

Business application software and information system development using known methods existing software tools.

Support for existing systems.

Converting and translating computer languages.

Adding user functionality to application programmes.

Debugging of systems.

Adaption of existion software.

Preparation of user documentation.

2.2 Types of Research

Apart from this, after elaborated for above R&D activities, hence there are some sorts of the research which determined by Trochim (2006) which are research is defined as human activity based on intellectual application in the investigation of matter. The primarily purpose for applied research is discovering, interpreting, and the development of methods and systems for the advancement of human knowledge on a wide variety of scientific matters of our world and the universe. Research can use the scientific method, but need not do so. Below are some types of research such as:

2.2.1 Scientific Research

Scientific research is relies on the application of the scientific method, a harnessing of curiosity. This research provides scientific information and theories for the explanation of the nature and the properties of the world around us. It makes practical applications possible. Scientific research is funded by public authorities, by charitable organisations and by private groups, including many companies. Scientific research can be subdivided into different classifications according to their academic and application disciplines.

2.2.2 Historical Research

The historical research is embodied in the historical method which comprises the techniques and guidelines by which historians use historical sources and other evidence to research and then to write history. There are various history guidelines commonly used by historians in their work, under the headings of external criticism, internal criticism, and synthesis. This includes higher criticism and textual criticism. Though items may vary depending on the subject matter and researcher, the following concepts are usually part of most formal historical research:

Identification of origin date

Evidence of localization

Recognition of authorship

Analysis of data

Identification of integrity

Attribution of credibility

2.2.3 Basic Research

Basic Research (also called fundamental or pure research) has as its primarily objective the advancement of knowledge and the theoretical understanding of the relations among variables (see statistics). It is exploratory and often driven by the researcher's curiosity, interest, and intuition. Therefore, it is sometimes conducted without any practical end in mind, although it may have unexpected results pointing to practical applications. The terms 'basic' or 'fundamental' indicate that through theory generation, basic research provides the foundation for further, sometimes applied research. As there is no guarantee of short-term practical gain, researchers may find it difficult to obtain funding for basic research.

Examples of questions asked in basic research:

Does string theory provide physics with a grand unification theory?

Which aspects of genomes explain organismal complexity?

Is it possible to prove or disprove Goldbach's conjecture? (i.e, that every even integer greater than 2 can be written as the sum of two, not necessarily distinct primes)

Traditionaly, basic research was considered as an activity that preceded applied research, which in turn preceded development into practical applications. Recently, these distinctions have become much less clear-cut, and it is sometimes the case that all stages will intermix. This is particulary the case in fields such as biotechnology and electronics, where fundamental discoveries may be made alongside work intended to develop new products, and in areas where public and private sector partners collaborate in order to develop greater insight into key areas of interest.

2.3 Research Process

According to Trochim (2006), generally research is understood to follow a certain structural process. Though step order may vary depending on the subject matter and researcher, the following steps are usually part of most formal research, both basic and applied:

Formation of the topic


Conceptual definitions

Operatioanal definitions

Gathering of data

Analysis of data

Test, revising of hypothesis

Conclusion, iteration if necessary

A common misunderstanding is that by this method a hypothesis can be proven or tested. Generally a hypothesis is used to make predictions that can be tested by observing the outcome of an experiment. If the outcome is inconsistent with the hypothesis, then the hypothesis is rejected. However, if the outcome is consistent with the hypothesis, the experiment is said to support the hypothesis. This careful language is used because researchers recognized that alternative hypothesis may also be consistent with observations. In this sense, a hypothesis can never been be proven, but rather only supported by surviving rounds of scientific testing and eventually, becoming widely thought of as true (or better, predictive), but this is not the same as it having been proven. A useful hypothesis allows prediction and within the accuracy of observation of the time, the prediction will be verified. As the accuracy of observation improves with the time, the hypothesis may no longer provide an accurate prediction. In this case, a new hypothesis will arise to challenge the old, and to the extent that the new hypothesis makes more accurate predictions than the old, the new will supplant it.

