It may be the lifeblood of every company, but research and development (R&D) is in crisis. In almost every sector of industry and commerce, the economic slowdown is forcing businesses to cut investment in innovation and product development.

But it isn't all bad news. Now is the time for knowledge management to shine through. As budgets fall, effective use of knowledge will unlock higher productivity in R&D . The number of products available to consumers has tripled since 1980.

Matching demand to supply is only one of the conundrums facing those developing new products; improving efficiency in the developing new products is at least an equal challenge.

Budgets for manufacturing R&D had been climbing at a compound rate of nearly 20 per cent through the 1990s; US manufacturing spent nearly $300bn (£189.15bn) on it in 2000. Since R&D spending in the US represents just over 45 per cent of global manufacturing R&D expenditure, the world's manufacturing spent around $700bn (£441.34bn) on R&D into new products.

And if we consider the ratio of export earnings between visible goods (manufactured products) and invisible goods (commercial goods, banking, insurance etc), we can more than double the inward investment in new product development. That means that over $1.5tn (£950bn) is being spent each year on product development.

The role of knowledge management in this is to measure the advance towards more efficient processes. A look at the basic process for developing new products will identify a number of areas in which knowledge makes all the difference.

Ask yourself these questions:

• How do you select the brightest ideas for development?
• How do you prove that those ideas will be commercially successful?
• How do you ensure that the most efficient process is being used to deliver the product?
• Does your launch strategy guarantee success for your product?
• Do you continuously benchmark your products' success in the market?

Major players like Sony, GE, Johnson Controls, Microsoft or Cisco are likely to know the answers to these questions as they have invested heavily in integrated R&D and today have an 85 per cent probability of launching a winning product compared with an average of 45 per cent.

That's why these businesses are 10 per cent more profitable than yours, fail half as often as you do and why their share price is an average of 20 per cent higher than yours.

You should focus on those issues for which the smallest change provides the biggest improvement. Look at your product development process and pinpoint problem areas.

Bear in mind that the key to success is in getting the right ideas to market quickly with the minimum of resources and with proof that the commercial return on the product will be either what your customers have asked for or will guarantee a step change in your fortunes.

The key to success is to construct a knowledge model which ensures that what we learn from each stage can be transferred to the next. In addition, we are always winnowing out those bits of knowledge that aren't adding to the success but must be retained to ensure that we don't go down the same path again.

At each stage, examine whether your knowledge base indicates whether you are making the right or wrong decision in developing a product.

Of course, this is much easier to say than do. Start by breaking the overall process into smaller stages and aggregate your experiences from each into a corpus of understanding across all products.

Benchmarking results with those outside your business will help clarify results. Over time, this continuous collection and reuse of data in a defined product development process such as Stage-Gate will start to improve your success rate to ensure more winners and drive down the cost for each stage.

This has been a bruising year. Hardly a consultancy or professional services company remains in knowledge management vendor services, and most of the big consultancy and management houses have either closed their knowledge management practices or reduced them drastically.

The way forward now is to shift the techniques and technology evolved over the past few years so that they are much closer to the main business processes.

James MacFarlane is chief executive of EvolvedThinking.