As the business world becomes more competitive, it is critical for businesses – especially small businesses – to keep up with the pace of change to remain relevant and successful. Besides the obvious benefit of developing new and improved offerings, Research and Development (R&D) should be part of any company’s growth strategy as it leads to more innovative products, improved risk management and tax incentives among other benefits.
The UK Government’s R&D Scheme for SMEs
UK Chancellor Jeremy Hunt recently announced a new R&D scheme for 20,000 small and medium sized enterprises (SMEs) in the Spring Budget which came into effect on 1 April 2023 and is worth around £500 million per year. The R&D scheme introduced by Hunt allows SMEs to take advantage of a new “enhanced credit” where businesses can get a £27 credit for every £100 spent if they spend 40% or more of their total expenditure on R&D.
“That means an eligible cancer drug company spending £2 million on research and development will receive over £500,000 to help them develop breakthrough treatments,” Hunt said in March when he delivered the Spring Budget speech.
“It is a £1.8 billion package of support helping 20,000 cutting edge companies who day by day are turning Britain into a science superpower.”
The move is aimed at reducing the number of fraudulent and incorrect R&D tax relief claims, with the UK government hoping it would create a more streamlined system. While Hunt has described the move as part of a “budget for growth”, not everyone shared his enthusiasm.
Despite concerns, it is worth examining the benefits increased spending on research and development have for any business – no matter its size.
Driving Innovation and Growth through R&D
The effects of this new scheme will be far-reaching. By incentivising businesses to invest in R&D, the government is helping to drive innovation and growth across the UK. This, in turn, will lead to increased competitiveness, improved productivity, and job creation.
As businesses invest in R&D, they will have the opportunity to create new products and services, enter new markets, and fine-tune their processes.
These steps will prove fundamental for those hoping to future-proof their businesses against potential disruptions. As we have seen with the COVID-19 pandemic and the economic fallout during ongoing global lockdowns, businesses that were able to adapt quickly and innovate were better able to weather the storm. By investing in R&D, businesses can be better prepared for future challenges, whether they be technological disruptions, changing customer needs, or global crises.
Besides the obvious benefit of future-proofing your business and creating more innovative products, focusing on research and development also has the potential to improve and increase your business’s reputation when you collaborate with trusted and reputable partners or strong scientific institutions. This can only further improve the chances of your business’s commercial success.
R&D for Improved Efficiency and Customer Understanding
No matter the size of your business, prioritising R&D can lead to improved efficiency within and across your business and various divisions. A focus on environmental impact and social responsibility will prove greatly beneficial for businesses looking to create a loyal customer base and position themselves as leaders at the forefront of positive change. A study by McKinsey and NielsenIQ found that consumers are increasingly aware and receptive to products and companies that are more environmentally and socially conscious. In fact, those businesses averaged 28 percent cumulative growth over the past five-year period, compared to those who did not appear to be ESG conscious.
This goes hand it hand with another important benefit and strategy of R&D: understanding your market and the wants and needs of your customers. Conducting market research as part of your business’s R&D strategy will help your business gain a better understanding of your customers and what they are looking for. As is clear from above on a broad level, ESG strategies that match customer attitudes can facilitate significant growth. However, it is also important to gain real time insight to adjust to micro-changes and trends across your industry. Doing so, won’t just help you understand your customers better, but it will also help your business to stay ahead of your competitors.
By staying ahead of the curve and developing new products and services, businesses can be better positioned to adapt to changing customer needs, emerging technologies, and global trends.
Attracting and Retaining Top Talent through R&D
But perhaps one of the biggest benefits of prioritising and investing in research and development is that it can create an environment in a business – no matter the size or scale – where it attracts and retains top talent. “Interestingly, talent management is also the practice that has the highest opportunity for improvement. That makes this a tremendously powerful lever to improve R&D productivity, regardless of its current level,” research by McKinsey & Company found.
So, while the economy is struggling it could be the perfect time to step back and take time to focus on R&D, taking advantage of the tax credit scheme to improve and perfect your business. You never know where it could take you.