There is no doubt that the economic climate has hit research and development.
As detailed by R&D magazine there appeared to be a decline in the anticipated growth rate of effort directed toward new business for the first time since 2002. There has also been a slowdown in the growth of professional staff, the hiring of new graduates, and in the outsourcing of R&D to other industry.
And yet at the same time, many firms are maintaining some form of R&D in anticipation that markets will eventually recover. Unlike other downturns, many firms are starting to see R&D as a competitive advantage.
It is important to remember that adversity breeds innovation. The oil shock of the 1970s saw the invention of the mobile phone. The recession of the early 1980s gave birth to the PC, and the World Wide Web followed the stock market crash of 1987.
Indeed, IT companies are now saying that the recession could be good for innovation. Orders have crashed but many firms are now looking at which technology to back. Instead of investing the money in production, they are now backing R&D.
One of the most interesting examples is in the confectionary business. Chocolate maker Mars is expecting continued growth with the firm investing in R&D that will ensure the brand is freed from artificial colours, flavourings and preservatives. This is in line with Mars’ consumer trend research showing that in times of uncertainty, consumers stick to brands they know and trust to provide quality. Consumers are not prepared to sacrifice their ethics and values.
What is more striking however is the evidence suggesting that companies that continue to spend on R&D during recessions will perform better than competitors who don’t. These are the findings in this study which compared the R&D spending of 122 and 172 companies in the recession years of 1982 and 1991. Of companies that spent more than 5% on R&D, 70% showed sales increases in 1981-82 and 74% showed sales increases in 1990-91.
The researchers write: “Unless a company is operating in a technological environment where R&D expenditures greater than 3% of sales can be justified, it must expect its sales to decline in a recession. In fact, R&D expenditures in excess of 5% of sales are needed to ensure reasonable growth during a recession.”
How much R&D is required to stay ahead in this economic climate?
