Blogs & Comment

R&D in a tough economy

Despite the economic uncertainty, companies aren’t giving up on innovation.
Although executives must be sorely tempted to focus on the severe and ever-changing challenges of the here-and-now, it seems that they are for the most part taking to heart the idea that research and development budgets should be protected from cost-cutting initiatives, so that when the recession ends, the cupboard isn’t bare.
The Wall Street Journalreported on Mondaythat big U.S. companies spent nearly as much on R&D in the last three months of 2008 as they did a year earlier, even as revenue fell 7.7%. (The WSJ looked at the 28 largest R&D spenders, excluding auto makers and the drug industry, where government requirements dictate R&D spending.)
This could be a lagging indicator, as the story notes:

“Research budgets often are planned in advance and take time to cut. Companies that today pledge to protect R&D may cut it tomorrow, particularly if the recession worsens. Mergers of major players could lead to cost-cutting that crimps overall R&D spending.”

But the question of how muchis being spent on R&D is perhaps not so pressing as the question of howR&D budgets are spent (and even where, since some North American firms may outsource more R&D overseas). According to this story, companies are retooling to focus on improving existing products, and not as aggressively targeting new markets. (Also, the U.S. government’s stimulus spending plans are also shaping R&D prioritiesno surprise there.)
In response to the story, Massachusetts-based innovation consultant and author Scott D. Anthony wrote a blog post of his own, warning that this might be the wrong approach. By pouring money into improving existing products, companies could “overshoot” what customers are willing to actually buyand miss emerging opportunities. Anthony’s suggestion: prune R&D prudently, and balance the short-term opportunities with exploring new markets.
So how do you do that? If you ask Sophie Vandebroek, Xerox Corp.‘s chief technology officer, she would likely tell you to talk to your customers about both the here-and-now, and the futureand empirically study how they use your products or services.
Vandebroek spoke about this when I interviewed her for a recent column of mine about her company’s revamped approach to R&D. Xerox, which is not one of the 28 that the WSJ analyzed for its story, is an interesting example of a company with a long-standing commitment to R&D, but also one with a history of squandering it. Ever since Xerox almost went bankrupt earlier this decade, a priority for Vandebroek has been making R&D more effective.
It is no panacea. Xerox still faces its share of business challenges.
But it’s worth noting that while Xerox has big research facilities with lots of smart engineers and scientists toiling away in labs, what matters is how successful those same people are working alongside business managers to foster real innovation with their customers.
What’s your company’s approach to making innovation work in an uncertain economy?