Rick Rashid, head of Microsoft's (MSFT) research arm, oversees 850 of the brainiest people in the technology industry. But he doesn't push them to help the Microsoft groups working on the next Windows operating system or upcoming Xbox. Instead, he gives researchers wide leeway to pursue their own interests and write papers about ideas that may not pay off for 10 or 20 years—if at all. "We're about doing things that frankly people may not want," says the 57-year-old Rashid, tilting back in the desk chair in his modest office on Microsoft's Redmond (Wash.) campus. "The point of a basic research group is really to do the things you don't know you'll need."
It's an increasingly rare—and some say outdated—approach to corporate research. In recent years, as cost-cutting pressures have mounted, tech giants from Hewlett-Packard (HPQ) to IBM (IBM) have pushed their researchers to concentrate on practical ideas, projects that are likely to lead to a financial payoff. But Microsoft has maintained the same hands-off, academic approach to research it has had ever since Rashid was recruited from Carnegie Mellon University in 1991 to lead the effort. "Research management is almost an oxymoron," he says.
Microsoft is coming under growing financial pressure. In July, the company reported its first annual decline in revenues since going public in 1986, and it had substantial layoffs earlier this year for the first time ever. But Craig Mundie, Microsoft's chief research and strategy officer and Rashid's boss, says there's no plan to change course. "Even now, I worked to preserve full investment in Microsoft Research," he says. "This is a lifeblood issue for the company, and there's no intent to change the model."
Outsiders on Wall Street and in Silicon Valley gripe that Microsoft has little to show for its patience, but Rashid says Microsoft Research (MSR) has made important contributions to new products. Natal, a gaming system launched in June, is based on work from the research unit's Cambridge, England, lab. Bing, Microsoft's search engine, includes innovations from MSR. Another research team, led by Lili Cheng, is integrating social networking into the corporate world. Some of her ideas will be built into an upcoming version of the Outlook e-mail program, making it easier to organize messages from certain friends or work groups.
Rashid won't identify which areas of research he thinks are most promising since he wants his staff to find their own way. But his team is delving into potential breakthroughs in robotics, health care, security, and privacy. Cynthia Dwork, principal researcher in MSR's Silicon Valley lab, is working with people inside and outside the company to set standards for privacy and lay the foundation for products Microsoft could later sell to help people manage their privacy online.
Experts say MSR has yet to deliver the far-reaching innovations that could validate Rashid's approach. John Seely Brown, former director of Xerox's Palo Alto Research Center (PARC), says the transfer of technology from lab to marketplace is always challenging. "My sense is that MSR continues to be extremely inventive," he says. "But can they hand these insights, prototypes, services, to another beast that can do something with them? That's the classic dilemma."
Rashid says he doesn't want to become overly practical or short-term. He plans to keep recruiting the smartest people he can find and giving them plenty of freedom. "Our business is not a very forgiving business," he says. "I see my job as trying to ensure that 10 years from now there still will be a Microsoft."