Significantly. Research and development (R&D) drive the economy through innovation. That attracts talents that push new products and services even further, expanding the internal market and creating value for export. Finally, research and development positively affect business across the board – from internal processes, through new hires, ending with a long-term strategy for growth. How do research and development affect productivity and what should you do to make it happen?

How does research and development affect economic growth

What is the purpose of research and development?

The standard answer would be growth. Countries’ economies, as well as organizations, simply want to make more money and be more effective at getting them. Side effects of investing in it range and are vital to business:

  • optimization of internal processes
  • a better understanding of business vision
  • clear framing of business justification behind product development
  • attracting talent that further the organization on the way of business efficiency
  • increased profitability
  • built or enhanced brand recognition
  • lower cost of recruitment and customer acquisition
  • turning company into a magnet for external financing and investment
  • smoother path for entering new markets
  • potential for creating at least one unique selling product for the product at hand
  • funding through tax relief
  • activating dormant in-house talents that need challenges and opportunities

All these factors directly improve the company. The purpose of research and development is not only to figure out how to build a machine or fix advanced software development challenges. In reality, it should be a way to steadily introduce change to the organization. Either through making physical products or means to improve them.

Why are research and development important in a business?

If you went through the paragraphs above, you could argue that nothing practical could be done to this list. If that’s the case, we advise not to pursue a gambler’s career path. There’s something left and it deserves its own section in this article. 

Market reputation. There is no company in the world that can do it all. Even with the best engineers the money can buy. Companies can hire top talents but due to limited internal skill set or capacity, they have to partner up with someone. Collaborating with a trusted partner gives firms the opportunity to make products faster and with a new perspective.

Translating it for the FinTech world

How do research and development affect productivity in FinTech? For example, through the development of a minimum viable product (MVP). By making something really quick, you can test ideas on the market and their reception by the customers. An MVP is not a complete product. It’s a set of core functionalities that are tested for early adopters, brand fans, and users who want specific solutions right away. The rest – additional features and even some polish, can be done months down the road.

It’s not common for companies to use this tactic. As Reid Hoffman, an American investor once said:

If you are not embarrassed by the first version of your product, you’ve launched too late”.

Of course, nobody can afford to launch something that’s half-baked and broken. The product has to be reliable but the idea behind it is simple. You are building only a fraction of what your intended product would be in the future. Or, most importantly, what you think it should be.

The purpose of research and development is not to satisfy you as an owner. You are not building an MVP for yourself but for the user. Through an MVP, you can learn about:

  • customers (demographics, geographical location, spending habits, take on privacy, income status, etc.)
  • what the product is missing from their standpoint
  • their view on competition and similar solutions
  • why they are behaving in a certain way when using your product
  • reasons why they consider or even pay for your product
  • inefficiencies they find in competing applications
  • the reasons behind not becoming paying customers

Research and development affect economic growth by letting you navigate the product and market landscape from a bird’s eye view and from the trenches. All at the same time, with respected levels and timeframes in mind. 

How research and development affects a FinTech business?

We believe the best way to check that is to set a searchlight on the UK’s financial services sector. Great Britain is one of the world’s biggest FinTech hubs, with over 1600 companies to speak of. That’s a lot of material to chew on and draw conclusions from.

European Business Magazine delivers interesting data. R&D spending in the UK spiked to £690m in 2019, up from £581m in 2017. The annual R&D spending has risen by 124% over the last 10 years. Why? Partially because of the fearless global competition. There are many companies out there that want a piece of the pie and the only way to stay ahead of them is to… well, be ahead in the first place. 

Between the UK, Singapore, Canada, Hong Kong, France, the US, and Nordics as the main areas for growth, we also have Africa on the rise. That’s a lot of FinTech hubs and incubators that can spawn future stars. Some of them also come from Scotland, Zurich or Berlin. Accelerators in London do a fantastic job to boost local initiatives but it might not be enough to compete globally. 

The UK faces several major challenges:

  • maintaining a leading role of its scale-up ecosystem
  • globally finding talents for local FinTech firms
  • improving the targeted approach to inbound and outbound FinTech
  • creation of national digital agenda that will impact the sector
  • creating a system that will drive awareness for the FinTech needs among consumers, small and medium companies (SMEs), corporate and government bodies

Why are we bringing up the UK example? Because if you think about it, at least some of these challenges apply to other regions as well. That means that R&D policy is important for every financial technology company out there. Not only to build itself up but also to participate in an ecosystem that drives the entire sector. Locally and internationally. 

Why and how to invest in research and development?

One of the biggest current trends is fueling innovation by using intellectual property (IP) data. By using it, you can:

  • identify marketable competitor white space
  • understand the market your competitors operate in
  • sizing up a portfolio with those of competitors

In the most simple terms, IP data gives you a keyhole you can look through. Without a deep understanding of what’s going on in the market, you will face bottlenecks in running R&D in your company. With these bottlenecks, you:

  • can’t be sure the decision you made are the right ones
  • will have problems identifying and investing in ideas that are commercially viable
  • will have problems with identifying and partnering up with the right software provider
  • will have difficulties with pricing optimization
  • will get stuck with making an MVP or making a decision to create one

The main insights you may want to consider when looking for opportunities to grow:

  • technologies offered or used by the competitors
  • the market value they present for the users
  • market sizing (is the FinTech subsector in a given country saturated or not?)
  • potential to involve VC investment, grants, research funding, or similar solutions
  • mergers and acquisitions

That’s a lot of guesswork, research, and data mining, so the main question you may want to ask yourself is a simple one. Do you want to enter any given market or not? Stay clear of high-risk areas or build something where competition does not exist at scale and quality? Africa is a great example of that, just check our interview with Christian Kranicke, an industry veteran.

Think forward and build today

So, what is the purpose of research and development? Growing a company and making it fit into a larger scheme of things. You can do it yourself but it’s hard. Sometimes it’s better to sit back and relax while others sweat to develop something. It can be code, it can be a digital product design

Choose what you need but don’t wait indefinitely. After all, paraphrasing what Reid Hoffman said, you don’t want to be embarrassed for too long.