Does R&D Bring ROI?

Not to get all Zen on you, but, what is the value of R&D?

IEEE SPectrum has its 5th annual R&D 100 spenders, which looks at the world's top investors in R&D. It also examines what it calls 'R&D Intensity,' a measure of R&D spending as a percentage of sales.

A few notes of interest, though they only add to the R&D koan: Ford traditionally is at the top in R&D spending and in R&D intensity (it spends more relative to sales). Toyota spends a lot of money on R&D, but not compared to its overall sales. Yet Toyota, with vehicles like the Prius and the Scion, certainly seems more innovative.

Meanwhile, Apple, which is almost synonymous with innovation, doesn't spend enough to make the top 100 (by sales, it would be in the top 30). Google, another big innovator, is in the top 100 only for the first time this year (and some wonder whether its R&D spending will ever yield commercial results).

For that matter, there is not a single company from China on the list.

As the report's authors, public policy professor Ron Hira and my former Red Herring colleague Phil Ross, note:

These examples are part of a larger pattern, identified in a recent study by Booz Allen Hamilton, a consulting firm. The study found that firms whose R&D spending put them in the top 10 percent of their peer group did not outperform those peers in any financial metric. On the other hand, the Booz Allen study found that being a scrooge with R&D is also a bad idea: companies in the bottom 10 percent underperformed their peers.
Bob Buderi, in his 1999 book Engines of Tomorrow, has bookend chapters looking at 'the houses of magic' glory days of R&D in the first 50 or 60 years of this century and the 'innovation marathon' companies now must manage. His chapter on IBM Research gave a particularly useful example of how one company seems to have successfully managed R&D over the long-term.

But marathons are tough. Phidippides died after the first one (though it must be noted he had completed two 140-mile runs beforehand), and even top runners sometimes don't finish. Staying the course can look foolish in light of extreme conditions, like recession. Look for a lot of companies to answer their particular R&D riddle by cutting spending in the next year.