Does R&D spending deliver results?

Steve Hamm

Managment consultancy Booz Allen Hamilton just released a new study of worldwide R&D spending by corporations and concluded there's not much evidence that jacking up R&D investment delivers performance results.

Here are the bullet items from their press release:

"--The top 1,000 R&D spenders spent a total of $384 billion on R&D in 2004 – an 11% per year increase since 2002.
--There is no statistically-significant difference between financial results of average and above-average R&D spenders (with a few exceptions like Apple, #148 on Booz Allen’s list).
--Computing & Electronics, Health and Auto make up 63% of total spend on innovation.
--Individual investments in R&D ranged from $39 million to $8 billion (Microsoft)
--Companies headquartered in North America, Europe and Japan make up 96.8% of total R&D spending; China and India are growing at an annual rate of 21.1%, compared with North America (6.6%), Europe (6.2%) and Japan (4.8%)."

The company's conclusion:

"It’s the process, not the pocketbook. Superior results seem to be a function of the quality of an organization’s innovation process—the bets it makes and how it pursues them—rather than either the absolute or relative magnitude of its innovation spending. For example, Apple’s 2004 R&D-to-Sales ratio of 5.9% trails the computer industry average of 7.6%, and its $489 million spend is a fraction of its larger competitors. But by rigorously focusing its development resources on a short list of projects with the greatest potential, the company created an innovation machine that eventually produced the iMac, iBook, iPod, and iTunes."

I think it would be interesting to see if there are strong direct links between IBM's basic research labs and the company's results. CNET's just did a smart piece on IBM Research's 60-year anniversary that brings home just how many of the tech innovations came from Big Blue.

Before it's here, it's on the Bloomberg Terminal.