what is research and development r d 
research and development r d is the series of activities that companies undertake to innovate r d is often the first stage in the development process that results in market research product development and product testing understanding research and development r d the concept of research and development is widely linked to innovation both in the corporate and government sectors r d allows a company to stay ahead of its competition without an r d program a company may not survive on its own and may have to rely on other ways to innovate such as engaging in mergers and acquisitions m a or partnerships through r d companies can design new products and improve their existing offerings r d is distinct from most operational activities performed by a corporation the research and or development is typically not performed with the expectation of immediate profit instead it is expected to contribute to the long term profitability of a company r d may often allow companies to secure intellectual property including patents copyrights and trademarks as discoveries are made and products created companies that set up and employ departments dedicated entirely to r d commit substantial capital to the effort they must estimate the risk adjusted return on their r d expenditures which inevitably involves risk of capital that s because there is no immediate payoff and the return on investment roi is uncertain as more money is invested in r d the level of capital risk increases other companies may choose to outsource their r d for a variety of reasons including size and cost companies across all sectors and industries undergo r d activities corporations experience growth through these improvements and the development of new goods and services pharmaceuticals semiconductors and software technology companies tend to spend the most on r d in europe r d is known as research and technical or technological development many small and mid sized businesses may choose to outsource their r d efforts because they don t have the right staff in house to meet their needs types of research and development r d there are several different types of r d that exist in the corporate world and within government the type used depends entirely on the entity undertaking it and the results can differ there are business incubators and accelerators where corporations invest in startups and provide funding assistance and guidance to entrepreneurs in the hope that innovations will result that they can use to their benefit m as and partnerships are also forms of r d as companies join forces to take advantage of other companies institutional knowledge and talent one r d model is a department staffed primarily by engineers who develop new products a task that typically involves extensive research there is no specific goal or application in mind with this model instead the research is done for the sake of research this model involves a department composed of industrial scientists or researchers all of who are tasked with applied research in technical scientific or industrial fields this model facilitates the development of future products or the improvement of current products and or operating procedures the largest companies may also be the ones that drive the most r d spend for example amazon has reported 1 147 billion of research and development value on its 2023 annual report 1advantages and disadvantages of r dthere are several key benefits to research and development it facilitates innovation allowing companies to improve existing products and services or by letting them develop new ones to bring to the market because r d also is a key component of innovation it requires a greater degree of skill from employees who take part this allows companies to expand their talent pool which often comes with special skill sets the advantages go beyond corporations consumers stand to benefit from r d because it gives them better high quality products and services as well as a wider range of options corporations can therefore rely on consumers to remain loyal to their brands it also helps drive productivity and economic growth one of the major drawbacks to r d is the cost first there is the financial expense as it requires a significant investment of cash upfront this can include setting up a separate r d department hiring talent and product and service testing among others innovation doesn t happen overnight so there is also a time factor to consider this means that it takes a lot of time to bring products and services to market from conception to production to delivery because it does take time to go from concept to product companies stand the risk of being at the mercy of changing market trends so what they thought may be a great seller at one time may reach the market too late and not fly off the shelves once it s ready facilitates innovationimproved or new products and servicesexpands knowledge and talent poolincreased consumer choice and brand loyaltyeconomic driverfinancial investmenttakes timeshifting market trendsr d accountingr d may be beneficial to a company s bottom line but it is considered an expense after all companies spend substantial amounts on research and trying to develop new products and services as such these expenses are often reported for accounting purposes on the income statement and do not carry long term value there are certain situations where r d costs are capitalized and reported on the balance sheet some examples include but are not limited to r d considerationsbefore taking on the task of research and development it s important for companies and governments to consider some of the key factors associated with it some of the most notable considerations are research and development vs applied researchbasic research is aimed at a fuller more complete understanding of the fundamental aspects of a concept or phenomenon this understanding is generally the first step in r d these activities provide a basis of information without directed applications toward products policies or operational processes applied research entails the activities used to gain knowledge with a specific goal in mind the activities may be to determine and develop new products policies or operational processes while basic research is time consuming applied research is painstaking and more costly because of its detailed and complex nature r d tax creditsthe irs offers a r d tax credit to encourage innovation and significantly reduction their tax liability the credit calls for specific types of spend such as product development process improvement and software creation enacted under section 41 of the internal revenue code this credit encourages innovation by providing a dollar for dollar reduction in tax obligations the eligibility criteria expanded by the protecting americans from tax hikes path act of 2015 now encompass a broader spectrum of businesses the credit tens to benefit small to midsize enterprises 2to claim r d tax credits businesses must document their qualifying expenses and complete irs form 6765 credit for increasing research activities the credit typically ranging from 6 to 8 of annual qualifying expenses offers businesses a direct offset against federal income tax liabilities additionally businesses can claim up to 250 000 per year against their payroll taxes 3example of research and development r d one of the more innovative companies of this millennium is apple inc as part of its annual reporting it has the following to say about its research and development spend 4in 2023 apple reported having spent 29 915 billion this is 8 of their annual total net sales note that apple s r d spend was reported to be higher than the company s selling general and administrative costs of 24 932 billion 4note that the company doesn t go into length about what exactly the r d spend is for according to the notes the company s year over year growth was driven primarily by increases in headcount related expenses however this does not explain the underlying basis carried from prior years i e materials patents etc 4