Research and development (R&D)

Definition

Research and development (R&D) is a crucial component of business and innovation, encompassing activities aimed at creating and improving products, services, processes, and technologies.

What is research and development?

It involves systematic investigation, experimentation, and innovation with the goal of advancing knowledge, capabilities, and the development of new or improved products and services. 

Types of R&D:

1. Basic research: This is focused on expanding scientific knowledge without any immediate commercial application in mind.
2. Applied research: This involves using existing scientific knowledge to address specific problems or develop practical solutions.
3. Development: This involves further refining applied research findings into tangible products, processes, or technologies.

R&D activities are prominent in various sectors and they allocate resources to R&D based on their specific needs and objectives, but R&D often requires significant financial resources, particularly in industries with high technological demands. 

Depending on the industry and the nature of the research, R&D activities may be subject to regulatory oversight to ensure ethical standards, safety, and compliance with legal requirements.

R&D investments often have long time horizons. Breakthroughs may not yield immediate returns, and companies must have a strategic vision and commitment to innovation.

Read more: our comprehensive guides on the SME R&D tax credit scheme and Research & Development Expenditure Credits (RDEC).

Example of research and development

Company XYZ, a pharmaceutical company, allocates resources to research and develop a new drug to treat a specific medical condition.

The company invests in laboratory facilities, hires scientists and researchers, and purchases necessary equipment and materials to conduct experiments and clinical trials.

Over several years, the R&D team works tirelessly to identify potential drug candidates, test their efficacy and safety, and refine the formulation.

After extensive research and testing, Company XYZ successfully develops a new drug that shows promising results in clinical trials. The company obtains regulatory approval to bring the drug to market, and it becomes a valuable asset for the company, generating revenue and improving patient outcomes.