Imagine you’re responsible for defining and developing a new product. It’s expensive, time-intensive, and requires heaps of creativity.
Your CEO considers it a critical project, likely to be a key driver of revenue in the coming years. So, what can you do to ensure success?
Historically, Research and Development (R&D) has been an internal project reliant on big investments in infrastructure, equipment, and people. However, introducing a new mindset and believing that you don’t have to tackle the challenge alone, makes way for transformative partnerships and strategic insights that would otherwise be hard to come by. A collaborative journey towards success works best even for sizable corporations and established businesses.
Looking beyond the financial benefit
R&D activities often require substantial financial commitments, which can strain a company’s financial resources. In fact, the most recent study into R&D from the Australian Bureau of Statistics highlights the business expenditure within one financial year across all industries was over $20 billion, up 14 per cent from 2019-20. The professional, scientific and technical services industry was the top investor at over $6.97 billion followed by manufacturing ($5.2b) and then the financial and insurance ($3.07b) sectors.
Ranked by 2021-22 BERD.
Data for the Industry with the 10th highest R&D expenditure (Other Services) has been suppressed due to data quality issues. This has been replaced with the 11th highest Industry (Administrative and support services).
By collaborating with external partners, your business can share the costs and risks associated with innovation projects while still benefitting from being a part of the process. This sharing not only lightens the financial burden but also safeguards the company’s balance sheet from the potential repercussions of unsuccessful ventures.
Engaging with universities, startups, government bodies, and relevant enterprises offers a compelling method to foster innovation and gain access to new markets, new customers, new perspectives, and new methodologies. What’s more, well-built partnerships lower operational costs, offer valuable insights into new technologies and help train the required skill sets within the organisation.
So, while an initial budget is needed to kick the partnership off the ground, in the long run, businesses that look to partnerships can maximise their investment and inform their overall strategic goals.
In terms of building a realistic budget for each initiative, this depends on what you are trying to achieve. If you are serious about cracking open a new market then analysis is needed to estimate the cost of what it will take to build. Considering much of what you’re trying to achieve is unknown and therefore very hard to estimate, add a sensible risk contingency (sometimes up to 100%) and then commit to spending this.
For relatively young digital native firms the challenge can be working out what is considered product development and what is R&D. You need to fund and assess the two differently (larger risk appetite for R&D but more brutal cost control). For some highly digital and future-oriented organisations, the line between product development and R&D can be hard to draw.
For larger corporates R&D can be a useful tool to keep services up to date, engage employees, and help build brand image. These organisations can target a percentage of their overall budget, which depending on their industry means the more the better. Companies in industries that are more bricks and mortar should still be allocating budget for R&D but potentially less than those which are digital natives or are targeted at bringing new products to market.
But business leaders should remain careful. They should not spend money where they don’t fully believe in the delivery capability of those who will be doing the work. For each initiative, you can scale spend over time if you are seeing results, the same way you might allocate a marketing budget.
Leaders will also note that there can be significant tax benefits to doing R&D and small to medium-sized companies can recover a significant portion of their spend, while larger companies can also access the offset if they qualify via the “intensity threshold”. If spend falls into this category, it’s important to bear in mind that these may be audited and therefore it’s a useful step to design activity in this space with the ATO guidelines in mind.
Realising the value of partnerships
Establishing the priority for R&D initiatives is often the hardest part – we have seen multiple organisations who had “too many” ideas and failed to prioritise these effectively which meant they consistently ended up spending less on R&D than they’d budgeted for. This can leave the field open for smaller and more targeted companies. Things change both inside and outside your organisation so ensure that you have a process that can simply assess the initial priorities of your set of ideas based on business value, and continually assess these in the light of changes in the environment.
Depending on how “digital” your R&D is you could be able to identify multiple initial goals that can be addressed by small teams building a technical spike followed by PoC through the technology and key features – if you continuously examine the likely success of these you can drop those that look unlikely to bring the business value identified and prioritise those that look more likely – potentially starting new initiatives based on your updated priorities. The Portfolio management of these initiatives is fundamentally about having a simple way of assigning business value and a regular cadence of assessing that your priorities are correct; as well as the discipline to check that each separate initiative is on target to deliver the value within a sensible budget and kill it if not.
Be careful to ensure that you can have a suitable group that can properly focus on each initiative. Startups have to focus on a single idea at a time and deliver it or kill it, which is why they are usually better at this than corporates, although of course they often go out of business on the way!
Managing the risk
To avoid overspending, or wasting money, have a process that includes starting as small as possible and learning the art of the possible as you go. And ensure that you examine progress throughout the process.
It’s critically important to hold R&D teams to account for regular delivery to avoid missing targets. R&D is exploratory and speculative, but you can still apply some discipline to the process. For the research element, consider changing the game slightly and tie funding to the delivery of research results or learning. Use an iterative approach, delivering something every 2 weeks or every month. The result may be “that was interesting, but we have learned this won’t work” or might it be “that was interesting and now we know how to solve this problem”.
Even with research however, getting early promising features into the hands of real users is key, so for the development element ensure that you have (or buy) a product management capability that is focused on properly describing, prioritising and delivering the features targeting business benefits from each initiative. This capability should ensure that the features are well-described and that will start to drive a better view of how achievable these benefits are. They will also ensure that the described benefits are delivered and continuously prioritise within the list of features so that a useful and viable product is emerging.
Another risk is Intellectual Property (IP) leakage or unintentionally using other’s IP. Use tools that can help identify this and ensure that the process does not look too hard at others’ systems or IP and focuses instead on what you as an organisation want to achieve for your customers or staff. Ensure that your staff and supplier understand security implications and that protecting the IP of what you’re trying to achieve is part of their core responsibility.
Aligning with success
Trust is pivotal for a successful partnership, which means choosing the right partner is an important step. When assessing organisations to collaborate with, determine those that complement your company’s strengths and fill gaps in your expertise. Also, consider those with a proven track record of reliability, shared values, and a common vision.
When forming strategic partnerships, companies have the power to dip into external sources of expertise, and knowledge share with those who possess the technical capabilities in domains that might be highly sought after. Look for partners that have a track record of providing innovation capacity for organisations and who work creatively and flexibly. Identify partners that are bringing the ability to generate and test new ideas rather than those that already have Intellectual Property they are looking to prove.
Start thinking outside the box
Startups are renowned for their agility and disruptive thinking and offer a unique perspective that can invigorate a company’s innovation efforts. By collaborating with startups, companies can gain exposure to novel technologies and ideas that were not originally present within their walls. This infusion of fresh thinking can spark creativity within companies and drive breakthrough innovations. Collaborating with industry players fosters cross-pollination of ideas and knowledge sharing.
An example of how partnering with startups leads to creative innovation is our recent partnership with AcceptPayment.com, bringing a new online comparison marketplace to payments and revolutionising the way businesses find their Payment Service Providers.
Through our partnership, AcceptPayments.com has become a global one-stop shop for merchants looking for their next provider with all the complexities worked out by the platform. This was an exciting opportunity for us, being able to help a start-up with a founder who has a deep understanding of payments to realise their ambitions and further evolve the global payments ecosystem.
As businesses continue to innovate and explore new possibilities, strategic partnerships give us the tools to create real change. As the business landscape continues to grow, the synergy of collaboration and innovation will undoubtedly shape the future of research and development. This approach facilitates idea generation, product development, and cost savings, making it an excellent strategy to enhance your business’s innovative endeavours.