From 2020 to 2022, R&D spending in the U.S. rose from $367.2 billion to $387.4 billion. As more companies across industries invest in R&D, you want to be part of this movement, build a robust R&D strategy, and create products that will boost your bottom line.
Before you jump into your own project, it’s important to understand the different types of R&D. With this knowledge, you’ll know exactly what information you need to move your product development forward.
1. Basic Research
Basic research—sometimes called fundamental research—aims to deepen your understanding of a particular phenomenon or topic. It answers questions that start with “what,” “why,” and “how.”
According to the OECD (Organisation for Economic Cooperation and Development), the goal of basic research is to analyze “properties, structures and relationships with a view to formulating and testing hypotheses, theories or laws.” This type of research isn’t carried out with a specific application in mind, since you may not even know what those applications could be at this stage.
Examples of basic research include:
- Studying how long-term smoking affects the skin
- Examining the impact of remote work on mental health
- Analyzing how micromobility devices influence urban congestion
Basic research is about building knowledge, not meeting business goals. That’s why it’s mostly universities that conduct this kind of research, though businesses sometimes invest in it too—often through partnerships with universities. The results of basic research are usually published in scientific journals and aren’t available for purchase.
R&D teams use insights from basic research as a foundation for the next type of R&D: applied research.
2. Applied Research
Applied research is all about finding solutions to specific problems. While basic and applied research both focus on generating new knowledge, applied research is designed to put that knowledge to work. In business, companies often draw a line between basic and applied research by launching new projects to explore the results of basic research, as outlined by the OECD.
Any innovations that result from applied research may be protected by intellectual property laws.
There are three types of applied research:
- Action research tackles immediate problems. For example, if your company’s project management system is slowing you down, action research can help you find a fix.
- Evaluation research measures and assesses the success of a project or activity. For instance, you might evaluate how new lab tools have improved your R&D team’s efficiency.
- Research and development as a branch of applied research focuses on gathering knowledge to create new products for the market.
It may seem confusing that R&D is both a type of applied research and an umbrella term for all research activities. The broader R&D category includes basic research, applied research, and experimental development—each with its own purpose. Basic research, for example, helps companies build foundational knowledge about a topic or phenomenon. This knowledge might not lead to a product right away, but it’s still valuable for your R&D strategy.
Examples of applied research include:
- Finding ways to stop the spread of misinformation on social media
- Researching technology that can improve the capacity of lithium-ion batteries
- Exploring new methods to manufacture more energy-efficient home appliances
3. Experimental Development
In experimental development, R&D teams use the results of basic and applied research to create new or improved products and services.
Experimental development isn’t the same as product development—it’s a key part of it. At this stage, your R&D team tests their knowledge and applies it to real-world product challenges. For example, a car manufacturer might test a new airbag technology while developing a new vehicle.
In many companies, the same R&D team handles basic research, applied research, and experimental development. But in some cases, different teams take on different roles. In pharmaceuticals, for example, the drug development process might begin with academic researchers discovering new insights about a disease. A pharmaceutical company can then use that knowledge to develop a new compound that treats the disease more effectively.
How Is Industrial R&D Different from Academic R&D?
The R&D process varies by type and industry, but there’s also a big difference between R&D done in industry and in academia.
Academic R&D is primarily about generating knowledge, not immediate applications. Industrial R&D, on the other hand, is focused on gaining knowledge that supports business goals, leads to new products or services, and drives profits. Because it’s tied to business objectives, industrial R&D usually moves faster than academic research.
But industrial and academic R&D often intersect. Many companies partner with universities to tap into cutting-edge, early-stage research. For example, a semiconductor materials company partnered with Arizona State University to speed up the development of new semiconductor equipment.
Fund Every Type of R&D with Tax Credits
Funding R&D projects is essential to launch new and improved products and grow your profits. But securing this funding isn’t always easy—especially for startups just getting off the ground.
In both the U.S. and Canada, companies that invest in R&D can access tax credit programs that refund a portion of their R&D spending. These programs are designed to support and reward innovators with financial incentives they can reinvest in new research.
In the U.S., the tax credit rate is 6% for small businesses and 14% for large companies. In Canada, the maximum credit is 15% of eligible R&D expenses. These are significant amounts, so make sure to check if you qualify for R&D tax credits.
Find out how you can qualify for the R&D (U.S.) and SR&ED (Canada) tax credit programs.
