Earlier this month, it was revealed that Tencent, China’s most valuable tech firm, reported another staggering set of earnings—with operating profit growing by 20% year on year in the first quarter, to $6.5bn.
This is no surprise, in and of itself, as Chinese tech giants have been among the biggest benefactors of the shift towards online consumption caused by the pandemic. The more interesting question to consider, though, is what exactly are they doing with these stellar profits?
Well, rather than sit on it or pay it back to shareholders, Tencent has followed the lead of other tech heavyweights by ramping up investments in its business—in Research and Development, to be precise. The re-investable cash flow means the competition to innovate has never been fiercer, and companies are racing to make the most of the influx of resources.
Even if you wouldn’t consider yourself an industry titan, though, R&D (Research & Development) is an essential component of any company’s overall approach. So let’s take a closer look at what we can learn from this trend of investing in R&D.
Research & development
Research and Development spending has always been an important part of the long-term strategy of any company that wants to ensure they have staying power. Investment in R&D helps a company distinguish itself as forward-thinking and lets others see that they are committed to innovation.
In general, those that prioritize R&D tend to generate bigger profits than those that don’t. But of course, not all these payoffs are easy to measure.
R&D spending and profitability
R&D spending by itself does not automatically guarantee profitability. In some cases, the payoff happens quite quickly, and companies see successful projects result from spending heavily on R&D. On the flip side, companies can also suffer from poor performance losses even after investing a great deal of money each year in R&D.
To tell what’s working and what’s not, it’s necessary to employ an R&D return metric that measures the profitability of a technology company’s R&D spending. Known as return on research capital, or RORC, the metric effectively measures the proportion of profits generated from R&D spending in a previous period, such as the past year.
Therefore, when investing in R&D, the trick is making sure your RORC is where you want it to be.
How does GANDT consult on R&D projects?
At GANDT, we enable intelligent R&D decisions and act as a supporting layer to R&D initiatives within a company. Through co-creation and collaboration, we can help evaluate a problem-solution fit, a product-market fit, or more generally support innovation with our project management expertise and toolsets.
We understand that successful R&D is about bringing the right innovative products onto the market at the right time. This requires adaptability in the rapidly changing environments we operate in. We stay on top of it by leveraging the best and most efficient tools available to bring a product to market, accessing data and insights, and using them to inform on the right conditions, consumer behaviors, and needs.
Evaluation and validation
We are skilled in evaluating the business economics for our clients to test and scale assumptions much faster. Therefore, a product can be validated before it goes into the sales cycle and saves valuable time and investments. With our innovation scouting service, we look at internal and external data points to map the trends relevant to your business, using them to predict the product development needs in your marketplace.
A collaborative framework
Most importantly, we provide a nurturing and collaborative environment built around enablement and co-creation. We believe that true innovation is always built together and that transparent knowledge sharing is the foundation of all our partnerships.
Are you looking to take the next step to ensure your company’s future? Get in touch to speak with one of our experts and learn how your company could benefit from an updated R&D strategy. Likewise, if you’d like to stay up to date on current social media trends and growth marketing hacks, follow us on LinkedIn, Facebook, and Twitter for the latest digital marketing news.