Innovating during a slump
Innovation continues despite the economic downturn, as is recounted in “EDN Innovators 2009” (www.edn.com/innovators), a special supplement shipped last month with EDN magazine. Last week, both Test & Measurement World and EDN honored innovative products introduced in 2008, and a report in today’s Wall Street Journal suggests that innovation will continue throughout 2009.
The Journal article notes, “Major US companies are cutting jobs and wages. But many are still spending on innovation. Wary of emerging from the recession with obsolete products, big US companies spent nearly as much on research and development in the dismal last quarter of 2008 as they did a year earlier, even as their revenue fell 7.7%, according to a Wall Street Journal analysis.” The analysis focused on 28 of the largest US R&D spenders, excluding auto makers and the drug industry, the Journal reported. The article quotes Jim Andrew, a senior partner at the Boston Consulting Group, as saying, "Companies by and large realize that large reductions in R&D are suicidal."
The report notes, “Overall spending by the 28 companies nudged down 0.7% in the quarter.” Microsoft, the report notes, spent 21% more in the fourth quarter over the year-earlier period, despite flat revenue. Intel, the article continues, plans to spend $5.4 billion on R&D this year, down slightly from last year, despite having posted a 90% drop in fourth-quarter net income.
The article notes that Freescale Semiconductor’s fourth-quarter R&D spending fell only 6% despite fourth-quarter revenue falling almost 40%. It quotes Freescale CTO Lisa Su as saying, “We are looking at really protecting R&D. That’s what’s going to drive growth coming out of the downturn.”
The article cautions that “dollars alone don’t always ensure successful products.” It paraphrases Barry Jaruzelski, partner at consultant Booz & Co., as saying that “some companies have outpaced competitors not by outspending them on R&D, but by spending wisely.”
The article suggests that steady R&D budgets may not be that helpful to US engineers. The article notes that according to Battelle Memorial Institute analyst Jules Duga, “many companies that made deep R&D cuts during the downturns of the 1980s and 1990s took more than five years to return to prior spending levels.” But, the article continues, “Mr. Duga is more optimistic about the current downturn because US firms can do more with less by outsourcing R&D overseas.”
Update: Eric Starkloff from National Instruments notes in the comments that he has written on this topic. The comments tool doesn’t support hot links, so here goes: See his blog here, and also see “Innovating Through Tough Times,” which appeared in Electronic Design (not a sibling publication, as he originally noted, but I’m happy to provide the link anyway—we are all one big happy family here in magazine land).
Update 2: With regard to the mention of outsourcing R&D overseas, read the related article “If your job moves to India, follow it.”
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