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What Is Research and Development?

• Understanding R&D
• Types of R&D
• Pros and Cons
• Considerations
• R&D vs. Applied Research
• R&D Tax Credits

The Bottom Line

• Business Essentials

What Is Research and Development (R&D)?

Investopedia / Ellen Lindner

Research and development (R&D) is the series of activities that companies undertake to innovate. R&D is often the first stage in the development process that results in market research product development, and product testing.

Key Takeaways

• Research and development represents the activities companies undertake to innovate and introduce new products and services or to improve their existing offerings.
• R&D allows a company to stay ahead of its competition by catering to new wants or needs in the market.
• Companies in different sectors and industries conduct R&D—pharmaceuticals, semiconductors, and technology companies generally spend the most.
• R&D is often a broad approach to exploratory advancement, while applied research is more geared towards researching a more narrow scope.
• The accounting for treatment for R&D costs can materially impact a company's income statement and balance sheet.

Understanding Research and Development (R&D)

The concept of research and development is widely linked to innovation both in the corporate and government sectors. R&D allows a company to stay ahead of its competition. Without an R&D program, a company may not survive on its own and may have to rely on other ways to innovate such as engaging in mergers and acquisitions (M&A) or partnerships. Through R&D, companies can design new products and improve their existing offerings.

R&D is distinct from most operational activities performed by a corporation. The research and/or development is typically not performed with the expectation of immediate profit. Instead, it is expected to contribute to the long-term profitability of a company. R&D may often allow companies to secure intellectual property, including patents , copyrights, and trademarks as discoveries are made and products created.

Companies that set up and employ departments dedicated entirely to R&D commit substantial capital to the effort. They must estimate the risk-adjusted return on their R&D expenditures, which inevitably involves risk of capital. That's because there is no immediate payoff, and the return on investment (ROI) is uncertain. As more money is invested in R&D, the level of capital risk increases. Other companies may choose to outsource their R&D for a variety of reasons including size and cost.

Companies across all sectors and industries undergo R&D activities. Corporations experience growth through these improvements and the development of new goods and services. Pharmaceuticals, semiconductors , and software/technology companies tend to spend the most on R&D. In Europe, R&D is known as research and technical or technological development.

Many small and mid-sized businesses may choose to outsource their R&D efforts because they don't have the right staff in-house to meet their needs.

Types of Research and Development (R&D)

There are several different types of R&D that exist in the corporate world and within government. The type used depends entirely on the entity undertaking it and the results can differ.

Basic Research

There are business incubators and accelerators, where corporations invest in startups and provide funding assistance and guidance to entrepreneurs in the hope that innovations will result that they can use to their benefit.

M&As and partnerships are also forms of R&D as companies join forces to take advantage of other companies' institutional knowledge and talent.

Applied Research

One R&D model is a department staffed primarily by engineers who develop new products —a task that typically involves extensive research. There is no specific goal or application in mind with this model. Instead, the research is done for the sake of research.

Development Research

This model involves a department composed of industrial scientists or researchers, all of who are tasked with applied research in technical, scientific, or industrial fields. This model facilitates the development of future products or the improvement of current products and/or operating procedures.

The largest companies may also be the ones that drive the most R&D spend. For example, Amazon has reported $1.147 billion of research and development value on its 2023 annual report.

Advantages and Disadvantages of R&D

There are several key benefits to research and development. It facilitates innovation, allowing companies to improve existing products and services or by letting them develop new ones to bring to the market.

Because R&D also is a key component of innovation, it requires a greater degree of skill from employees who take part. This allows companies to expand their talent pool, which often comes with special skill sets.

The advantages go beyond corporations. Consumers stand to benefit from R&D because it gives them better, high-quality products and services as well as a wider range of options. Corporations can, therefore, rely on consumers to remain loyal to their brands. It also helps drive productivity and economic growth.

Disadvantages

One of the major drawbacks to R&D is the cost. First, there is the financial expense as it requires a significant investment of cash upfront. This can include setting up a separate R&D department, hiring talent, and product and service testing, among others.

Innovation doesn't happen overnight so there is also a time factor to consider. This means that it takes a lot of time to bring products and services to market from conception to production to delivery.

Because it does take time to go from concept to product, companies stand the risk of being at the mercy of changing market trends . So what they thought may be a great seller at one time may reach the market too late and not fly off the shelves once it's ready.

