Benjamin Franklin once said, “By failing to prepare, you are preparing to fail.” The same goes for investing in R&D without a proper strategy in place.
Put simply, creating an R&D strategy means defining the goals, roles, and processes needed for R&D projects to succeed. This strategy helps you win by aligning your research activities with your business goals rather than investing in projects that will seldom move the needle forward.
- Determine the Purpose of Your R&D Department
The purpose of your R&D department is one of the foundational elements of your R&D strategy. To align on a purpose, answer these questions:
- What is the broader corporate strategy and how will the R&D department support it?
When you establish a link between R&D strategy and corporate strategy, the work of the R&D department won’t be cut off from the rest of the company — rather, it will contribute to the company’s overall goals.
- How will the R&D department help you better meet your customers’ needs?
Understand what challenges your customers are facing. Involve different teams, such as sales and customer success, to get a granular overview of customer needs that can guide your R&D focus.
- Will the R&D department focus on new product development or incremental projects?
The average company invests more than half of its R&D budget into incremental projects, although riskier, more innovative bets lead to more success. When you’re developing your R&D strategy, evaluate how much of your focus is going toward incremental projects and whether it could jeopardize your long-term growth.
As the market evolves and your business grows, it’s important to re-evaluate the purpose of your R&D department to make sure it is still in alignment with your business goals.
When you answer these questions, you can get into more specific elements of your R&D strategy, starting with who and what you’ll need for its implementation.
- Decide Who and What You Will Need to Implement the Strategy
A good strategy needs good players. In this case, the players include both humans and technology.
First, define your budget, including payroll, equipment, software, and any other R&D supplies. Then decide on the structure and roles of your R&D team. R&D teams typically consist of engineers, scientists, and R&D managers, but the final lineup will depend on your individual business needs. Delineate responsibilities and decision-making processes to prevent confusion inside the team on who owns what.
Your choice of technology can also prove to be an advantage. Cutting-edge technology, like artificial intelligence, can expedite and improve the R&D process. At Meta, the R&D department is using AI to support large, ambitious projects without sacrificing more practical work. “The value of applied AI is leading to a dual-track system, where corporate R&D maintains longer-range, moonshot projects, and then another track that funnels research into practical product applications,” says Yann LeCun, chief AI scientist for Meta.
The R&D technology you invest in will ultimately depend on the products you’re developing. But all R&D departments will benefit from a thorough analysis of what the development process will look like and then an evaluation of where they can apply advanced technology.
- Consider External Partnerships
Many companies have external partnerships with universities and other organizations to bolster their R&D strategy.
The aim of external partnerships is to enable businesses to remain connected to research in the early stages, which they can then use to develop new products. Coca-Cola is funding university research that could help it implement new environmentally friendly manufacturing solutions. Lululemon is funding research on biomaterials, health, and wellbeing at the University of British Columbia. Some companies also opt to fund PhD candidates whose research aligns with the company.
Partnerships with startups are another option for companies that want to boost their innovation. “Start-ups can benefit from corporate funding, resources, and customer access, while corporations need to innovate to stay ahead of competitors and disruption, and also access new technology,” explains Tawanda Sibanda, a partner with Leap by McKinsey.
- Decide on Processes That Will Underpin Your Strategy
You can think of processes as the skeleton of your R&D strategy, helping the muscles run R&D projects in an organized way. Implementing processes will ensure you stay on the course you outlined in your R&D strategy.
Processes can include digital project management tools that help managers easily track the team’s progress and identify roadblocks before they turn into costly problems. Your processes should also incorporate workflows to help projects run efficiently and the metrics you’ll use to measure progress.
These processes can be rigid or flexible — neither option is better than the other, although businesses in some industries will prefer one over the other.
“An R&D organization working on highly novel (and highly uncertain) technologies may need much more process flexibility so that it can have the latitude to explore and iterate. In contrast, where R&D must be tightly coordinated with other functions (like manufacturing), a more tightly specified process may be necessary to ‘keep everyone on the same page,’” says Gary P. Pisano, a professor of business administration at Harvard Business School.
- Test Your Strategy
This step will ensure you’re investing in the right people, technology, processes, and partners that will support your business growth and make your solutions indispensable to your customers.
Testing your R&D strategy means making sure that it leverages capabilities that are of strategic importance to your business. According to McKinsey, “R&D organizations conflate technical necessity (what is needed to develop a solution) with strategic importance (distinctive capabilities that allow an organization to develop a meaningfully better solution than those of their competitors).”
Distinctive capabilities can be drug patents or unique technology that only your company possesses. They can also include things your business is able to do particularly well, like innovation or stakeholder management. Put simply, your strategy should leverage special capabilities that are “critical to a company’s profits and exist in abundance within it while being scarce outside.”
An additional way of testing your strategy is to summarize it in a coherent way on a single page. If you’re unable to do this, it means some aspects of your strategy are still unclear.
Support Your R&D Strategy with Tax Credits
Whether you’re a small startup or a leader in your industry, accessing more R&D funds will help you develop products faster, invest more in new technologies, and recruit top talent.
In the US and Canada, businesses that invest in R&D are eligible for the R&D and SR&ED tax credit program. As part of the program, you can get a percentage of your R&D investment back and use it to fund additional innovation.
Schedule a call with a tax expert to learn more about how to claim your tax credit.
