R&D projects take undeserved spot at front of line for cuts

April 27, 2012
R&D projects take undeserved spot at front of line for cuts

Research and development (R&D) is a key component of business practices. Without adequate R&D, businesses render themselves unable to innovate properly, which could curtail a company’s ability to grow and improve its offerings. Considering the explosion of businesses – especially in technology sectors – consumers will always have options to receive better products or services from other companies.

Companies need to be careful with how they plan for long-term R&D projects. While these initiatives may seem to represent expenditures at first glance, some businesses consider them to be assets since they provide direct financial benefits to companies. Accountants should also consider the duration of time that a company receives a direct benefit from the project.

Given the challenging landscape of today’s economy, many organizations have come to view R&D projects as extraneous expenses that can be near the front of the chopping block when costs need to be cut. After all, the benefits of R&D initiatives are never guaranteed, along with net gains that are derived from these projects. Many companies would rather cut these projects than reduce services or institute layoffs.

According to a recent Harvard Business Review article, this is precisely the wrong direction a company should take as it tries to rebound from years of difficulties. HBR estimated that had the top 20 companies in the United States enhanced their R&D expenditures, they would have added $1 trillion to their coffers.

“R&D is the basic engine of economic health,” according to the article. “Ill-advised cuts in research spending for the sake of a short-term bottom-line improvement stifle growth that would otherwise benefit the company – and society – over the long term.”

When trying to find business professionals who are well-versed in long-term financial planning and understand the substantial benefits of R&D work, companies should work with finance recruiters that have experience in a number of different industries.

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