Facilitates innovation

Improved or new products and services

Expands knowledge and talent pool

Increased consumer choice and brand loyalty

Economic driver

Financial investment

Shifting market trends

R&D Accounting

R&D may be beneficial to a company's bottom line, but it is considered an expense . After all, companies spend substantial amounts on research and trying to develop new products and services. As such, these expenses are often reported for accounting purposes on the income statement and do not carry long-term value.

There are certain situations where R&D costs are capitalized and reported on the balance sheet. Some examples include but are not limited to:

• Materials, fixed assets, or other assets have alternative future uses with an estimable value and useful life.
• Software that can be converted or applied elsewhere in the company to have a useful life beyond a specific single R&D project.
• Indirect costs or overhead expenses allocated between projects.
• R&D purchased from a third party that is accompanied by intangible value. That intangible asset may be recorded as a separate balance sheet asset.

R&D Considerations

Before taking on the task of research and development, it's important for companies and governments to consider some of the key factors associated with it. Some of the most notable considerations are:

• Objectives and Outcome: One of the most important factors to consider is the intended goals of the R&D project. Is it to innovate and fill a need for certain products that aren't being sold? Or is it to make improvements on existing ones? Whatever the reason, it's always important to note that there should be some flexibility as things can change over time.
• Timing: R&D requires a lot of time. This involves reviewing the market to see where there may be a lack of certain products and services or finding ways to improve on those that are already on the shelves.
• Cost: R&D costs a great deal of money, especially when it comes to the upfront costs. And there may be higher costs associated with the conception and production of new products rather than updating existing ones.
• Risks: As with any venture, R&D does come with risks. R&D doesn't come with any guarantees, no matter the time and money that goes into it. This means that companies and governments may sacrifice their ROI if the end product isn't successful.

Research and Development vs. Applied Research

Basic research is aimed at a fuller, more complete understanding of the fundamental aspects of a concept or phenomenon. This understanding is generally the first step in R&D. These activities provide a basis of information without directed applications toward products, policies, or operational processes .

Applied research entails the activities used to gain knowledge with a specific goal in mind. The activities may be to determine and develop new products, policies, or operational processes. While basic research is time-consuming, applied research is painstaking and more costly because of its detailed and complex nature.

R&D Tax Credits

The IRS offers a R&D tax credit to encourage innovation and significantly reduction their tax liability. The credit calls for specific types of spend such as product development, process improvement, and software creation.

Enacted under Section 41 of the Internal Revenue Code, this credit encourages innovation by providing a dollar-for-dollar reduction in tax obligations. The eligibility criteria, expanded by the Protecting Americans from Tax Hikes (PATH) Act of 2015, now encompass a broader spectrum of businesses. The credit tens to benefit small-to-midsize enterprises.

To claim R&D tax credits, businesses must document their qualifying expenses and complete IRS Form 6765 (Credit for Increasing Research Activities). The credit, typically ranging from 6% to 8% of annual qualifying expenses, offers businesses a direct offset against federal income tax liabilities. Additionally, businesses can claim up to $250,000 per year against their payroll taxes.

Example of Research and Development (R&D)

One of the more innovative companies of this millennium is Apple Inc. As part of its annual reporting, it has the following to say about its research and development spend:

In 2023, Apple reported having spent $29.915 billion. This is 8% of their annual total net sales. Note that Apple's R&D spend was reported to be higher than the company's selling, general and administrative costs (of $24.932 billion).

Note that the company doesn't go into length about what exactly the R&D spend is for. According to the notes, the company's year-over-year growth was "driven primarily by increases in headcount-related expenses". However, this does not explain the underlying basis carried from prior years (i.e. materials, patents, etc.).

Research and development refers to the systematic process of investigating, experimenting, and innovating to create new products, processes, or technologies. It encompasses activities such as scientific research, technological development, and experimentation conducted to achieve specific objectives to bring new items to market.

What Types of Activities Can Be Found in Research and Development?

Research and development activities focus on the innovation of new products or services in a company. Among the primary purposes of R&D activities is for a company to remain competitive as it produces products that advance and elevate its current product line. Since R&D typically operates on a longer-term horizon, its activities are not anticipated to generate immediate returns. However, in time, R&D projects may lead to patents, trademarks, or breakthrough discoveries with lasting benefits to the company. 

