Academic journal article Research-Technology Management

Industrial Research Institute's R&d Trends Forecast for 2004: More IRI Member Companies Than Last Year Plan to Increase Their R&D Spending-But They Are Outnumbered by Those Companies Expecting to Curtail Spending

Academic journal article Research-Technology Management

Industrial Research Institute's R&d Trends Forecast for 2004: More IRI Member Companies Than Last Year Plan to Increase Their R&D Spending-But They Are Outnumbered by Those Companies Expecting to Curtail Spending

Article excerpt

The R&D Trends Forecast for 2004 indicates that more companies are reducing rather than increasing their R&D spending. More companies than last year plan spending increases, but those cutting spending outnumber them. Consequently, the changes and reductions that we characterized last year as "leveraging" now appear to be "lessening." Reductions outnumber increases in capital spending, basic research, support of existing businesses, staffing, new-grad hiring, research intensity (R&D spending target as a share of sales), and even outsourcing and licensing. The major indicators of reductions (with survey question numbers in parentheses) are:

* Total company expenditures on R&D (1)

* Capital spending for R&D operations (2)

* R&D professional personnel level (4)

* Hiring new graduates (5)

* Targeted R&D/Sales Ratio (9a)

In the prior-year comparison charts on page 20, some lines are increasing, implying improvement. The charts show increases in categories: share of sales, total dollars, total hires, and others. It is important to be aware that these increases are occurring, because they may represent behavior observed by Richard Foster, as reported in the November December 2003 RTM (pp. 36-43).

Foster wrote that in a study of 1,200 firms, McKinsey & Company found that many of today's industry leaders spent 22 percent more on R&D than their unsuccessful peers during the 1990 91 recession. In contrast, the leaders spent just 9 percent more outside of the recession. Therefore, this year we have a situation among the companies surveyed that has happened before but does not happen often. We are in a recession, and a significant fraction of companies decided to increase R&D spending in response. The charts show that in each of several categories, such as R&D spending (1), more companies than last year indicated increases of at least 5 percent. The Sea--Change Index (Table 1) tells the rest of the story, indicating that more firms actually plan decreasing industrial R&D spending and activity in several important categories. If Foster is right, the ones increasing spending will likely be future successful leaders.

Here is another way to look at the data. Imagine that you are a grade-school teacher with 20 children in your classroom, and you track the health of your students. One day you note that 4 students seem perfectly healthy, 14 have the sniffles but are well enough to attend school, and 2 are absent due to illness. The next day, you note that 6 students seem healthy, 6 have the sniffles and are present, and 8 are absent due to illness. If you kept a graph of that health data in the same way as the IRI graph of the category increases, your graph would show a significant increase in "well" students--a jump from 10 to 30 percent. Problem is, the students are sicker--the group so ill as to be absent increased from 10 to 40 percent, a larger jump. As the teacher, you find both points are useful: more students are well, and more students are ill. With the IRI data, we show both the graphs and the Sea Change Index because both the increases and the decreases are important.

The rest of this article describes highlights and implications of 2003's responses for R&D conduct and spending in 2004. For continuity with prior reports (RTM, Jan.-Feb. 2003, pp. 17-20), we continue calculating the "Sea-Change Index" (Table 1). For each question, such as "Total company expenditures on R&D," the index is calculated by subtracting the percentage of respondents predicting any decrease from the percentage predicting an increase of 5 percent or more. This assessment tells us whether respondents, taken together, intend to increase or decrease the factor measured by each question. Table 1 shows the results for the surveys conducted from 1999 through 2003, labeled "2000" through "2004" respectively. The Sea-Change Index helps to outline the dilemma in this year's results, correctly showing that on balance, more companies are cutting R&D spending and intensity. …

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