Spending on Innovation
Dec 5th, 2009 | By Gene A. Wright | Category: Innovation, New Product Management, Strategy, Technology StrategyFrom Strategy and Business
Profits Down, Spending Steady: The Global Innovation 1000
“Booz & Company’s annual study of the world’s biggest corporate R&D spenders finds that most companies have stuck with their innovation programs despite the recession — and many are boosting spending to compete more effectively in the upturn.”
My take: Innovation should ALWAYS be a priority. R&D for New Products, a priority.
What do you think?
I think that companies have to continue to give funds to R&D, especially those companies that rely on new technologies to sell their products. I especially think that automotives are one of those industries that cannot afford to cut R&D’s budget. If they were to do this the automobiles they will be selling will be less appealing then they already are. I guess I just can’t ever see cutting R&D’s budget, it would be like chopping off your own hand, you just don’t do it.
The saying goes: “You have to spend money to make money” and this is exactly what these companies are doing. In order to get out of this recession companies are trying to come up with the next best thing that people HAVE to purchase. If they can get consumers to realize that the item is more of a necessity that a commodity, that extra spending will have gone a long way.
R&D are some of my favorite things at huge corporations. Assuming everyone gets some R&D time, this is a great way to allow employees to grow and try new things that they might not have the time to do before. I would see this as one of the top things on the list if I was creating the budgets.
Rightfully so, spending on R&D is staying steady. I like jstac above put it, “companies need to create products the consumers HAVE to purchase.” Whats innovative is to make a product that is “recession-proof,” something that people will always need and hopefully want. If a budget needs to be cut, I think companies should look elsewhere than R&D, because that is what is keeping the company profitable.
I think it depends on if your R&D is marketing driven or product innovation/inspiration driven. I have seen too many times when marketing drives development of a product, that includes small changes, confuses the customer base, increases the cost, changes the packaging, and then needs to be sold as a loss leader in order to gain market share. True innovation and inspiration, I would plow money into…marketing not so much.
I agree completely that innovation should always be a top priority particularly with emerging technology enterprises. Technological growth is exponentially increasing and potential profits can be huge for the companies that choose to focus on what is going to be the next big thing. I think this is particularly important due to the number of companies banking on the next big innovation to corner the marketplace-R&D is a vital component.
I feel that R&D is one of the most important departments of an organization. If you are not creating innovations for your company you will eventually run out of ways to add value to company. If that happens your company will fail because others will pass right by you. Innovation is the key to continued success. R&D should have a substantially large budget.
Beyond R&D, I believe article stresses the need to remain strategic in difficult times. Companies need to find ways to scale back, remain financially viable without sacrificing their future. Foregoing strategic initiatives could result in lost opportunities with significant long term impact on the organization. Companies heavily dependent on R&D and the introduction of new products can’t wavier.
I like that these companies are focused on the future. They are being realistic while remaining optimistic. R&D is a way to stay current and focused and I believe that these companies have the right idea, and this is what I would do if I was in a CEO role.
I agree, I believe that R&D is always a big deal to a company. Like we mentioned in class, once the company stops making new things, no one finds them interesting anymore. That shows their customers that they feel they have done the best they can, where as in other companies that are constantly coming up with new ideas and trying thigns, people stay intrigued and keep up. Also, with the recession, new products could be a key player to some companies, especially if they figure out what customers want. Getting to the point, low prices could be a huge success during a recession.
Our CEO always says ‘never waste a good recession’. The idea is to keep investing in new capabilities and improvements during an economic downturn so that when the economy picks back up, you are in an even stronger position to beat the competition
I agree, it’s very important that companies spend the time, effort and money to figure out what the market wants. If they don’t, how else will everything rebound? Sure we could spending, come out with nothing new, and have the same products for 5 years, but will that solve anything? Mostly likely not, because we will get bored, it’s the American way. Companies need to be smart about it though, not develop everything that looks cool, more of what is useful is the way to go.
A company has to be out of their mind if they even consider eliminating or cutting the R&D department. Without R&D a company cannot compete, in a rapidly evolving economy and industry R&D will help sustain a company by allowing them to stay ahead of the game.
“Innovation is what drives our competitive position”
I can definitely agree with the above statement. Without continuous improvement and innovation, a company is bound to fail miserably. Eventually your product will be bypassed and substituted easily with a better, more updated, product. You need to be investing in the future of your business to stay one-step ahead of your competition.
R&D is the life blood of any company and only short term close minded profit grabbers would destroy their company by starving their R&D Budget. I really like dsbaker26 ceo comment to never waste a good recession that is a true strategic thinker. The economy will always rise and fall, but what you position compared to your competition is usually dependent on your strategy, and your R&D edge you have in the market. This article is nice because it reinforces that thinking.
in order to begin making a profit again, the firm must spend money on innovation. If you stop innovating, you’ll fall behind your competition rendering it difficult to be profitable not to mention putting your firm at a significant disadvantage. When this economy does turn around (because it will) it will be those who have innovated in the tough times that succeed.
without inovation and research companies cannot compeate with other companies who progress and stay ahead of the curve. You will not only lose money in the long run but will lose consumers.
