With No Guarantee of R&D Returns, What's a Company to Do?

Ann All

Much angst has been generated over companies' need to become more innovative. Innovation is the key to appealing to ever-more-distracted consumers and keeping an edge over the competition, we are frequently told.

 

Indeed, because operational efficiency is now taken for granted, says the Cutter Consortium, innovation will become the primary competitive differentiator moving forward.

 

That innovation comes at a price -- and a pretty hefty one for many companies, judging by this list of top 81 IT spenders at Baseline.

 

The spending is concentrated among the top 10 players, folks like Microsoft, IBM and Intel, Baseline notes. Indeed, they lay out nearly seven in 10 of the R&D dollars spent by those on the list. Only about half of the top 10 devote the majority of their spending to products for business rather than consumers.

 

Though Microsoft is a notable exception with its Vista OS, Baseline also notes that most of the R&D money being spent on business applications goes toward tweaking existing products rather than developing new ones. Companies are spending a significant chunk of cash on testing -- an especially important consideration for those offering services in a hosted model.


 

What's disconcerting about this, of course, is that there is no guarantee of return on R&D investments. A scary piece of research published by Booz Allen Hamilton late last year found no significant statistical relationships between R&D spending and traditional measures of financial or corporate success, such as sales and earnings.

 

Is it any wonder that companies are being forced to become increasingly innovative in how they allocate their innovation budgets? Standalone research labs are vanishing, with all manner of intellectual property partnerships and purchases replacing them. Companies are inviting outsiders to contribute to R&D by simply opening up their APIs.

 

In order to avoid abandoning an idea that could lead to the elusive "killer app," Salesforce.com introduced the Idea Exchange, a platform that allows customers to vote on features the company is considering for development. Adobe has gone so far as to promote an "idea mentor" who is tasked with making sure ideas aren't dismissed too readily, relates the Baseline article.



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