4 Things to Know About R and D

by Josh Biggs in Finance on 25th November 2020

You might have heard the term “R and D” before. It means research and development. Perhaps you work for a company that’s thinking about getting into it.

If so, you should probably know a little more about it. In this article, we’ll answer some common research and development questions, so you understand a little more about this wide-reaching concept.

Some Countries Provide R and D Incentives

Various companies do R and D for different reasons. They might use it for things like:

  • Developing new products to sell
  • Refining existing services or products  

You should know, though, that certain countries have programs in place that encourage some R and D varieties. For instance, in Canada, they have the SR and ED Tax Incentive Program.

It is a program through which the government offers companies tax incentives if they’re doing research to help society. For example, a Canadian company might receive the credit if they’re doing research and development that will advance scientific knowledge, but it has no specific, practical application.

They might also reward the credit if the company is doing applied research. The government considers this to be work the company undertakes to advance scientific knowledge for a particular purpose.

The point is that in some instances, companies can cash in if they’re doing R and D for altruistic reasons. It’s good for businesses to keep that in mind sometimes.

R and D Sometimes Produces Exciting New Products

If your company is starting up an R and D department, or they have one already, they might be using it to:

  • Modify or perfect existing products or services
  • Create entirely new products

A company seldom funds an R and D department unless they have a specific goal in mind. Maybe they want the R and D team to work on a new product line, or perhaps they’re trying to debug an existing product that was not exactly a bestseller.

The R and D department might solve existing product problems or create a new product just as the higher-ups wanted them to. However, sometimes they might also come up with an entirely new concept or design idea that changes the company and the world forever.

R and D is where the creative process happens. It’s often where a business’s most imaginative minds work as a team.

You never know what an R and D department is going to produce. That’s why some businesses divert a lot of money to R and D. Creating a single new product or modifying an old one in some way can completely reverse a company’s fortunes.

R and D Keeps Companies Ahead of Their Competitors

Any time that you have a particular niche, there will be companies fighting for the top spots. If you consider smartphones, you probably think about iPhones and Androids. 

Many people you know might have either the latest iPhone or Samsung model. The two companies battle furiously for market dominance across the globe.

It’s the same with video game systems, car companies, etc. In each area, you have companies that want to come out with the latest products that have the most innovative features.

It’s the R and D department that creates these new features and products. With smartphones, Siri was a huge hit. So was the first camera-equipped phone.

With cars, it’s things like the backup camera or lane departure alert systems. The R and D department comes up with these ideas and tests them.

This is another reason why R and D matters so much. This is where the next feature or product first appears that allows a company to retain market dominance.

Tech and Pharmaceutical Companies Do More R and D than Anyone

One more thing to know about R and D is that while any niche or company might have it, tech companies and pharmaceutical companies put more money into it than virtually any other industry.

This makes sense because new technology can be worth billions. So can a new drug or vaccine. Tech and pharmaceutical companies often have enormous R and D departments, and they pay the employees top dollar if they can produce that new game-changing medication or bestselling product.

You can see why your company should do some R and D investment if they’re not doing so yet. Maybe if you have a tiny company, you can’t afford it, but the bigger and more successful you become, the more you should consider creating an R and D division.  

Categories: Finance