Is Your Research and Development Under House Arrest?
I recently read Borderless World by Kenichi Ohmae in which he discusses technology growth and research investment by firms. Ohmae highlights the differences between companies that truly flood the pipeline with investment, and those that play the betting game with a handful of specific projects.
The book reminded me of a dinner meeting I had with an executive at a former company, during which we talked about our firm’s growth strategies. I challenged him on why the R&D budget was never really pegged for development, but rather, was slated for day to day projects. You know, customer X came in and wanted product Y and our R&D finances went into delivering Y. He suggested that customers were at the cutting edge and if we give them what they want, we were in essence doing real R&D work. Having spent most of my career in the engineering and technology space I did not agree, but I let the issue go as I knew I could not sway his thought process
Unfortunately, funds allocated for “R&D” are worthy of various tax credits for many firms. In some senses, putting a lot of money in R&D helps the firm save on its tax bill even if the money goes into more day-to-day activities. To keep costs down, though, real research and development funding is often among the first expenses to get cut, so you’re left with the day-to-day.
And it’s true; firms have limited resources – cash and people – to devote to real technology growth. You are often stuck fighting for the same resources as the folks in the other departments. The flip side of this, though, is that if you let your customer do the pioneering, what prevents competitors from taking market space?
I encountered these issues on several occasions at that firm. The issue became especially painful when the time for us to develop what the customer wanted exceeded their needs by a factor of three (18 month versus 6 months). What do you think they did? Effectively, our lack of investment reduced our competitiveness and customers were no longer willing to wait for us.
If any of this sounds familiar to you, here’s an approach I took that got my team out of this frustrating circle: I took matters into my own hands. I gathered my most senior developers and threw the data in front of them: we were not competitive and we were now losing our market edge. Having been on the team for nearly two decades longer than I, they agreed. “Long overdue,” they said, and resources were needed to invest in testing, development and prototyping – without it, the situation would only get worse.
With their support and input, we began to carve out a strategy to secure greater funding from the business. The strategy employed data to show senior management the unsettling trend of lost business and we used it as evidence that investment was needed. “This product gap was the reason we lost a $27 million dollar contract.” During annual technology reviews two months later, we again highlighted the lost business to the decision makers in the firm to illustrate the problem. And again, during the budget planning cycle, we stole a few minutes to put a plug in for our R&D needs.
This may all seem like common sense, which it is. But what made the difference was the level of detail behind our requests. We didn’t simply say ‘we need more money.’ How many times do decision makers hear that phrase? We put a plan together to say that 24% of the investment would go into a university partnership, 38% towards an advanced testing program, 13% would go into materials, and 25% was for prototyping. The key is to be very specific in your request; what type of testing, how will you make your prototypes, etc. And, I’d be lying to you if I didn’t tell you I put my chief scientist in charge of the factory tours and asked him to throw out as much technical jargon as possible to make our project seem extremely important.
The end result of our campaign for real R&D: a 47% increase in our budget the following year, all earmarked for our technology growth projects. When it came time to share the project with customers, we received invitations to their technology summits to carve out strategies and share ideas. How better to win business than when the customer feels they can’t live without you?
In my opinion, Borderless World by Kenichi Ohmae is an essential read for anyone leading technology and development teams as Ohmae highlights numerous examples of mistakes firms made, and how rethinking their strategies put them back on course for prosperity. I found many of the examples to be eye opening, and I highly encourage a read.