What is Research and Development?
Research and development (R&D) covers all activities related to innovation that are performed by companies, corporations or governments. It’s the first stage in bringing a new product or service to market, with strategies varying based on the group and concept.
In Europe, R&D is commonly known as Research and Technological Development (RTD) and can be used interchangeably with the term R&D.
Because growth is essential for a company’s survival and success – especially in today’s rapidly-changing world – a strong R&D program relies on targeted information collection and use. Depending on the area of innovation, R&D can take varying amounts of time to complete.
Budget is another important factor with R&D, with the percent allocated known as R&D intensity. How much a company decides to spend on R&D costs depends on the area of innovation, with typical figures ranging from 3-15% of total revenues. Exceeding 15% is uncommon and usually reserved for companies that innovate in high-technology areas where they can absorb the higher risk of failure. It’s important to note that higher R&D spending doesn’t necessarily correlate with higher chances of success, as the desired outcomes are still unknown during this initial stage of innovation.
Other Terms for Research and Development:
- Research and technological development (RTD)
- Field work
- Fishing expedition
- Action research
- Case study
- Trial and error
Why is Research and Development Important?
R&D is important because it represents the first point at which all ideas are formed. For a company or entity to grow, they need to be constantly evolving, and R&D is the biggest driver to accomplish that.
It also allows them to gain competitive advantages over others in related – and sometimes seemingly unrelated – organizations by capitalizing on market needs and trends. By conducting thorough work, whether through traditional R&D or expanding into more specialized areas, like research and product development or biotechnology research and development, companies can advance in as broad or narrow a scope as fits their individual needs.
How much a company spends on R&D can vary wildly, with pharmaceuticals, technology, and semiconductors usually spending the most; this is because innovations tend to occur more rapidly and widely than in other industries, which, when paired with a higher rate of failure, necessitates the expanded budget.
If asking yourself, “Is research and development an intangible asset?”, the answer is yes, but associated costs, such as materials, software, overhead, and other expenses, can be considered tangible assets related to furthering an eventual intangible asset (R&D.)