2.4 Research Methods

The goal of the research process is to produce new knowledge, while according to Trochim (2006), which takes three main forms (although, as previously discussed, the boundaries between them may be fuzzy):

Exploratory research, which structures and identifies new problems

Constructive research, which develops solutions to a problem

Empirical research, which test the feasibility of a solution using empirical evidence

Research also can fall into two distinct types:

Primarily research

Secondary research

2.5 Definition of Multi-Level Marketing (MLM)

According to the MLM file (2003-2009), in general Multi-Level Marketing is not simply a single marketing structure. However, most MLM's have common characteristics. The simplest way to identify a MLM is to check out whether or not a distributor may recruit unlimited people into a downline structure. Meanwhile, unlimited people means unlimited of the competition between competitor. While, unlimited competition means unlimited to be failure. These are some of the facts which determined by MLM file are as follow:

The classic Multi-Level Marketing scheme may firstly be defined by its reliance on a geometric progression recruiting model for the development of each distributor's sales network. (A geometric progression is a variable mathematical concept. In MLM, its application is limited only by the mathematical capability and the imagination of the MLM scheme's creators. Geometric progressions are also the basis for illegal Chain Letters and pyramid schemes).

MLM marketing schemes will reward the distributor and his upline members financially for the distributor's successful introduction of new distributors into his own group. (The matrix of recruited distributors formed under an MLM distributor from his recruiting is called that distributor's downline. Those in direct linear connection above a given distributor are called that distributor's upline).

Distributors are most often required to purchase and personally use a minimum of their MLM's consumable products every month in order to qualify for recruiting commissions and over-rides. (This requirement ensures an upline income from every new distributor). The reward or remuneration scheme for recruiting new distributors is integrated with the geometric growth recruiting model to produce an individual marketing scheme's major distributor income characteristics.

The potential for major individual reward is tied largely to the recruiting performance of the individual and that individual's downline. Recruiting is therefore the heart of an MLM distributor's business. This is often called creating leverage or leveraging, and this represents the basis for the promise of great wealth from MLM.

Most often, a further, and in many cases almost financially incidental, allowance is made to reward people for retailing products to others. This is a simple percentage profit on each product sold. (There is a legal requirement for MLM distributors to retail. Some MLM's may sell their products or services via a 'loyalty program'. The MLM aspect of their business still requires people to find others to duplicate what they are doing in a geometric progression. There are many variations to MLM marketing structures).

One sure and certain fact from all of this is that those who do ultimately succeed and make it to the top will predominantly earn their income from those who are being to try and fail, right down through their downline matrix.

Apart from that, according to Babener and Jeffrey (1996) MLM also known as Network Marketing, is a business-distribution model that allows a parent company to market its products directly to consumers by means of relationship referrals and direct selling. Below are the facts which defined by Babener and Jeffrey (1996):

Independent, unsalaried salespeople of multi-level marketing, referred to as distributors (or associates, independent business owners, dealers, franchise owners, sales consultants, consultants, independent agents, etc.), represent the parent company and are awarded a commission based upon the volume of product sold through each of their independent businesses (organizations).

Independent distributors develop their organizations by either building an active customer base, who buy direct from the parent company, or by recruiting a downline of independent distributors who also build a customer base, thereby expanding the overall organization. Additionally, distributors can also earn a profit by retailing products they purchased from the parent company at wholesale price.

Distributors earn a commission based on the sales efforts of their organization, which includes their independent sale efforts as well as the leveraged sales efforts of their downline. This arrangement is similar to franchise arrangements where royalties are paid from the sales of individual franchise operations to the franchisor as well as to an area or region manager. Commissions are paid to multi-level marketing distributors according to the company's compensation plan. There can be multiple levels of people receiving royalties from one person's sales.

2.6 Factors of R&D Influence the Product Generation

There are sorts of the factors which significant affect to the product generation by performance of R&D activities. Thus, according to Lager and Horte (2002) developing success factors for research and technical development and measuring R&D performance are important issues for management of technology. The R&D organisation must first to find out what factors that affect its productivity. The improvement process for the performance of R&D can thus be illustrated with the simplified work process presented in Figure 1 by analogy with the 'productivity management process' presented by Lager and Horte (2002).

