How to Make Research & Development Work for Your Organization
Businesses with well-resourced research and development teams can stay relevant in a rapidly changing world – but the best R&D strategies are those that align with a wider culture of innovation. Read on and discover how the world’s top innovators approach R&D.
Research and development (R&D) is the process of discovering and obtaining new knowledge in order to serve an organization’s strategic objectives. A company may adopt an R&D strategy to gain a competitive advantage, expand its range of offerings, or improve existing ones, usually with the aim of boosting its bottom line. Despite the importance of R&D for helping businesses remain relevant in a rapidly changing market, the risky, hard-to-define, and long-term aspects of the investment make it all too easy for decision makers to underestimate its value.
Every year corporations, governments and academic institutions spend trillions of dollars on research and development.1 However, measuring the relationship between the amount spent on R&D strategy and concrete financial outcomes can be challenging, since the results may not show up on the balance sheet for years.
How much of your budget should you allocate to R&D? Ask Google.
The amount of capital you should invest in R&D will depend entirely on your business objectives, your sector, and how far along you are on your corporate growth journey. An ambitious biotechnology startup will almost certainly devote more of its budget to advancing technological development than a large-cap retailer, for example. Bioresearch is a notoriously expensive activity, for one thing. What’s more, the industry as a whole demands an unusually high quantity of successful research programs and innovations from its major players.
British product development firm Innovolo recently ranked the world’s largest companies according to how much of their annual revenue they spend on R&D activities. Below is a chart showing the seven firms that spent more than $10 billion that year:
In a given year, the world’s biggest R&D spenders might invest anywhere from 14% to 28% of total annual revenue in the pursuit of new business-relevant knowledge. The list is dominated by research-driven high-tech industries like IT, electronics, and automotive production, which have innovation principles baked into their core. As we’ll see, building a culture of innovation is essential for companies looking to generate valuable knowledge, but having money to burn helps too.
Let’s take Alphabet (Google’s parent company) as an example. In 2020, the tech giant spent about $31 billion on R&D, funding high-risk, high-reward projects across a range of business segments, from AI to robotics.
At the heart of Alphabet’s R&D efforts is X, its secretive “moonshot factory” which focuses on highly speculative bets. A cursory look at X’s website shows the impressive technological returns a well-resourced R&D program can yield; the division is currently developing autonomous delivery drones, carbon-free electricity systems, plant-inspecting robo-buggies, and fish-tracking camera networks – and those are just the projects it has revealed to the public. Not all of these moonshots will pan out; in 2021, the company shut down Loon, its fleet of hot air balloons that delivered Internet access to remote areas.2 However, it may only take one major success to fund the next decade of Alphabet’s growth trajectory. This is why the company spends billions of dollars on risky research programs and files over a thousand patents every year.3
Not all organizations will need to invest on this scale, or with this level of ambition. Innovo recommends that all businesses seeking a competitive edge set aside somewhere between 10% and 20% of revenue for R&D, and then adjust accordingly. For organizations that can afford to make this commitment, the long-term payoffs will likely be worth it. In a few decades, Google went from just another search engine to a global colossus with a presence in virtually every technology industry – mostly thanks to its world-class research and development initiatives.
The Best Way To Approach R&D
By investing more resources into your R&D function, you can help ensure your business remains at the cutting edge of its industry. However, the best R&D strategies go beyond the balance sheet, encompassing aspects of an organization that aren’t as easily measured in dollars and cents. This is where company culture comes into play, as well as talent. Indeed, R&D is just one side of the proverbial coin when it comes to delivering innovations the market wants; having an experienced commercialization lead on your team will help you ensure the outcomes of your R&D activities aren’t just loose ideas but fully-fledged market-validated products.
In order to truly drive innovation for the long term, your organization must understand your target market inside-out, including your customer needs and behaviors. To get there, it’s crucial to build an internal culture that supports innovation and encourages smart thinking around building new ventures. U+ recently spoke with product guru Dan Olsen about product management, and the difference between what he calls “problem space” and “solution space”. According to Olsen, “one of the top things that product managers can do is make sure the team starts out with a customer problem before they jump to a solution.” The same applies for any R&D team worth its salt; no amount of money will improve an innovation program if it's fundamentally misaligned with what the market demands.
In summary, if you want to devise a first-rate R&D strategy, you need to make sure your researchers are well-funded and knowledgeable about the problems that need to be solved. More importantly, you must foster a culture that allows ideation and innovation to flourish in the first place, even if it takes a few years for those ideas to start paying off and changing the world.
U+ can help you innovate the right way
The U+ Method can lead the development, implementation, and improvement of innovations in pursuit of any business goal, including in your R&D activities. To date, we have used this method to bring more than 100 products to market, creating over $1 billion in value for Fortune 1000 companies.
Get 20 minutes with Sean, the Managing Partner of U+ Americas, to learn more about how U+ can help your company innovate successfully.