Industrial Research Institute's R&D Trends Forecast for 2008: IRI Member Companies Again Plan Significant Increases in R&D Expenditures as They Remain Optimistic about the Future

By Scinta, Jim | Research-Technology Management, January-February 2008 | Go to article overview

Industrial Research Institute's R&D Trends Forecast for 2008: IRI Member Companies Again Plan Significant Increases in R&D Expenditures as They Remain Optimistic about the Future


Scinta, Jim, Research-Technology Management


The marketplace continues to provide plenty of mixed signals to U.S. businesses: higher energy prices, uncertainties related to housing and interest rates, and a weak dollar. There are also many technology needs, as companies seek to respond to a variety of environmental and social issues. The Industrial Research Institute member companies that participated in its annual trends survey are once again responding to the above conditions by planning a significantly higher level of R&D spending along with continuing growth in open innovat

"Total Company R&D expenditures" (Q1 in Table 1) is forecast to have robust growth, with 38 percent of the companies forecasting a 5 percent or greater increase. Unlike 2007, however, when no change in the R&D/ Sales ratio was forecast, it appears that this level of expenditure growth is increasing faster than sales growth. This year, 20 percent of respondents are projecting an increase in R&D intensity while only 11 percent are forecasting a decrease (Q9a).

Most of the R&D expenditure increase appears to be planned to develop "new-business projects" (Q3c) with another decline forecast in "support of existing business" (Q3a) and some increase in "directed basic research" (Q3b). It should be noted that this is the first projected increase in directed basic research in this decade.

The trend seen last year of an increase in "hiring new graduates" (Q5) is forecast to continue at a modest level. IRI companies also report plans to increase modestly the R&D professional level (Q4). It appears that this hiring is aimed at both replacing retiring workers and supporting the projected higher level of internal research activities.

Again this year, companies are continuing to strongly support open innovation as shown in the forecasts for significant increases in the use of outside resources. Companies are planning to make increasing use of "outsourcing" (Q6) and "licensing technology from others" (Q7). They are also planning much more work outside of their own companies, as shown by the planned increases in research at universities (Q9b), in consortia for precompetitive university research (Q9c), contracts with federal laboratories (Q9d), and participation in alliances and joint R&D ventures (Q9e).

Trends Analysis--Looking to 2008

This is the 24th IRI Trends Forecast. It is based on surveys from almost 35 percent of the IRI member companies that conduct R&D in the United States. These companies also have 157 research centers outside of the U.S. in 31 countries. The responses to the survey were collected in July and August of 2007. Because this is a voluntary survey and the IRI membership changes due to business events such as mergers, it is inevitable that the mix of companies changes from year to year. Nevertheless, we believe that there are a sufficient number of responses from the R&D community for the data to be meaningful.

One useful way to examine trends over the years from 2000 forward is the Sea Change Index, Table 2. Table 1 shows that there were six possible responses to questions 1 through 8 in the 2008 survey. The first two categories are deemed in the Sea Change Index as negative because they include no growth or a decrease. The last two categories are deemed positive because they expect a growth of more that 5 percent.

The Sea Change Index is calculated by taking the difference in the sum of the last two (more than 5 percent growth) and the sum of the first two (zero or negative growth). It is likely that this index understates the absolute value of change but it is believed to be a good indicator of the direction of change.

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

Figure 1 graphically depicts the Sea Change Index for R&D spending since 2000. The trend that began in 2005 of growth in Total Company R&D expenditures is forecast to accelerate sharply. …

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