Why Is Research and Development Important?

Given the rapid rate of technological advancement, R&D is important for companies to stay competitive. Specifically, R&D allows companies to create products that are difficult for their competitors to replicate. Meanwhile, R&D efforts can lead to improved productivity that helps increase margins, further creating an edge in outpacing competitors. From a broader perspective, R&D can allow a company to stay ahead of the curve, anticipating customer demands or trends.

There are many things companies can do in order to advance in their industries and the overall market. Research and development is just one way they can set themselves apart from their competition. It opens up the potential for innovation and increasing sales. However, it does come with some drawbacks—the most obvious being the financial cost and the time it takes to innovate.

Amazon. " 2023 Annual Report ."

Internal Revenue Service. " Research Credit ."

Internal Revenue Service. " About Form 6765, Credit for Increasing Research Activities ."

Apple. " 2023 Annual Report ."

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Knowledge Base News and insights R&D tax credits

What is research & development and how can it help UK businesses?

Research and development (R&D) is the creation of new ways of doing things – new products, systems, processes;  it is the search for new knowledge, improving on the old. For businesses, R&D involves taking on risk, including through expense, reputation or opportunity cost. By its very nature, you must be uncertain of the outcome – it could fail, or not turn out quite how you expected. Innovative businesses need to perform R&D to develop new services, products or processes, or improve existing ones. It is normally one of the first stages of such projects, representing a hive of activity at the beginning, and the R&D may continue all the way through as your project progresses.

What sectors adopt R&D?

HMRC’s definition of R&D is broad so that it does not, by default, exclude any sector. As long as you are a limited company, meet the definition relating to a scientific/technological advance and uncertainty, and have qualifying expenses, then you may qualify for R&D tax relief. However, there are certain sectors that HMRC would consider unlikely to be able to make an R&D claim:

• Care homes and childcare providers
• Personal trainers
• Wholesalers and retailers
• Pubs and restaurants

To provide you with examples from what you may think of as non-traditional sectors for R&D, consider the following:

• An architectural practice which is asked to achieve a particular thermal performance standard in a building using new, sustainable materials which are not known to have met this standard before.
• A software business which needs to develop new security protocols around its APIs, and is not certain what will be required to achieve them.
• An engineering firm which needs to create an alloy which will adhere to very precise tolerances within a piece of machinery.

The difference between basic and applied research

When considering research and development, one way of breaking it down is to think in terms of two fundamental types of R&D: basic R&D and applied R&D.

Basic research

Basic research could be seen as the first stage, where you are theorising, developing new approaches and coming up with big ideas. For a business, this is helpful at a strategic level, gaining new knowledge that can inform decision making and which direction you will take the company in.

Applied research

Applied research takes the ideas of basic research (or perhaps less structured ideas from other sources) and uses them to devise practical applications from the existing knowledge you have. At this level, you are using research to find technological or scientific solutions to solve specific business problems – such as enhancing an existing product or making a process more efficient.

Both basic and applied research feed into development, which could be a product, service or process. There will be experimentation including activities like CAD, prototyping, testing and iterative improvement.

What is research and development in business?

R&D stands for research and development, and its definition for tax purposes is predicated on overcoming technological uncertainty in order to make an overall advance in your particular field. This can include projects for clients and projects that were not ultimately successful. But you have to demonstrate that your project’s aims and outcomes were not readily deducible at the outset.

R&D is therefore the activity you undertake when you are seeking to make an advance in your field using science or technology. Perhaps you are pushing the boundaries of knowledge and solutions in your sector, perhaps you are making improvements to what already exists, or seeking to create something new.

As we have said, the legislation for R&D tax credits is purposefully broad so as to capture innovation in businesses of all sizes and sectors. This innovation can take place when you:

• Develop your own products
• Create proprietary tools or systems to facilitate your work
• Seek to improve the accepted industry standards

Like many businesses who are improving their awareness of the R&D tax incentives, you may recognise that you are conducting R&D in your normal day-to-day activity, but what does this mean in a tax context?

While HMRC’s definition of R&D is broad, there are some notable exclusions.

At a high level, HMRC defines research and development for tax purposes as activity which is attempting to resolve scientific or technological uncertainty. This means that it does not matter how big or small your company is, or what sector you are in, there is potential for you to be conducting research and development in this sense.

