Maintaining research and development spending during economic downturns seems to be a key theme of various press and research reports out in recent weeks but to us maintaining or reducing such investments isn’t really the question.
The better question is how to improve the quality and impact of R&D spending through collaborative processes that identify and formulate innovation of new products or improve innovative workflows.
Take for example the Wall Street Journal story “R&D Spending Holds Steady in Slump”
Wary of emerging from the recession with obsolete products, big U.S. companies spent nearly as much on research and development in the dismal last quarter of 2008 as they did a year earlier, even as their revenue fell 7.7%, according to a Wall Street Journal analysis….
Overall spending by the 28 companies nudged down 0.7% in the quarter. Among those keeping up R&D funding is Microsoft Corp., which spent 21% more in the fourth quarter over the year-earlier period…. Intel Corp., which posted a 90% drop in fourth-quarter net income, plans to spend $5.4 billion on R&D this year, down slightly from last year, plus $7 billion in the next two years to modernize its plants. 3M Co., maker of Scotch tape, Post-it notes and other products, has laid off 4,700 workers in the past 15 months and will cut capital expenditure 30% this year, but it expects R&D spending to stay flat or increase slightly.
"We are looking at really protecting R&D," says Lisa Su, chief technology officer of Freescale Semiconductor Inc. The chip maker's fourth-quarter revenue fell almost 40%, but R&D spending fell only 6%. "That's what's going to drive growth coming out of the downturn."
BusinessWeek magazine offers a great video on R&D, where some reporters performed a screen of companies that invested in R&D during the last recession and found their stock performance benefited greatly in the following upturn. Bizweek reporter Tara Kalwarksi deserves kudos for their research.
And finally, in the February McKinsey Quarterly, authors Christie Barrett, Christopher Musso and Asutosh Padhii wrote a story, “Upgrading R&D in a downturn” where they emphasize improving the quality of R&D spending:
Companies should take a more strategic approach to cutting R&D costs, by using today’s difficult economic environment as an opportunity to upgrade the R&D organization’s focus, practices, and management. That path helps companies not only to cut their costs but also to raise productivity and speed up time to market—while positioning themselves for even greater success in the future.
Microsoft is very focused on R&D improvements, especially in the area of innovation management. High tech and electronics (HT&E) companies compete in the fastest-moving industry in the world, where customer tastes change overnight, new technologies emerge unexpectedly, and competition can appear out of nowhere. HT&E companies rely on innovation for their survival. While high tech companies may place a high priority on being innovative, most feel that their results don't measure up.
Microsoft has focused on delivering a software framework that maximizes R&D expenditures. The framework helps companies unleash the power of the collaboration within the organization, so that no matter where employees are located, they can have that proverbial “OneTeam” approach to adding value.
The framework helps high tech and electronic companies measure ideas against corporate strategic drivers and then communicates those drivers throughout the enterprise so that collaborating employees know what they are and can contribute accordingly.
For instance, scorecards let employees see how their company is performing against its preset innovation goals, which ideas are contributing to innovation and which areas need attention. The framework also allows companies to gather ideas from every level of the organization so that ideas can be viewed, prioritized, evaluated and promoted, if appropriate. The framework allows changes in conditions, corporate priorities or customer preferences to be taken into account instantly so that priorities can be identified.
As a high tech manufacturer of the Xbox® 360, Microsoft’s Entertainment and Devices business group employs some 7,000 employees for the development, production, and marketing of the video system, other entertainment and learning products and hardware devices. To customize and streamline workflow on development and production of nearly 13 million consoles, each with more than 1,000 parts, Microsoft’s E&D group developed an Office Business Application on the 2007 Microsoft Office system to connect 140 business activities in a custom workflow solution that provided improved data access, tracking and analysis. The benefits were more accurate, timely business reports; improved views of data and workflow; seamless integration between user interface and required tasks, data, and applications; better-informed business decisions; flexible solution to meet evolving requirements; and improved developer productivity. The complete case study is located here.
There’s so much more on improving R&D and innovation that we’ll be revisiting this topic in future blogs. – Sanjay Ravi