Career Development

R&D: Definition, Benefits and Types

August 26, 2021

R&D is important to many companies and organizations, as it helps them grow and develop. Using impressive researching tactics, companies can find new ways to increase customer satisfaction and their overall revenue. If you're hoping to help a company develop new products and increase its operations, it's important to understand how to conduct powerful research and development. In this article, we discuss what R&D is, its major benefits and the three primary ways it's conducted.

What is R&D?

R&D stands for research and development. It's a process that companies and organizations use to create new and innovative products for their business. Most often, companies create a separate department to perform research and development tasks, looking for new products or services that fit within customer demand. Many companies don't expect the department or its ideas to increase their profit immediately. Instead, the company expects research and development ideas to contribute to the long-term success of the company and what it offers to customers.

Since research and development can cost a lot of money with no certainty on a return on investment, some companies outsource the work to other businesses that specialize in it. Using this tactic can allow companies to save money and resources while still developing new ideas for the growth of their businesses. Most often, pharmaceutical companies, software companies and semiconductors spend the most money and resources on R&D.

Related: What Does the Research and Development Department Do?

What's the benefit of R&D?

Research and development are important to companies for several reasons, including:

Competitive advantage

When you conduct research and development, you can create new products or services that help you compete with other businesses. Having a larger competitive advantage can help attract more customers to your business and increase your overall profits. It's also possible that research and development can help you find ways to save on your production or manufacturing. Spending less on production can help you spend more in other areas of your company, such as marketing, to help increase your competitive advantage as well.

Related: How To Write a Competitive Analysis

Marketing assistance

Research and development can help give the marketing department more material to advertise and sell a business more effectively. Whenever a research and development department creates new products or new features, the marketing department can develop exciting new ad campaigns to attract the attention of new customers or regenerate interest from old customers.

It's also possible that advice from the marketing department can influence the direction and focus of the research department. Since marketers have a better understanding of what customers want for their products, they can tell researchers what to focus on first and develop new products more quickly.

Tax credit

In 1981, the Internal Revenue Service (IRS) started to offer tax breaks and incentives to companies that hired more employees for research and development purposes. Most often, the company has to be a small venture or startup to qualify for the tax incentive, but it can definitely help them reduce their overall expenses and tax payments. If a business doesn't qualify for the tax break, some foundations, businesses and organizations also offer a research and development grant that companies can apply for to help them generate funds for their research department.

Increased motivation

Sometimes, research and development can help motivate employees and generate a passion for the company and its projects. If employees feel excited about a potential new product or feature they're developing, it can help increase their productivity and job satisfaction. When a company focuses on innovation, it can also help employees feel like they can voice and test their ideas more freely. This type of open communication can help the company generate new ideas more quickly and create more useful products and services for customers.

Read more: The Best Ways To Motivate Your Team

Buyouts and mergers

Some companies focus their money and resources specifically on research and development to sell new ideas to existing businesses. If a small company has a great idea but doesn't have the funding or resources to enact it, selling the idea to a larger business can help them generate funding for their next innovative idea. Sometimes, a larger company might like the idea so much, they actually offer to buy the business and merge with it. That way, the smaller business can continue to generate new lucrative ideas that benefit both of them.

Related: A Guide to the M&A Process

Increased customer satisfaction

When companies develop new products, services and features through research, they can offer customers more things that they want or need. Having a larger lineup of products and services can help increase customer satisfaction and loyalty. When a company has more satisfied and loyal customers, it can help to increase its revenue and allow its department to research and generate even more useful products for their consumer base. This creates a beneficial cycle, which can help the business grow and develop more easily.

3 types of R&D

Here are the three main types of research and development:

1. Basic research

When the company conducts basic research, sometimes known as pure or fundamental research, they often focus on learning as much about a subject as possible without having a practical use for it. This type of research allows companies to have a more thorough understanding of a specific problem and its possible solutions.

Though the company doesn't put any resources toward solving the problem in this type of research, it helps them fully prepare to address the problem or challenge later on. When conducting this research, it can be important for companies to dedicate a large and consistent number of resources to it because the better they understand the subject or problem, the easier it might be to solve.

2. Applied research

Applied research is the act of taking the information companies learned from basic research and using it to their benefit. Once a company has a strong understanding of a subject or problem, they use the applied research step to try out different solutions and strategies. During this step, companies try to incorporate the solutions with the customer and industry demands. That means if the solution doesn't actually help the company grow or develop, it might be better for them to search for a different answer.

3. Development research

Development research is often a combination of applied and basic research. The company takes the information it's learned about a subject or topic and uses it to develop new products or services for customers. Most often, these products and services fill a need or a solve a consumer problem to meet customer demand. Development research might also contribute to more efficient or effective ways of producing a product, which can help save the company time and money.

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