One strong indicator that you may be carrying out R&D for tax purposes is if you are unsure of the outcome of your project or whether it is even possible. Unsuccessful R&D endeavours can still count as R&D for tax purposes and can be rewarded with tax relief.

R&D tax relief is provided through the corporation tax system, so you have to be a limited company for your R&D to count for tax purposes. Social sciences and market research are specifically excluded from the R&D tax credit system, so they can still be R&D, but not R&D for tax purposes.

Where R&D qualifies for R&D tax credits, this tax relief can provide an important source of funding to your business. It will only cover a proportion of your R&D expenditure, but it is a welcome and valuable addition.

How does research and development help UK businesses?

The benefits of conducting research and development and receiving R&D tax relief can be substantial for your business.

New or improved products

Research and development projects will often be for the purpose of helping you create new or improved products. These will help you boost sales and/or maybe charge more for superior products which offer better value for customers.

Enhanced reputation

A track record of research and development will enhance your reputation in the market. This could either be through more premium products or, perhaps, bespoke solutions which customers know they can come to you for when your competitors are unable to assist them.

Better systems and processes

Your R&D may not be focused on the products themselves, but on your internal tools, processes or systems for operating. This could lead to efficiency gains which help you become more profitable and increase the capital value of your business.

Attracting talented staff

Because they take place at the cutting edge, R&D projects tend to offer staff interesting problem-solving work. This may help you with both recruitment and retention for attracting high-quality staff who are drawn to such work.

R&D tax relief and other funding opportunities

Where R&D qualifies for R&D tax credits, this tax relief can provide an important source of funding to your business. It will only cover a proportion of your R&D expenditure, but it is a welcome and valuable addition.

It is up to you what you do with money received from R&D tax credits, but by reinvesting it in further R&D – through hiring a specialist, or acquiring a new piece of equipment, for example – you can even achieve a kind of compound growth to your R&D programme, by each year building on and adding to what’s been done before.

R&D strategy: Approaches to research and development

There is no set definition of what an R&D process or project looks like in a business. You might even be carrying out R&D unknowingly when you start exploring new possibilities.

An R&D cycle may look something like this:

• Feasibility studies: defining limitations in what already exists; identifying the uncertainty
• Research, problem-solving, trial-and-error.
• Design and development, including prototypes.

When you come to look at your R&D project for tax purposes, you will need clarity to be able to identify where the limitations in the current state of knowledge were and the uncertainty as to how you (or another expert working in your field) would make a scientific or technological advance to overcome the limitation.

In the course of a year, you can have one or more R&D projects which run concurrently or one after another.

Examples of R&D activities beyond product development

Whilst it is tempting to think about R&D purely in terms of product development, in reality it can have much broader application than this. From data analysis to market research (market research is excluded from claiming R&D tax relief), new service design to internal systems, R&D can take many forms.

Examples could include:

• Developing new in-house machinery to improve production line efficiency.
• Creating new software portals to aid a sales team in the field
• Running advanced data analytics using cutting-edge computing

Challenges and risks associated with R&D

As stated earlier, true R&D will always come with a level of risk. This is one of the main reasons why the government chooses to provide tax incentives –  to encourage the risk/reward trade off.

Some of the main areas of risk to consider include: the potential for high expenditure with no guarantee of a return, possible health and safety risk depending on your industry, opportunity cost of other initiatives you could have pursued and even things like reputational risk should new products not be a success.

There will also be challenges, such as ensuring you have staff with sufficient skill levels, procurement of equipment and space with which to conduct your R&D and keeping on top of your business-as-usual operations.

As the rest of this article outlines though, the benefits of having an R&D mindset are significant and will often outweigh the risks. But it is good to approach the topic fully informed.

Ethical considerations in R&D

In this day and age, we would not be comprehensively covering the topic of R&D if we did not highlight the need to make ethical considerations when deciding on projects.

Ethical considerations in R&D can touch upon many areas, from philosophy to operational practice. What is the environmental impact of our R&D or our potential new products? Is this good for society? Are we using data responsibly? Are there any safety issues for our staff?

Because R&D can change the world we live in, it is important to assess that the change will be for good.

HMRC enquiries are becoming increasingly common, so you’ll need to make sure your claim is well-evidenced and accurate upon submission.

