Companies have stuck to their R+D spend, but what about innovation?
Booz & Company’s annual study of the world’s biggest corporate R&D spenders finds that most have kept or slightly increased their R&D spending as a % of sales throughout the recession. Qualitatively, interviews have confirmed that, by sticking to their R&D, managers expect their companies will outpace their weaker rivals on innovation and emerge from the downturn with a stronger competitive advantage. So far so good…
Interviews also reveal that, by-and-large, companies had little choice. In most industries, development programmes span across several years, while recessions typically last less than a year (at least by the strict definition of a recession). R&D budgets therefore benefit from a lag effect: unless they are prepared to regret a large amount of sunk investment from previous years, managers have to carry on with their R&D programmes.
Where managers had a real choice it turns out that:
a) they have re-prioritised the R&D budgets away from mid/long term research and focused on short-term product launches – obviously in an attempt to boost flagging sales.
b) more than half of the companies that were surveyed have become more risk averse, tightening criteria for launches and nervously watching their competitors to match their moves (as opposed to take the risk to dive).
Without being precious about it and getting in a futile argument about what constitutes innovation and what doesn’t, it seems to me that this is indicative of a shift from R&D programmes with a potential for disruptive innovation to R&D programmes more likely to yield more rapid but only incremental innovation. I do not mean this as a critcism; indeed it may well be the wise thing to do given the circumstances. But then managers should not expect that their companies will have created such a marked competitive advantage when the upturn appears on the horizon.
In other words, maintaining R&D spending may be more of a defensive than an offensive move.
How top companies are innovating through the downturn is published in the Winter 2009 edition of strategy+business.