Identify success factors of important for different types of R&D

Develop performance indicators and measure the performance

Implement success factors in development process organization

Measure improvements and give feedback to the development process organization

(Figure 1: Productivity Management Process)

Besides, in the study of R&D factors that influence to product generation or development, it is recognised that success at project level does not necessarily mean success at company level, however in other words, success factors at project level do not necessarily apply at company level (Lager and Horte, 2002).

According to Griffin and Page (1996) indicate that product development success should not only be measured at project level and company level, but that the selected measures should depend on what type of product development projects are carried out.

Even if the R&D factors sometimes is difficult to distinguish, yet R&D still has its own culture, strategy, specific management project skills, methodologies, and distinguishable between project and company levels of analysis. Thus inherent a concept of success factor is a notion that if success factors are implemented to product development, that will definitely come out with great products or in other words its performance productivity will be improved. As inversely, if failure factors are implemented into product generation, it will led to worst in performance of product development. Success factors can thus be looked upon as individual independent variables influencing the dependent variable 'success' (Lager and Horte, 2002).

Improved inter-functional integration involving both collaboration and interaction across functional boundaries yields improved product development performance (Kahn 1996). However inter-functional interaction invariably involves some level of conflict because of conflicting goals, objectives and priorities (Dougherty, 1990)

Table 1 includes a summary of the influence tactics used by marketers in the Atuahene-Gima and Li (2000) research project. The influence tactics studied were adapted from the work of Frazier and Summers (1984) because of their wide use in the marketing literature.

(Table 1: Influence tactics)

Influence tactics


Soft tactics

Information exchange

Marketing provides general market information and discussions on general NPD issues without suggesting specific actions to the influence target.


Marketing uses reason, logic and rational persuasion to convince the influence target that following a specific course of action is likely to be beneficial to the NPD effort.


Marketing informs other members to take suggested actions based on personal relationships.

Coalition formation

Marketing builds alliances with co-workers and members from other departments to gain support for its viewpoint or demand on the influence target.

Hard tactics

Legalistic plea

Marketing cites organizational rules and regulations that require the influence target to perform a certain action.

Upward appeal

Marketing appeals to superior or high authority in the organization to support its viewpoint or demands on the influence target.

Persistent pressure

The amount of effort, persistence and pressure that marketing brings to bear on the influence target to accept its viewpoint or demands.

2.7 Definition of Measurement of R&D Performance

According to Vittorio Chiesa and Christina Masella (1996), measuring R&D performance has always posed many problems. This can be related to the nature of the R&D activity: first, the degree of uncertainty of an R&D activity is very high; second, once completed the R&D output is itself often highly fuzzy and not definable and thus, not measurable; finally, the ultimate result of R&D activity can be viewed after years, once an innovation has been brought to the market, but, at this time, the outcome is the result of the efforts of both the R&D unit and the other company functions.

Moreover, there are a series of works focusing on quantitative measures of the impact of R&D on business performance. They are usually based on measures of profitability or market share and implicitly lie on the assumption that there is a relationship between R&D success and market share or profitability (Vittorio Chiesa and Christina Masella (1996).

Besides, Szakonyi (1995) identifies the basic activities of an R&D department and provides a checklist to compare the performance of an R&D department against an average R&D department. The activities identified are: selecting R&D projects, planning and managing projects, generating new product ideas, maintaining quality of R&D process and methods, motivating technical people, establishing cross-disciplinary teams, coordinating R&D and marketing, transferring technology to manufacturing, fostering collaboration, between R&D and finance, linking R&D to business.

Chiesa et al. (1996) developed a framework to benchmark or self-assess the firm's technical innovation capability proposing a method which includes both performance measures and process measures against best practice of a number sub-processes identified as key for success in innovation (generating new product ideas, product development, production process innovation, technology acquisition, leadership, use of systems and tools in support of innovation, funding mechanism).

R&D activities can be described as creation of the know-how and know-why of new materials and technologies that eventually translate into commercial development (Wheelwright-Clark, 1992). According to this definition, R&D activities can be summarised in two main phases, which differently contribute to the company growth and shareholder value creation process.

These two phases can be identified as:

- The generation, i.e. all those R&D activities whose output is mainly the technological progress, both incremental and radically original;

- The transition, i.e. all those R&D activities whose aim is to transfer the knowledge on the products or on the manufacturing processes (Baglieri, 1997).