I agree that innovation is highly important, especially in a technology world where things are moving quickly, products have short life cycles, and companies are already thinking several projects in the future. Innovation will not only allow a company to stay ahead of the competition, but if done right, will allow them to define where their industry goes.
A recession is kind of a make or break time for companies- if you are using your resources wisely and infiltrating the market, even if they might not be making purchases at this time, you will see a return when the economy improves. Companies that lay low and rely on past business practices or already successful products will be forgotten in a time where consumers don’t have the money or the time to think of them.
It was refreshing to hear that organizations are continuing with their R&D efforts. During an economic downturn consumers are more willing to switch from their tried and true brands. If competitors continue to innovate and you drop your R&D spending and stay status quo, then you are running a high risk of your competitors overtaking your market share with a more dynamic offering when the market recovers.
I think that if you do not continue to spend money on R&D, you will not be competitive in the marketplace. If companies are not continously finding ways to grow and innovate, then there is no place to be in business. Innovation is change, and consumers are always changing and always seeking new products. Competitors will definitely steal market share and sales if you dont turn out new products. During a recession is the time that using R&D to innovate is key to success when the market turns around. Once consumers are looking to spend more again, they will be looking for new products. Lastly, if you dont continously spend money on R&D, you wont make money to stay in business. R&D and innovation are necessary in consumer markets.
Having worked in both NPD and product management, I can say that I DO agree that resources should always be spent on R&D. At the very least, research should be done to develop more cost effective products – products that customers need, that don’t cost a lot to develop and can therefor be sold at a lower cost to meet the needs of those hit hardest by the economy. The challenge comes when your own company downsizes the R&D department, but still allocates R&D spend towards funding new projects…with no one to work on them.
Great research article. I think innovation should always be top priority for any business to maintain competitive position in their respective markets. If there is no R&D and innovation, competitors can easily beat any company easily. It should be a percentage of sales, but in recessions, the priority has to be given in terms of other ways to offset drop in sales to maintain the correct budget for R&D..
I agree, business is like a never ending race and if you pause to relax more often then not your not going to catch up to your competitors. The article talks about the big budgets that electronics manufactures have on R&D, and I can see why… that is one fierce race. I remember building multiple computers during the 90s and early 2000s and seeing a wide assortment of different video cards for one (I know I sound geeky here), but now there are only two major manufacturers; nVidia and ATi. Simply their competitors couldn’t compete with their R&D budgets and no longer exist. To expand on the first response I don’t think stopping R&D is like cutting off your own hand, its more like signing your own death warrant.
Even in a recession, R&D must remain a top priority. Innovation which leads to competitive advantage can be the driving force that leads a company out of this slump. Companies that do not sufficiently invest in R&D may be passed by their competitors and no longer be able to survive.
Sounds like I may be the first person to disagree. I do not say that spending on R&D is a bad idea, but simply that it is foolish to say that you should ALWAYS spend on R&D, or that without it you never be competitive, or that a company is ‘out of their mind’ to cut R&D. Such absolutes have no place in business decisions in my opinion.
The only thing you should ALWAYS do is look at your company’s business objectives and build a strategy based off those objectives. If you are in a highly commoditized industry, for example desktop PCs, then is your objective likely to be to create the best PC in the world? Unlikely, since it will be only slightly better than the next guy and provide a small benefit\cost ratio. More likely you will have objectives which differentiate you from your competitors, like good support or streamlined manufacturing (Dell is a perfect example of this).
My guess is that most product producing businesses will have an objective of product differentiation, and in those cases product development is likely to be a priority. I simply warn against jumping on the bandwagon of any strategy ‘always’ being right.
R&D is one of the main strengths of the innovators. The top innovators have to keep spending in R&D to stay ahead of the competition and come up with something new or improved to main their competitive advantage. Cutting back on R&D significantly might make the income statement look good in the short run but it would have repercussions in the long run.
R&D and innovation are the pillars on which companies are built. Every company has to constantly change and adjust to what they are doing in order to succeed. Decreasing the available funding for R&D is a myopic and counterproductive short-run decision that can be very costly to any business. There are plenty of other avenues to decrease expenses from switching suppliers, restructuring, and finding small ways to increase profits that affect the business in a positive way.
R&D expenditures is a hard pill to swallow for most firms. It is in the best interest of the company to spend effectively on R&D and monitor results. Every decision of the company should be results oriented.
Honestly, I’m surprised that companies have continued to invest in research and development as much as this article suggests. Closely maintaining the percentage of investment that they previously had been spending shows an impressive level of confidence in the economy’s ability to rebound from this recession. I believe that these companies are making the correct choice, to continue to invest in this way. It also makes sense that they are shifting the focus of their R&D money to developing existing products instead of creating and marketing new ones.
As you stated that R&D is a priority for all kind of business. It seems to me that R&D is a long term investment that would give business a leverage in the future.
I agree! without R&D your company will not have opportunity to gain market share and the company will eventually fall off the market. In order for products and businesses to make it long term innovation wil be the key to being sustainble in the competitive market. Those companies that are the first to be the innovative leaders are the ones that are most sucessful. After doing the business simulations in a few classes, most of the products we marketed did not prevail unless we invested a significant about in R&D.