What is R&D tax relief?

R&D tax relief is the government incentive for rewarding innovative businesses that take a financial risk with projects whose aims are uncertain (as described above). It is often referred to as R&D tax credits.

Following the implementation of legislative change in 2024, most companies large or small will claim under a scheme called RDEC which yields an effective benefit of up to 16.2% depending on your tax position. For loss-making, R&D intensive SMEs, there is a more generous scheme which provides an effective benefit of up to 27%.

R&D tax relief is claimed retrospectively and you can look back over two accounting periods to claim. It is calculated based upon the qualifying costs within qualifying projects. There are many types of qualifying costs, including expenditure such as staffing and utilities costs attributable to R&D projects. Your own R&D projects or subcontracted R&D projects can both qualify. You can read all about R&D tax relief here .

Depending on what scheme you use, your tax position and other factors, you may receive the financial benefit as a reduction in your corporation tax bill or as a cash credit. Either way, it is a major funding source for eligible businesses.

For example, the average cash boost which we are able to generate for our clients per annual claim is £73K.

Why not take our eligibility test to see if R&D you are already doing could qualify you for R&D tax relief?

How should we carry out R&D to qualify for R&D tax relief?

If you want to claim R&D tax relief, you will need to be prepared to demonstrate the qualifying activities and costs which are to be included in the claim.

Keeping R&D tax credit records

It would be best practice to keep clear records of expenditure as it is made, timesheets of staff involved, and the successes and failures of the project(s). You will also need to identify a technical expert in your business capable of defining the current limitations of knowledge and when advances were sought.

After you have been through the claim process once, all the above good practice becomes essential for the credibility of your future claims. On subsequent R&D tax credit claims, drawing on good quality records becomes even more important.

Why use a specialist R&D adviser to claim R&D tax relief?

Specialist R&D advisers play a key role in both optimising the value of a claim, and ensuring it is robustly prepared in line with best practice and the legislation. HMRC enquiries are becoming increasingly common, so you’ll need to make sure your claim is well-evidenced and accurate upon submission. Failure to support and substantiate your claims and associated costs can result in penalties from HMRC, and you should always check that your adviser will support you through an enquiry.

At Kene Partners, we know how to apply R&D tax relief rules to projects to ensure that all qualifying activity is included in a claim.

We also stay ahead of a changing R&D tax landscape. In 2023 and 2024 there have been a raft of changes to R&D tax relief and the way it is claimed. We ensure that all claims are prepared correctly in line with the latest legislation updates.

Can we help your business?

Arrange a free consultation with our team of experienced and approachable tax incentive advisers today. Our mission is to help innovative companies access millions of pounds of government money set aside for funding your innovation. Your business could be next.

Research and development (R&D) is pivotal for driving innovation in UK businesses, fostering the creation of new products, systems, and processes. This article explores the significance of R&D, whilst providing a comprehensive guide for businesses to navigate the complexities of R&D and maximise their innovation potential.

Book a free consultation with our expert R&D funding advisors today. We specialise in helping innovative businesses like yours unlock millions in government funding, specifically allocated to fuel your innovation. Let us help your business access the support it deserves.

Book a free consultation Read more insights

Dr Arwyn Evans

R&D Tax Manager

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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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Understanding Research and Development in Business: A Comprehensive Guide

Learn about the crucial role of Research and Development (R&D) in business and how it can drive innovation, growth, and competitive advantage.

Barrie Dowsett

Chief Executive Officer

10 minute read

Research and Development (R&D) is a key driver of innovative and competitive business practices, as it enables companies to stay ahead of the curve in industries that are constantly evolving. Companies in Ireland recognise this and have been investing more in R&D over the past decade, with funding from government grants and tax incentives such as the R&D tax credit .

R&D encompasses a variety of activities aimed at generating new and improved products and services, as well as enhancing existing ones. It involves systematic investigation, experimentation, and exploration to discover new knowledge and improve existing products, processes, or services. R&D takes place in various forms, such as design, testing, prototyping, and scaling up, and the outcomes can range from products, inventions, patents, or knowledge.

There are many benefits to investing in R&D for Irish businesses. For one, R&D can help improve their market position, generate revenue and enhance their competitive advantage. By innovating through R&D, companies can offer unique, high-quality products or services that can set them apart from their competitors. Moreover, companies can develop new technologies, insights and knowledge that can be leveraged to create future products and services.

