Operations management

Table of Contents

1. Topic pack - Operations management - introduction
2. Operations Management (OM) - Introduction
3. 5.1 Production methods notes
4. 5.1 Production methods - questions
5. 5.2 Costs and revenues - notes
6. 5.2 Costs and revenues - questions
7. 5.3 Break-even analysis - notes
8. 5.3 Break-even analysis - questions
9. 5.3 Break-even analysis - simulations and activities
10. 5.4 Quality assurance - notes
11. 5.4 Quality assurance - questions and activities
12. 5.5 Location - notes
13. Innovation - notes (HL only)
    1. Innovation
    2. Case study - Xerox
    3. Research and development (R&D)
    4. Pharmaceutical companies - a new contract
    5. Innovation and R&D
    6. Europe moving in R&D slow lane
    7. Canadian apparel companies dress for success
    8. R&D - costs and benefits
    9. Patents, copyrights and trademarks
    10. Intellectual Property Rights (IPR)
    11. Digital Rights
    12. China: The Intellectual-Property Battleground
    13. Factors affecting Innovation
    14. Case study - 3M corporation
14. 5.6 Innovation - questions
15. 5.7 Production planning - notes
16. 5.7 Production planning - questions
17. 5.8 Project management - notes (HL only)
18. 5.8 Project management - questions (HL only)
19. Print View

Research and development (R&D)

Research and development involves two separate, but integrated processes. Research is the focus on finding new ideas and processes, whereas development is the application or commercialisation of these ideas and processes to create new products and services, with the intention of providing a unique selling proposition.

There is absolutely no guarantee that R&D will be successful. It is possible to spend millions of dollars researching new energy sources or medical cures without success. However, without successful R&D, firms in some industries will not survive. Pharmaceutical industries are a case in point; new drug treatments are the lifeblood of such firms and determine their commercial success or failure. Any new drug must be approved by the relevant government agency in all the countries where it is to be commercialised.

Some firms do not undertake expensive R&D, but may choose to develop existing ideas or sell 'me-too' products, which are products that copy a competitor's product or innovation and are generally sold at a cheaper price.

The Pharmaceutical Industry

Declining Return on Investment (ROI) in the pharmaceutical industry is currently raising concerns among the key stakeholders. There is a widening gap between the R&D expenditure and the number of new drug approvals. R&D expenditure is steadily increasing, but this is not reflected in the number of new drug approvals, especially in the US where the FDA (Food and Drug Administration) is demanding stricter clinical trials of new drugs before approval and commercialisation.

The rate of new drug discovery over the past 10 years has been so poor that the head of one big pharmaceutical company has dubbed it the "lost decade". The increasing cost of R&D and new technologies and shorter life cycles has resulted in pharmaceutical firms looking for partnerships in the R&D process, where expenses, resources and knowledge can be shared. However, the wave of consolidation in the pharmaceutical industry over the past two decades has created larger companies with bigger product portfolios, but in many cases has saddled R&D units with diseconomies of scale and too much bureaucracy to be effective.