Is R&D A Prodigal Child?

Getting returns on R&D investments is a tough challenge, but success largely depends on appropriate value creation.

- M. Muneer and Dan Adams

MOST INDUSTRIAL COMPANIES end up squandering their R&D resources. Interestingly, quite a few enterprises actually know that more than half of their R&D money is going down the drain. Numerous studies show that 50-75 per cent of R&D budgets get wasted on unsuccessful new products. And unlike advertising, where no one knows which 50 per cent is wasted, companies know which half of the R&D spending has not been effective although they realise it after the actual expenditure takes place.

It does not mean R&D labs are filled with non-technical people incapable of finding the right answers. They are just being asked the wrong questions. Questions that are unimaginative, being asked at too many other labs and, if solved, create too little value. In essence, these questions are too obvious.

Such questions can be grouped into two sets – wrong-market and wrong-need. The former occurs when researchers are asked to develop products for market segments that are unviable. It is an outrageous waste of resources, but most companies end up doing it.

On the other hand, most companies we know lead the footrace with wrong-need questions. Here is an all-too-familiar scenario faced by many manufacturing companies. An important customer tells your sales representative what it wants. It would have informed the same thing to every other supplier who is your competitor. That starting pistol shot begins the race, and your sales representative quickly drops the request off at R&D’s doorstep, properly packaged and labelled, of course. R&D may ask the person to go back and ask more questions, but once the person has handed the baton to R&D, his/her leg of the relay is pretty much done.