However, R&D is not without its challenges. Investing in R&D can be costly and uncertain, and it can take time to see the return on investment. Furthermore, companies need to ensure that they have the right talent, resources, and infrastructure in place to support their R&D initiatives.

In this blog, we will provide a comprehensive guide to understanding R&D for Irish businesses. We will explore the various forms of R&D, its importance for business growth and innovation, and how to implement effective R&D strategies in your business. Whether you are a startup or an established business, this guide will provide you with valuable insights to help you succeed through R&D.

Benefits of R&D in Business

One significant benefit of R&D is its ability to drive innovation and growth by bringing new products and services to the market. Through R&D, companies can better understand their customers' needs, identify new market opportunities, and develop new technologies and products that meet those needs. This not only diversifies a company's product offerings but also strengthens their market position by increasing their revenue streams and expanding their customer base.

Furthermore, R&D enables businesses to gain a competitive advantage by developing unique products and services that differentiate them from their competitors. Companies that invest in R&D can develop and maintain a strong intellectual property portfolio that can prevent competitors from copying their innovations. R&D also helps companies stay ahead of the curve in terms of technology, enabling them to leverage new advancements and establish themselves as leaders within their industries.

In addition, R&D can lead to significant improvements in product quality and performance by allowing companies to develop and test new materials, techniques, and designs. This, in turn, can increase customer satisfaction and loyalty, as well as drive sales and create long-term value for the business.

Finally, R&D can help companies reduce costs and increase efficiency by identifying ways to streamline processes or develop new technologies that are more cost-effective. This can include developing more efficient supply chains or reducing waste through sustainable production methods.

Overall, companies that invest in R&D can reap significant benefits in terms of innovation, growth, and competitive advantage. By continually developing new products and services that meet evolving customer needs and redefining industry standards, these businesses can establish themselves as leaders in their fields and remain sustainable for years to come.

Types of R&D Activities

Research and Development (R&D) activities are broadly categorized into three types: basic research, applied research, and development. Basic research is conducted to gain knowledge about a certain field, phenomenon, or theory without any immediate application. For instance, a pharmaceutical company conducting research on the molecular structure of a protein without any specific drug in mind. Basic research often leads to the discovery of new ideas, theories, and inventions that can eventually be applied in various industries.

Applied research, on the other hand, aims to solve a specific problem or answer a particular question in a practical setting. It involves taking information generated from the basic research and using it to develop useful solutions for specific needs. Applied research is often conducted by companies to improve their products, enhance their services, or identify new opportunities. For instance, a cosmetic company conducting market research to identify customer preferences and develop new products accordingly.

Development involves the translation of applied research findings into a practical form. It involves creating prototypes or models that can be tested and modified to ensure that they meet the desired goals of the project. Development activities can involve various stages, including design, testing, and modification, until the final product or service is produced. For instance, an engineering firm conducting research and development to design and build a new piece of equipment for a specific application.

In summary, basic research provides foundational knowledge and understanding of a certain field, applied research applies this knowledge to address specific problems, and development uses applied research to design and develop new products and services. Each type of R&D plays a crucial role in driving innovation and achieving competitive advantages in the business world. By understanding the different types of R&D activities, businesses can better leverage them to drive growth and success.

Steps Involved in Effective R&D

Effective Research and Development (R&D) requires specific steps to ensure that it addresses the business's needs and goals. The first step is defining the research problem, which means identifying what issues the company wants to address through research. After that, market research must be conducted to gather information about the target market and its needs, preferences, and behaviours. This information is essential in formulating research objectives, which are clear and concise statements about what research aims to achieve. The objectives should align with the research problem identified earlier and should be specific, measurable, achievable, relevant, and time-bound (SMART).

Developing a research plan follows, which involves deciding on the research design, sample size, and data collection methods. The research design could either be qualitative or quantitative, depending on the research question and objectives. The next step is conducting experiments and collecting data using the research plan developed, which could be primary or secondary data. Primary data involves collecting original data through surveys, interviews or observations, while secondary data includes using data that is previously collected and publicly available.

