From R & D to R & D: Centralised Research Is Being Reined in for the Foreseeable Future, in Favour of Profitable Product Development

By Cochrane, Peter | European Business Forum, Winter 2003 | Go to article overview
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From R & D to R & D: Centralised Research Is Being Reined in for the Foreseeable Future, in Favour of Profitable Product Development

Cochrane, Peter, European Business Forum

Only five years ago investment in R & D was considered a healthy essential for the longevity of industry and society. No matter where you went in the world you would find huge investments realising a steady flow of new and exciting technologies.

The preceding decades had witnessed microwave radio, microelectronics, optical fibre, lasers, cellular radio, the PC, the internet, and almost all the seminal technologies and applications on which we now rely. So what happened?

Just mention research investment today and it is like revealing you have a dose of the plague. The focus is now 100 per cent development--picking winners is the only game in town, and launching products assured of success and a good Return On Investment (ROI) is the primary gamble. So how did we get here, and can we be assured of a bright future without fundamental research?

It might seem paradoxical that the vast majority of R & D organisations associated with IT have been drastically reduced or closed down when the last year has seen more new mobile phone offerings than all the products delivered by the entire electronics industry throughout the 1950s. The telecom and IT sector is turbo charged to satisfy an insatiable customer base by turning out more products year-on-year, at the same price or less, with ever more facilities, better performance, greater service offerings--and rapidly narrowing profit margins. The point is that the IT and telecoms sector has matured and its products have become commoditised. Moreover, while we have accumulated a vast knowledge and the ability to create more and more products year-on-year, the extrapolation is mostly linear: more of what we already have, faster, smaller and cheaper, but without any fundamentally new innovations. In 1984, for example, it was possible to install optical fibre to the home at a lower cost than copper, by 1987 coherent optical systems were working in the field, and by 1990 optical wireless systems were almost the equal of the established microwave base. But most of these innovations have yet to reach the market.

So if we have technologies 'good to go' in the lab, why can't we get them straight to the market-place? Two fundamental time delays seem to be in the way. The first concerns the individual and the purchase of all white and brown goods, the average time it takes for the product to break down, and the average time between failure and replacement. Early adopters spend huge amounts of money up front, whilst laggards wait to buy at the lowest prices. Roughly speaking, the spread across the entire consumer base results in the magic number--ten years. To be specific: it took 12 years for the mobile phone to eclipse the fixed line telephone; eight years for the colour TV to eclipse black and white; 11 years for the digital camera to overtake the analogue; and nine years for the commercial internet to become established as a dominant force. The washing machine, freezer and microwave, on the other hand, seem to be on a five-year change cycle.

The second time delay is much longer and concerns the commercial sector with its multi-billion dollar investments in infrastructures of networks, switches, routers, and storage systems. These tend to have longer time constants of around 20 years. When capital outlay is measured in billions of dollars and has to be written down and replaced on the back of telephone calls and services, the considerations that become dominant in the delay equation are design, operational, engineering, and financial.

About five years ago it became apparent that the R & D community had got well ahead of what the market could subsume. Moreover, in the case of telecoms, some revelations were unpalatable to the copper mindsets of an industry with a 100-year corporate history. It wasn't just the arrival of the PC wiping out the mainframe and the internet becoming a threat to the phone companies, it was far more brutal.

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From R & D to R & D: Centralised Research Is Being Reined in for the Foreseeable Future, in Favour of Profitable Product Development


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