My response is going to be more on the rhetorical side… companies SHOULD spend more on R&D during lean times. Mainly, because they usually do not plan for the economic downturn and have to be agile to stay competitive. Suppliers are also affected and without having alternative methods to develop a finished good, well, you better come up with an idea to find alternative manufacturing processes or suppliers. R&D can be a side effect of this phenomenon.
I am glad to hear that companies are trying to stay competitive and realize the benefits of R&D. Resting on your laurels can cause huge headaches down the road!
I left an earlier comment on this thread, but after revisiting I feel the need to reiterate my earlier comments. Dan appears to be about the only other poster who doesn’t jump on the bandwagon of ‘ALWAYS do X’. Few things in life are absolutes, and business decisions are no exception.
The one absolute in business may be to say that every business decision should support a companies’ business objectives at a given point in time. If R&D investment doesn’t support it, then you shouldn’t do it. Perhaps your business objectives are misguided and should be reevaluated, but to pursue strategies opposite to those objectives will put you in much worse shape.
People should be more wary of lumping all businesses together, thinking that what is good for one business must therefore be good for all.
I agree with Craig that there is a limit to R&D spending. To take an even more extreme example, my father-in-law is a farmer….now, obviously he needs to stay current with trends and if there are new opportunities to produce higher yields or make his business more efficient, he needs to be aware of this. But he does not need to do his own research and development in the way the term is usually defined, and particularly he should concern himself with such things at the expense of getting his crops in on time or tracking the going prices to know the right time to sell.
Craig puts it just right….. there are varying types of business models. Many, probably even most, will require R&D to thrive. But some do not. And for others, there may come a point where cutting R&D is the right move. And of course there are examples of companies who cut R&D and later regretted it, but equally, there are examples of companies who cut lawyers or project managers or accountants and later regretted it. The takeaway point should be that we shouldn’t have a default assumption that X should always be the first thing to look at cutting. Varying environments will call for a variety of remedies.
There should be a limit to R&D spending. However it cannot be cut completely from the budget. Whether it is outsourced or kept in house, spending for many companies must continue to include R&D. However, I think R&D departments could learn a lot and gain a lot from a lean perspective. I think a lot of those departments spend money on useless things that could keep the budget lower, and make the units more cost productive.
During our time of current recession companies still see the value of innovation. Most companies view R&D spending as something that could not be cut from budgets. Because it may be more difficult to sell products, new innovation is the key into bringing in new customers. So, the recession may be a catalyst for increased innovation. Where will consumers spend their money? They will spend it at a company who is undaunted by the recession, and is continuing to expand and innovate. Even through these tougher times, companies see the value on continuing investments in innovation.
Companies should always include R&D monies in the annual budget. New product innovation is an integral part of any business trying to be the leader in the market, and having the competitive edge costs money. R & D monies will be needed each year to accomplish this, and the return on the investment must be monitored to ensure effectiveness.
Absolutely agree that even in the hardest of times, R&D spending should remain a priority. I have worked for companies that in tough times cut spending in an artificial attempt and making the bottom line look more appealing to the share holders. This will ultimately lead to disaster as your competition continues to innovate and steal share. Interestingly, the companies I’ve worked for who engage in this behavior have been dogged with declining sales, low morale, high turnover, lay-offs, etc. While maintaining or increasing R&D spending isn’t necessarily a prescription for your company’s economic health it can help give you a competitive advantage particularly if the competition are making cuts.
I think companies must not forget that, even during a recession, new ways of getting product to the customers is still very vital. Actually, recessions are a great time to innovate because recessions have a way of leveling the old to allow new methods of innovation. Sometimes, the old ways were a barrier to success. Innovation can help pull a company out of a rut, so research and development is key and should be an ongoing process through tough times. New economies require new ways of branching out and reaching consumers like never before.
Cutting all funding towards research and development will destroy a company especially during the hard times. By including in a portion of the budget for innovation, this could aid in group moral, competitiveness, resource allocation, and may even ground breaking discoverings. Research and development costs are usually held within a separate budget from the mainstream business and should be taken seriously. Without these innovations, the future of the company could be doomed.
Coming from the research side of an organization, I have the viewpoint that R&D efforts are an integral part to any organization’s survival. Even basic research that may take longer can strike a big return when new knowledge is produced as a result of it. However, research, whether basic or applied, as well as development should always have very clear goals, otherwise it will fail regardless of how much money or time is spent on it. The fact is, companies typically fund projects that more closely match their current markets, and reject ones that could fuel the next decade or more of market opportunities. So, while a recession is a great period for deciding which projects to keep and which ones to kill, this must be approached from different perspectives. Executives must find out which projects have the greatest potential for short-term rewards, but also continue to invest on projects that will lead to returns in the long-term. Therefore, the organization’s R&D portfolio must be balanced, between gaining immediate returns, and investing on potentially disruptive technologies that will bring them an edge in the future. Only focusing on short-term projects may impact the company’s health and longevity.