After collecting data, the next step is analysing and interpreting it. In analysing, the data collected should be organised, cleaned, and summarised, after which it can be subjected to various statistical tests to draw conclusions. When interpreting, the findings from the tests are used to answer the research question and match the research objectives. A clear communication mechanism of the findings and recommendations to the relevant stakeholders is essential, and it should be precise, concise, and in a format that is understandable to the recipients.

Finally, R&D should be seen as an ongoing process aimed at improvement and innovation in a business. Continuously redefining research objectives, updating research plans and implementing effective R&D strategies is critical in staying ahead of the competition, remaining relevant, and meeting the evolving needs of the market. Companies should embrace R&D practices as a strategic tool for long-term success, growth and profitability.

Implementing R&D Strategies in Business

Creating an r&d budget.

Creating an R&D budget is a critical step in implementing an effective R&D strategy. Setting aside a budget for R&D activities enables businesses to allocate resources towards research and experimentation that can lead to breakthrough innovations. In general, it is recommended that companies allocate anywhere from 5% to 15% of their revenue towards R&D. However, the exact amount will depend on the industry, the size of the company, and its growth goals.

Building an R&D team

Building an R&D team is also crucial to the success of any R&D strategy. Skilled and diverse R&D teams can bring a range of perspectives and expertise to the table. This can lead to cross-functional collaborations that can uncover new ideas and solutions. Depending on the nature and scale of the R&D activities, companies can consider hiring full-time R&D staff, collaborating with academics or other external experts, or engaging with freelancers or contract workers.

Establishing an R&D process

Establishing an R&D process can help ensure that R&D activities are conducted systematically and efficiently. This can include defining clear research objectives, identifying target markets and customers, conducting feasibility studies, developing prototypes, and conducting trials and tests. Companies can also consider adopting agile methodologies or lean startup principles to foster iterative and lean R&D processes.

Leveraging technology and partnerships

Leveraging technology and partnerships can also help boost the effectiveness of R&D strategies. Technology tools such as virtual and augmented reality simulators, 3D printing, and artificial intelligence can facilitate faster and more cost-effective R&D processes. Partnerships with other companies, suppliers, startups, or research institutions can provide access to complementary expertise, technologies, and markets. Collaborating with customers can also yield valuable insights into their needs and preferences, and can help companies create customer-centric solutions.

Implementing effective R&D strategies requires careful planning, investment, and execution. By creating a dedicated R&D budget, building a skilled and diverse R&D team, establishing clear R&D processes, and leveraging technology and partnerships, Irish businesses can unlock the full potential of R&D to drive innovation, growth, and competitive advantage.

Challenges of R&D in Business

While Research and Development (R&D) is critical for innovation and growth in a business, it is not without its challenges. One challenge that businesses face is cost and resource constraints. R&D requires substantial investment in terms of time, money, and skilled employees. Small and medium-sized businesses (SMEs), in particular, may struggle to allocate sufficient resources towards R&D due to budgetary constraints. They may have limited funds to invest in R&D, which can hamper innovation and limit the scope of the research. Similarly, larger corporations may have the funds to invest in R&D, but may struggle with resource constraints such as a shortage of skilled employees, a lack of facilities or equipment, or finding the right partners for collaboration.

Another challenge of R&D is the inherent uncertainty and risk associated with research activities. The outcome of R&D efforts is often uncertain, and there is no guarantee that the research will lead to a successful innovation. Additionally, R&D can be a lengthy process, and businesses may not see returns on their investment for months or even years. This can make it difficult to justify investment in R&D, especially for SMEs that need to show immediate returns in cash flow.

Finally, there is the challenge of protecting intellectual property. R&D often leads to the creation of intellectual property, such as patents, trademarks, and copyrights. Protecting this intellectual property is crucial, as it can give businesses a competitive advantage and help generate revenue. However, protecting intellectual property can be a time-consuming and expensive process, and businesses must be vigilant in monitoring their intellectual property and taking legal action against infringement.

Cost and resource constraints, uncertainty and risk, and intellectual property protection are just some of the challenges that businesses must navigate to successfully implement effective R&D strategies. Nonetheless, with careful planning, investment, and a reliable R&D process, businesses can successfully leverage R&D to drive innovation, growth, and competitive advantage.

In conclusion, Research and Development (R&D) is a critical tool for businesses looking to drive innovation, growth, and competitive advantage. Without R&D, businesses risk stagnation and getting left behind in a rapidly evolving marketplace. In this blog, we have discussed the importance of R&D in business and how it can drive success.

