Over the last seven years, IBM aggressively revamped its research arm to avoid the main pitfall of corporate R&D: Failing to get inventions out of the lab and into practical use. IBM researchers now spend 25% of their time with clients, pinpointing customer needs and tying that back to research. The company last year spent over $5 billion on R&D, and for at least the last eight years, IBM has received more patents than any other company in the world, generating $1.7 billion in licensing revenues. It's pushing the envelope with research on distributed computing, self-diagnosing systems, semiconductors, and supercomputers.
BusinessWeek's Jim Kerstetter and David Rocks recently spoke with Paul Horn, director of IBM Research Group about the state of innovation. Following are edited excerpts of their conversation:
Q: Is there a crisis in innovation? Will less venture money flowing into startups mean less innovation?
A:With the reduction in venture capital, there'll be less investment money, and that means less R& D, and less R&D means less innovation. But my belief is that's an interim thing. We're very much in the middle of the evolution of technology. Technology has been evolving since 1900, and there's no end in sight as far as we can tell.
Q: Are there any stumbling blocks that you see on the horizon?
A:Whenever you look out 10 years, you see things that you don't know how to get around. That doesn't mean the problems are insurmountable. It just means we don't know how to solve them with what we know today. But think about how quickly PCs and computer-processing power have developed. Technology isn't slowing down.
A PC today has the brainpower of a lizard. In 20 years, a PC will have the brainpower of a human being. So in the next 20 years, we're going to go through 100 million years of evolution, from dinosaurs to human beings.
Q: That addresses the issue of new-product innovation. But the dot-com boom was as much about business process as it was about products. Do you think that there may be an issue with innovation in new business processes?
A:The dot-com boom and all of the venture-capital spending that accompanied it stimulated innovation in business models and technologies. There's no doubt that the last few years were a very active period, and now, it'll slow down somewhat. I may be optimistic, but I think that by the end of this year or sometime next year, the economy is going to start cooking again. There's so much value that the Net brings to business that it can't help but spur innovation.
Q: Do you think the U.S. economic downturn will affect innovation overseas?
A:Innovation is one of the great strengths of the U.S. economy. There has been a huge infusion of dollars into startups that have fueled innovation. That's going to slow down a bit, and that will level the playing field internationally.
Q: With venture-capital spending down, what's the importance of advanced research at established companies like IBM?
A:I really feel IBM Research adds value to IBM now and to IBM in the future. I think a lot of people felt that all the action was happening in the dot-com space, in startups. But with the change in the economy and the resurgence of older companies, that situation revitalizes central research at established companies.
Q: You know, the rap on IBM Research was always that it couldn't turn its ideas into products. Or, in turn, the innovations coming from companies like IBM only improve existing product lines. What do you think?
A:IBM has learned from its mistakes. New business models tend to be generated by new businesses, not older businesses like IBM. On the other hand, the things that set traditional businesses on the head have come from R&D. Look at the copper chip [a product first conceived in IBM Research nearly 15 years ago that's now in every server and mainframe IBM makes]. The whole industry is going to be turned around because of an innovation from us.
Q: Is high-tech innovation in a lull right now?
A:If you look at the industry as a whole, we're in a bit of a lull right now. But I don't think we [IBM] are in a lull. A well-run research organization shouldn't go up and down with the economy because it takes so long to build it, and it takes just a very short time to ruin it.