Businesses see tech as the most important driver for R&D, study finds

Research published yesterday revealed the ways businesses have been forced to innovate in response to the COVID-19 crisis

Technology is viewed as the most impactful driver for R&D among businesses today, according to research published yesterday by Ayming Group, with 39% of respondents citing it as such in the second annual International Innovation Barometer (IIB).

Published on Wednesday 30 September, the IIB unveils a surprisingly promising landscape ahead, despite the turbulence caused by the coronavirus pandemic. The report also revealed that many R&D departments are benefitting from the creation of new innovation ecosystems, funding models and the increased deployment of technology.

On top of this, the surging importance of R&D means many companies are looking to outsource their technical support, with use of third-party resources rising from 35% to 48%. While collaboration levels are down, a new outsourcing model is emerging, encouraging larger companies to create their own innovation ecosystem with smaller organisations.

However, the pandemic has brought on a unique and continuing set of challenges, such as budget increases dropping by 12% this year, as well as fierce global competition for talent recruitment, and various complications and restrictions making it hard to innovate and collaborate.

The corporate funding structure is also evolving; while incentives remain integral to success, with R&D tax credits being the most popular reward at 47%, the application process is still convoluted, which puts small companies with limited resources at a disadvantage. Small- or medium-sized enterprises (SMEs) often can’t afford to fund R&D projects themselves, so these issues have spurred a major jump in private funding, with equity/debt funding up by 6%, and crowdfunding soaring by 17%.

“The pace of economic change is rapid, and COVID-19 has added fuel to the fire. And, while the impact of the pandemic on R&D has yet to fully reveal itself, companies must innovate through market downturns. Fortunately, this report reveals that businesses and governments alike are discovering new ways both to fund their innovation and make it more productive,” said Mark Smith, partner of innovation incentives at Ayming UK.

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“Yet, these emerging trends seem chiefly driven by private resources. Governments can safeguard innovation spending by encouraging further education on R&D – because ultimately businesses need to know how much they are doing to decide whether to boost activity – and through the provision of further incentives. By demonstrating that innovation will be rewarded, governments can help maintain R&D growth.”

“By demonstrating that innovation will be rewarded, governments can help maintain R&D growth” – Mark Smith, Ayming UK

Sustainable innovation is a major focus of the 2020 IIB, which found that most businesses still are not prioritising sustainability, with 35% allocating between just one and 10% of their budget towards sustainable practices. Respondents say this is allocation is primarily set to improve business performance, indicating that sustainability remains a secondary concern.

There has, however, been heightened demand for environmentally-friendly products and processes, for which it was generally agreed that more needs to be done, but legislation – which was unanimously deemed unimportant by respondents – is not the answer. According to the study, the response to this would be increased tax incentives for sustainable projects, which is the second-most important factor behind technology to help achieve sustainable innovation, at 28%.

“Solving problems is at the heart of innovation,” added Smith, “so it is essential both for COVID-19 and for challenges like the climate crisis. It’s becoming clear that there are huge commercial opportunities in environmental solutions. Businesses must rise to this challenge, and with urgency.

“It needs to be crystal clear specifically what counts as sustainable R&D for it to be rewarded. In my mind, that is our way to a circular economy” – Mark Smith, Ayming UK

“It seems that greater incentives are the way forward because, although providing a minimum standard, regulation can distract businesses from their underlying ambitions. For a supercharged tax incentive to work, definitions need to be drawn up. It needs to be crystal clear specifically what counts as sustainable R&D for it to be rewarded. In my mind, that is our way to a circular economy.”

Click here to read the full IIB report.

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