Businesses looking to implement effective R&D strategies should focus on building a culture of innovation, investing in the right people and resources, and staying up to date with the latest technological advancements. Effective R&D strategies involve identifying market gaps and customer needs, experimenting with new ideas, and using data-driven insights to make informed decisions. Looking to the future, R&D will continue to be a key driver of growth and success for businesses, especially in an increasingly digital and globalized economy.

As market competition grows, businesses will need to invest more in R&D to stay ahead and achieve long-term success. By continuing to innovate and work towards new and exciting breakthroughs, businesses can unlock new opportunities and realize their full potential in today's fast-paced business landscape.

Bring in the experts

Whether you’ve already got a comprehensive R&D strategy in progress or you’re just starting out from scratch, the experts at Myriad Associates are here to help.

We work across the field of innovation funding, with years of experience in  R&D Tax Credits  and  R&D Grants  specifically. We will work alongside you for as long as you need us, whether you require support in creating an effective R&D department, or in planning a particular R&D project. We’ll also be able to discuss which funding options would best suit your needs, helping your R&D bring you the best return on investment.

Contact us today

If you wish to discuss anything we’ve discussed in this article, or about R&D funding for Irish companies, simply call us on call us on +353 1 566 2001 or  send us a message . We’re working remotely during this time and will be pleased to assist you.

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Research and Development 

Research and development are the processes businesses follow to develop and introduce new products and improve existing services.  

Home > Research Glossary > Research and Development

What is research and development? 

Research and development (R&D) refers to the activities that businesses engage in to: 

• Develop and introduce new products and services or
• Innovate and improve on existing products and services 

R&D can be an invaluable tool for building and enhancing your business. It involves conducting a thorough investigation into your industry, your competitors, and your customers and uncovering the data and insights that are most important to your company.  

Armed with this information, you can be more strategic and better informed for meeting the needs of both your customers and your organization. So, finding this type of accurate, complete information in a timely fashion is essential to making smarter, more impactful business decisions. 

Why are data and insights important for your R&D strategy  

Data and the insights you draw from that data are critical to any R&D strategy. They help you: 

• Paint a more complete picture of the industry landscape, of a competitor, or of a particular individual
• Identify existing or emerging trends
• Unlock new business opportunities
• Build successful strategies so you can confidently make the right decisions for your organization
• Mitigate market disruptions and be risk resilient 

What’s more, data provides crucial insights into the factors influencing your business not just today, but also well into the future. Equipped with this knowledge, you’re in a much stronger position to create long-term value for your customers, markets, and relationships.  

What kind of data do you need for your R&D strategy  

No one can dispute that the Internet is an amazing tool. With it, we have at our fingertips immediate access to seemingly immeasurable amounts of free data – facts, statistics, and insights. But the Internet also comes with its limitations and hazards, especially when it comes to important research. Some challenges of using only the open web to conduct research include: 

• Questionable sources
• Outdated information
• Fake news or misinformation
• Inconvenient paywalls or other research dead ends
• Information gaps or, conversely, content overload 

In today's information-on-demand age, traditional search engines and general online research just won’t suffice for a robust R&D strategy. You need a smarter, more efficient approach, one that: 

• Avoids these internet obstacles
• Takes your research beyond the one-dimensional and draws from wide-ranging, first-rate sources
• Indexes and filters the research, so you’re getting only the data that’s most important to your organization
• Turns that data into actionable insights that strengthen your decision-making and help you achieve your business objectives 

So, it’s not about just any data – it’s about the right data. Trusted, well-vetted, and comprehensive information is critical for robust R&D. That means knowing where to get such valuable data and having the research tools in place to deliver it are key to developing a successful R&D strategy. 

How LexisNexis supports research and development 

Nexis ®    supplies content from the world's leading publishers. It aggregates information from more than 40,000 international news and business outlets, as well as from thousands of business-relevant websites, blogs, and forums. Tens of thousands of sources and millions of documents are at your disposal for company research. 

It enables you to search this expertly curated content for all the relevant, credible, quality information you need – all in one place – and access reports, data, and info that’s often locked behind a paywall. You can organize and keep track of your research using alerts, personalized dashboards, reports, and customizable analyses. 

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