Editorial: Planting the Seed Corn

Industrial research and development programs are the seed corn of product innovation. Unfortunately, one of the first cost-cutting measures some companies take when faced with the challenge of a recessionary economy is slashing their R&D programs.

Out here in the farm country, where we grow most of the world’s corn, it’s always been well understood that you can’t eat the seed corn lest there be none to plant for growing the next year’s crop. Industrial research and development programs are the seed corn of product innovation. The considerable contribution of the “lone inventor” notwithstanding, without industrial R&D programs we wouldn’t see the innovations that launch the majority of new product down the assembly line and toward the marketplace.

Unfortunately, one of the first cost-cutting measures some companies take when faced with the challenge of a recessionary economy is to eat their seed corn by slashing their R&D programs. Stifling innovation not only tends to exacerbate and prolong a recession, it is also detrimental to those companies in the long term. Fortunately, despite the economic downturn, many companies are reluctant to cut R&D because they view it as a source of competitive advantage.

A recent survey by McKinsey & Co. (Chicago) revealed that R&D is still a strategic priority for many executives. While 34 percent reported that R&D budgets are lower in 2009 than in 2008, 45 percent say R&D is among the top three items on their companies’ strategic agendas. Companies that get the greatest return from R&D spending responded that not only have they had high organic growth rates over the past 5 years compared with competitors, but also attributed more than 30 percent of that growth to new products developed in house.

Another recent survey confirms that many companies, wary of emerging from the recession with obsolete products, are still spending on R&D. Writing in

The Wall Street Journal, Justin Scheck and Paul Glader report on an analysis that looked at 28 of the largest U.S. R&D spenders, excluding the deeply troubled auto makers and the drug industry, where R&D spending is dictated by government requirements. While total revenue among those companies fell 7.7 percent in the dismal last quarter of 2008, their R&D spending was only down 0.7 percent. “Companies by and large realize that large reductions in R&D are suicidal,” Jim Andrew, a senior partner at the Boston Consulting Group (Chicago) told them.

R&D spending by some of those companies, including Microsoft, Intel, Cisco Systems, Motorola, Qualcomm, 3M, Advanced Microsystems and Freescale Semiconductor was greater quarter-over-quarter. “We are looking at really protecting R&D,” Lisa Su, chief technology officer at Freescale (Austin, TX) added. “That’s what’s going to drive growth coming out of the downturn.”

Innovation is essential to staying competitive, and it’s far more encouraging to see leading companies plant their seed corn by maintaining their investments in R&D than to hear “we’re here to help” from government bureaucrats. The former will lead out of the recession; the latter will only prolong it.

Editorial Director Emeritus

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