Research and development has risen sharply on the corporate agenda in the wake of the global economic crisis, a McKinsey survey finds. Four in ten respondents report that both R&D budgets and activity levels are up this year relative to 2009. What’s more, executives are remarkably optimistic that the R&D moves their companies made during the downturn will serve them well in the coming three to five years.
Moreover, nearly 60% of executives say R&D will be either the top priority or among the top three priorities this year – significantly higher than the 47% of executives who said the same last year. Despite the increased levels of spending and activity, companies are taking a wait-and-see approach to R&D hiring. Relatively few respondents say their companies are hiring or firing; the most common approach is a focus on retention.
Executives recognize that delaying, reducing, and eliminating R&D projects can limit long term competitiveness. Still, 42% of respondents say their organizations cut R&D costs in 2009, perhaps reflecting the lengths to which some companies needed to go in order to survive the recent economic turmoil. Further, when compared to the moves companies had made in spring 2009 (when McKinsey’s first R&D survey was conducted) with the moves they made by year’s end, it becomes clear that for many R&D organizations, conditions worsened steadily. Far more companies eliminated projects, delayed spending, and instituted hiring freezes as the year progressed.
These actions may well haunt some companies for years to come. A significant share of executives whose companies cut costs expect that these moves will have adverse effects in the coming three to five years. The problems respondents are most likely to expect include reduced market share, a loss of technological ground to competitors, a weaker R&D talent pool, a loss of institutional knowledge, and damage to morale.
Meanwhile, a significant number of companies appear to have used the downturn as an opportunity to add a measure of discipline to their R&D organizations, infrastructure, or processes. Among the most frequent changes in 2009 were increased accountability for performance and spending, increased collaboration with outside R&D groups, increased use of global R&D resources, and the streamlining of core R&D processes. All these moves should help companies innovate more effectively over the long term.
Moreover, high performers in the survey appear more attuned to the “softer” aspects of R&D than other companies are. Executives at high-performing companies, for instance, are significantly more likely to say their organizations are focusing on retention of key employees (40% versus 29%). And while the majority of high-performing companies didn’t cut R&D costs in 2009 — 63% of high performers didn’t, versus 56% of the others — those that did are far more likely than other companies to fear weaker R&D talent pools, a loss of institutional knowledge, and damage to company morale. Finally, high-performing companies appear to be markedly more proactive than the others in two operational areas that represent significant long-term investments: the streamlining of core R&D processes and the expansion of R&D infrastructure.
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