Innovation is high on the government’s agenda. But how can companies invest in R&D given the current economic conditions? Establishing an innovative culture in your organisation is the key to success, says Barrie Dowsett.
When it comes to innovative research and development, it is easy to picture a lab – one in which a large technology company is working on something amazing, like a robotic arm. You’re likely to think of pharmaceuticals as well, especially given that Ireland is renowned for its thriving medicine industry.
But, actually, innovation is happening all around us.
Research and development (R&D) is simply about seeking a scientific or technological advancement or overcoming a challenge that could not easily be solved by a professional in the field. From developing new products, services, or processes from scratch, to improving those which already exist, R&D is likely to occur in your business more often than you think.
The state of R&D in Ireland
There has been a significant rise in the amount of investment in R&D from Irish businesses in recent years and that has coupled nicely with the fact that innovation is high on the government’s agenda.
Recent data released by the Central Statistics Office show that the total expenditure on innovation projects in Ireland totalled almost €5.5 billion in 2018, an increase of 18.2% just two years prior.
The main reason behind this leap is the 39.4% increase in expenditure for in-house R&D, totalling €3 billion in 2018 up from €2.2 billion in 2016.
This information from CSO goes deeper too and shows that in 2018 the acquisition of machinery, software, and equipment represented 20.7% of the total spend at €1.1 billion.
Embracing an innovative culture
All businesses will approach R&D differently. Some have an innovative culture in place from the start. Others, however, take time to instil it. There are other variants to consider as well, like company structure, size, and ability to claim.
Take size as an example. Businesses looking to create brand new products and services tend to be larger, more established, and better able to meet the demands of extensive market research and production.
However, small- and medium-sized enterprises are more likely to work on improving existing products rather than creating new ones, as a development from scratch can be prohibitively expensive. Some companies will be able to set up their own R&D department, while others will outsource their efforts to gain the skills and knowledge required.
Furthermore, with the effects of COVID-19 being acutely felt across the Irish economy, many companies simply feel unable to give R&D priority at the moment, with statistics showing that 85% of Irish businesses have scaled their operations back or even shut their doors entirely.
R&D and the Irish economy
Having a well-defined and funded R&D strategy isn’t just about showing off amazing products, it’s also about staying ahead of the game.
Marketplaces are becoming more competitive and companies are in direct competition with each other to offer something bigger and better to retain their customer base. Although investing in R&D often requires some generous financial outlay, the rewards can also be significant.
Another big benefit of investment in R&D lies in the ability to claim R&D tax credits, with the government recognising the benefits it brings to the wider economy through job creation and growth. The incentive is lucrative too, covering up to 25% of R&D expenditure over and above the standard rate of 12.5%, meaning Irish companies can obtain as much as 37.5% of R&D costs back, either as a corporation tax reduction or as a cash lump sum.
Creating or developing products and services, both for commercial purposes and within a company, can lead to great pay-offs. But innovation can’t happen without some element of risk, and for many companies meeting the costs involved can be daunting.
However, there is a range of national and EU schemes available to help mitigate the costs in addition to R&D tax credits, like Enterprise Ireland funding supports, Horizon 2020, EUREKA Eurostars, and more.
Whatever size and sector the company is in, a well-executed and funded R&D strategy is essential to survive and thrive.
Barrie Dowsett is the CEO and owner of Myriad Associates.