R&D Spending Becoming More Results-Oriented

Ann All

When I wrote about the importance of innovation during economic downturns earlier this month, a major point was that investing in research and development puts your company in a better position when the economy recovers -- especially if some of your competitors had to cut back on R&D spending.

 

Trying to get an edge over competitors is one of three reasons companies are reluctant to scale back R&D spending, according to a strategy+business article (free registration required) that includes results from Booz & Company's annual Global Innovation 1000 survey.The other two reasons: Innovation is now considered a core component of overall corporate strategy, and product development cycles typically outlast recessions, which means companies have likely already committed R&D resources.

 

The survey found spending at the 1,000 companies with the world's largest R&D budgets grew 5.7 percent in 2008, less than the 10 percent increase in 2007, but right in line with the respondents' 6.5 increase in sales. As the article points out, the increase looks even more impressive considering the group's 8.6 percent decline in operating income and 34 percent drop in net income during the same period.

 

This doesn't mean the companies haven't made adjustments in their R&D spending. It seems to be about spending smarter, rather than spending less. They're making changes in an effort to wring more value from their investments:

  • They are spending less on pure and applied research, and more on product development and engineering. Forty-four percent of respondents allot less than 20 percent of their R&D budget to basic research and advanced development, and almost 40 percent said their companies are shifting resources from basic research in favor of emphasizing new product launches.
  • Forty percent of respondents are trying to speed up their innovation efforts.
  • Nearly half of respondents said their companies are more conservative with their R&D spending. Among other things, they are changing the criteria used for proceeding with new products and keeping closer tabs on their competitors' activities.
  • Some 40 percent of respondents said they are getting better at killing bad projects.
  • 70 percent are tweaking methods for capturing customer requirements.


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