Mapping out your company’s research and development approach (R&D strategy) for the next financial year is a smart move. And the lead-up to the EOFY is the perfect opportunity. By taking a step back before tax time, founders and business leaders can set themselves up for even greater success. In the first of a two-part blog series on R&D strategy and delivery, we explore, step-by-step, how to build a simple, yet solid R&D strategy for the upcoming financial year.
Step 1: Choose your type of innovation
Not all innovation is the same. To build your R&D strategy on strong foundations, it’s vital to identify which type of innovation your R&D is working on. This task is not as tricky as it might at first seem. Indeed, there are four distinct categories of innovation, and this makes life easier. They are:
- Sustaining innovation: The most common and is often undertaken by established businesses.
- Breakthrough innovation: Usually undertaken by start-ups that solve seemingly interminable challenges with their diverse skills and fresh perspectives.
- Basic research: Blue-sky research that creates foundational knowledge.
- Disruptive innovation: Tends to spawn fresh markets or reshape existing ones, often resulting in new business models.[1]
To learn more about the different innovation types and work out the kind of innovation your business is undertaking, read our article, Types of business innovation and the problems they solve.
Step 2: Meet your customers’ needs
Developing R&D that meets customer needs is essential. But it can be more nuanced than creating the latest in-demand product. How your R&D meets your customer requirements should be inextricably linked to the type of innovation you’re conducting.
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Sustaining and disruptive innovations
If your innovation is the sustaining sort, your R&D can be an incremental change that addresses a niggling pain point for identified customers in an existing market. If your R&D is disruptive, your R&D could create an innovation that delivers a significant cost saving and opens an existing product or service to a new market segment. No-frills airlines are a great example. With their use of point-to-point travel (rather than hub and spoke), fuel-efficient landings and digital technology, these new entrants unlocked a vast and previously unmet need for low-cost air travel. [2]
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Basic and breakthrough innovations
Basic research, by contrast, often has other innovators as its customers and indirectly can precipitate a diverse range of new markets and products. Albert Einstein’s discoveries are the basis for multiple products and services that we take for granted in our daily lives, including paper towels, solar panels and GPS navigation.[3] Breakthrough research is the type of R&D that finally solves a known yet intractable problem. So there are potential customers for breakthrough innovations. The additional challenge for breakthrough innovators is delivering the solution in a cost-efficient and safe way that attracts sufficient customer demand.
Step 3: Keep an eye on the competition
Researching the market to see who all your competitors are, and what they’re doing is essential. If you’re seeking the first-mover advantage, there’s little point in winning the silver medal. The key takeaway is that your competitor analysis should connect back to the type of innovation you’re pursuing while retaining a broader focus.
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Stay flexible and open-minded
If you’re working on sustaining innovation, be alert to the potential for new entrants who could disrupt the market you’re in, and how you might respond. Equally, be open to any other types of innovation (other than the one you’re working on) that might flow out of your current R&D. The research of Dr Alexander Fleming is a case in point. A staphylococcus culture plate he had been working on had become contaminated accidentally with mould. Dr Fleming noticed that the mould had halted the growth of the staphylococci bacteria. His discovery led to the world’s first antibiotic, penicillin that has saved millions of lives since it was first prescribed.[4]
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Don’t ignore AI
Artificial intelligence (AI) and machine learning are everywhere right now. And they’re forecast to be the disruptors of the decade if not the 21st century. Whatever type of R&D you’re working on regardless of your sector, it’s worth keeping tabs on AI and considering whether to include this technology in your R&D. But don’t be blinded by its promise either, now might not be the right time to add AI to your R&D mix.
Step 4: Set goals, embed processes and measure success
To ensure that your R&D strategy is effective and remains aligned with the broader goals of your business, it’s crucial to set goals, select your R&D processes and measure success. In a nutshell, the strategy KPIs. The milestones you’re aiming for with your R&D should include regulatory and technical goals.[5] These can include achieving pre-defined product or service capabilities, building a prototype, or gaining an approval or certification from a regulatory body for your innovation. The goals you set, the policies and governance processes, and how you measure them will depend on your R&D and timelines. But laying out clear metrics will give you visibility on what’s working and what’s not and enable you to adjust your R&D strategy accordingly.[6]
Step 5: Resource your R&D strategy
For your R&D strategy to be effective, it needs proper resourcing. And that means rallying the right people, technology, funding and supporting ecosystem. People are the power behind your R&D projects, so putting a diverse team in place is the foundation. Look beyond the usual markers of diversity, such as skill sets, age, gender and ethnic background. It will pay dividends to explore which innovation style your team possesses.
