What Is R and D? (With Types and Benefits)

By Indeed Editorial Team

Published May 29, 2022

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Research and development (R and D) can help companies think of innovative ideas, solutions, products, or services. Doing so may allow businesses to improve customer satisfaction and increase their revenue. Understanding what research and development is and how to use it can give you the ability to grow and develop a business. In this article, we explain what R and D is, discuss the three different types, explore its benefits and disadvantages, and offer answers to some frequently asked questions about research and development.

Related: How to Do Market Research With 6 Guided Steps (With Types)

What is R and D?

Research and development, or R and D, is a process that companies and organizations use to create new and innovative products. Companies typically create a separate department to perform research and development tasks that can help them develop new products or services. Instead of increasing profits immediately, most companies expect this department's ideas to contribute to the long-term success of the company and improve its offerings to customers.

Because research and development can't guarantee a return on its investment, some companies outsource the work to other specialized businesses. Using this tactic can allow companies to save money and resources while still developing new ideas to grow their organizations.

Related: Research Skills: Definition and Examples

3 types of research and development

Here are three main types of research and development:

1. Basic research

When the company conducts basic research, sometimes known as pure or fundamental research, it often focuses on learning as much about a subject as possible without having a practical use for it. This type of research can allow companies to gain 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's important to dedicate a large and consistent amount of resources, as understanding the problem better may make it easier 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, it can use the applied research step to try different solutions and strategies. During this step, companies can try to incorporate the solutions with the customer and industry demands. If a solution doesn't actually help the company grow or develop, it might be better to search for a different answer.

3. Development research

Development research is often a combination of applied and basic research. The company can take the information it's learned about a subject or topic and use it to develop new products or services for customers. Most often, these products and services fill a need or 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.

What are the benefits of research and development?

Research and development can be beneficial to companies for these reasons:

Increased customer satisfaction

One of the most common potential benefits of research and development is that it can help companies increase customer satisfaction. It can allow businesses to create new products, services, or features that meet their audience's needs. Offering more services and products that are targeted to specific consumer niches can increase customer loyalty and satisfaction. This can help companies increase revenue, encouraging consistent growth.

Related: What Is Customer Satisfaction and Why Is It Important?

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 generate funding for the company's next innovative idea. Sometimes, a larger business might like the idea so much that they offer to buy the business and merge with it. This can allow the smaller business to continue to generate new lucrative ideas that benefit both companies.

Increased motivation

Research and development can help motivate employees as they're creating innovative, useful products and services. This can help them feel more excited and passionate about their work, increasing productivity and job satisfaction. Companies that use research and development are often more innovative than their competitors. This environment can encourage employees to offer new ideas or solutions frequently, improving communication between employees and management.

Tax credit

To encourage companies to conduct research and development, the government created a program called the Scientific Research and Experimental Development program. Companies that conduct research and development may be eligible for one of three tax incentives: an investment tax credit, an income tax deduction, or a refund. Businesses that conduct research and development to gain knowledge that helps achieve objectives or resolve a problem may be eligible. The Canada Revenue Agency offers a pre-claim consultation form you can fill out to assess your eligibility for the tax incentive before applying.

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. Advice from the marketing department can also influence the direction and focus of the research department. Because marketers often have a better understanding of what customers want for their products, they can tell researchers what to focus on and help them develop new products faster.

Related: What Is Marketing Positioning? How to Develop a Strategy

Competitive advantage

When you conduct research and development, you can create new products or services that help the company compete with other businesses. Having a larger competitive advantage can help attract more customers to the business and increase overall profits. It's also possible that research and development can help you save on the company's production or manufacturing costs. Spending less on production can allow you to increase the budget for other aspects of the company, such as marketing, to help increase your competitive advantage further.

What are the disadvantages of research and development?

Although research and development can offer many benefits, it can also have these potential disadvantages:

Research cost

The biggest disadvantage of research and development is its upfront cost. It's a long-term process that isn't guaranteed to produce results for companies, so it can be a risky investment. The startup cost may consist of purchasing resources and materials for research and development, such as hiring and training a team. To reduce costs, companies may outsource research and development projects to other organizations or share some tasks between departments.

Time-consuming

Another disadvantage is that research and development can expend a significant amount of time. Its most impressive results typically require in-depth analysis, so they're not immediate. Companies can benefit from releasing simpler products or services quickly, then investing in research and development after generating some stable income from other sources.

Frequently asked questions about research and development

To learn more about research and development, you may consider the following answers to frequently asked questions about the process:

What jobs are available in research and development?

If you're interested in research and development, you may consider pursuing one of these common careers in the industry:

  • Research analyst: Research analysts find and collect data that can help companies make more informed decisions. They may create charts, presentations, or graphs to present their findings to management.

  • Research and development specialist: These specialists collect, sort, and analyze raw data. They may also collect their own data by performing experiments or conducting surveys.

  • Research and development manager: Research and development managers typically oversee a team of researchers and offer guidance when necessary. They may act as a liaison between their team and upper management.

What industries use research and development?

Almost every industry uses research and development, but some can benefit more from it than others. Most often, pharmaceutical companies, software companies, and semiconductors spend the most money and resources on research and development. It can help businesses in these industries develop innovative products to distinguish themselves from their competitors.

How do companies account for research and development?

Companies can note the amount they spend on research and development as an operating expense. This includes all purchases related to the research and development, such as purchasing assets, or materials, computer software. Companies typically include this expense on their income statement, a financial statement that displays a business' profit and loss over a specific period.

Explore more articles