Research and development, often called R&D, is a phrase that means different things in different applications. In the world of business, it's the phase in a product's life that might be considered the product's "conception." That is, basic science must exist to support the product's viability, and if the science is lacking, it must be discovered; this is considered the research phase. If the science exists, then turning it into a useful product is the development phase. Further terminology refinements might call it engineering to refine production so that the product can be made for a cost that appeals to consumers.
R&D is an investment in a company's future. Companies that do not spend sufficiently in this phase are often said to be "eating the seed corn" — that is, when their current product lines become outdated and overtaken by their competitors, they will not have viable successors in the pipeline. How much is reasonable to spend on research and development is highly dependent both on the technology area and how fast the market is moving. It might be enough to spend 2% of company revenue, not profit, in a fairly sedate market, but to keep up in rapidly changing markets, companies should expect to spend 15% or more, just to keep up with the rest of the pack.
There is considerable debate over which is the "R" and which is the "D" in R&D. Traditionally, research was broken into basic research and applied research, with basic research delving into basic scientific principles and applied research looking for ways to use the basic science to better human lives. More recently, there is very little truly basic research being done in the corporate world; it is mainly the province of academia, often with corporate or government funding support.
Older standards hold that research looked at least five to ten years into the future, and development one to five years, but those time frames have shortened as the speed of technology has increased. It is always difficult, in times of tight money, to justify spending significant sums on something that may not yield returns for another ten to 15 years, if ever. Spending on research and development is vital to continued growth and prosperity, however, both for a company and for a country.