In broad strokes, experts agree that there are four different innovation styles. And each of us will favour one over the other three. They are Explorer, Conceptualiser, Optimiser and Implementer. Having a team that features all or most of these innovation styles will equip your business with the ideal blend of big-picture thinking, analysis, attention-to-detail, and implementation to bring your R&D strategy to life. To find out more and assess the type of innovators you have on your team, check out our article, Find your innovation style and unlock your potential.
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Agile resources
If you discover that your team lacks members with Optimiser and Implementer innovation styles, you could engage the services of a Registered Service Provider (RSP). RSPs are specialist organisations. They’re approved by the Department of Industry, Science, Energy and Resources to complete R&D either on behalf of or on a contract basis for other businesses. Aside from bringing instant expert firepower to your R&D, RSPs also let you bypass the minimum $20,000 spend needed to qualify for the R&D Tax incentive (R&DTI) refund. So, you can claim up to 43.5 cents back on every R&D dollar you invest and potentially access your tax refund early with some types of R&D finance. To find out more about RSPs and how to add one to your team, read our article, How a Research Service Provider can support your R&D.
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Funding
Capital is the engine that will drive your R&D strategy. So, it’s essential to work out how much it will cost for your R&D to reach milestones identified by your strategy. And once you’ve done that, it’s time to figure out where your funding will come from. Accessing money is notoriously difficult for start-ups or businesses with R&D. So, building a diverse capital stack is the best way to ensure your cash flow stays as consistent as possible.
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Exploring grants and incentives
After bootstrapping, grants are incentives should be your first port of call for funding. The Federal Government R&DTI program offers exceptional support for eligible start-ups and scale-ups. The downside of the scheme is that you’ll wait up to 18 months (an eon in innovation terms) to receive your generous R&D tax refund. However, with R&D finance you can access it early. For many providers, including Radium Capital, if you’re eligible for the R&DTI refund, you’re eligible to apply for a Radium Advance. Read, How to build the best R&D capital stack for your business to find out more about sourcing different types of capital.
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Other support
Although sourcing sufficient funding streams is mission-critical, that doesn’t mean you should overlook other types of non-financial support. Innovation ecosystems are a case in point. Start-ups and scale-ups that are part of an ecosystem are more likely to succeed than those that aren’t. [7] To discover how to find your ‘tribe’ and how it can benefit you and your business, read our article, How to find a start-up ecosystem and why it’s important.
Once you have your R&D strategy mapped out, look out for the second blog in this two-part series, Five steps to ace your company’s R&D delivery in FY 2025. This article will help you to implement your R&D strategy and give your innovation wings.
[1] www.mba.com. (2022). The Four Types of Innovation – And Where to Study Them at Business School. [online] Available at: https://www.mba.com/business-school-and-careers/why-business-school/four-types-of-innovation.
[2] Picardo, E. (2022). A Breakdown on the Low-cost Airline Industry. [online] Investopedia. Available at https://www.investopedia.com/articles/investing/022916/economic-analysis-lowcost-airline-industry-luvdal.asp.
[3] waldrop, mitch (2017). 4 Everyday Items Einstein Helped Create. [online] Science. Available at: https://www.nationalgeographic.com/science/article/einstein-relativity-lasers-solar-genius-science.
[4] Alexander Fleming – New World Encyclopedia. 2022. Alexander Fleming – New World Encyclopedia. [online] Available at: https://www.newworldencyclopedia.org/entry/Alexander_Fleming
[5] PixelPlex. (n.d.). R&D in Business: How to Build an R&D Strategy. [online] Available at: https://pixelplex.io/blog/rd-strategy/.
[6] Davenport, P. (2023). 5 Steps to Developing a Winning R&D Strategy. [online] Boast. Available at: https://boast.ai/blog/5-steps-to-developing-a-winning-rd-strategy/
[7] www.bundl.com. (n.d.). Why venture studio startups have higher long-term success rates. [online] Available at: https://www.bundl.com/articles/why-venture-studio-startups-have-higher-long-term-success-rates.