There is no magical figure for R&D spending

I just read a good article by Steve Denning (@stevedenning) in Forbes arguing that a measure “RQ” to optimize business spending on R&D was, well, crap (my words, not his). The concept of RQ was touted in Harvard Business Review, so it might find its way into some MBA curricula.

Essentially the HBR author argues than an optimal level of R&D spending is predicted by RQ and virtually every company should massively increase R&D spending in order to maximise sales.

The trouble is, as Denning points out, that R&D spending is only a measure of inputs, not outcomes or returns. It’s like saying that if I triple spending on my suits, I’m going to look like George Clooney. Unfortunately, it ain’t that easy. Lots of other factors are involved.

Denning argues that the RQ concept throws out figures that just don’t make sense at the individual company level. I suspect his argument holds even for a national economy like Australia’s. We often hear calls for gross expenditure on R&D to lift dramatically. Now, I do agree that we should do that as a nation but we need to do much more as well. In other words it’s just as important to concentrate on how we do R&D as it is on how much we spend.

In our recent submission to the McKeon Review on Health and Medical Research, the CRC Association pointed out (as did lots of others making submissions) that R&D by itself does not lead to change. Innovation does.

So the spending has to be targeted at achieving change, not just increasing R&D activity. That shouldn’t be used as a cop out by politicians trying to save government dollars or CFOs saving company dollars. But those advocating more spending do need to show exactly how they’ll use it for innovation, not just research.

Denning quotes Gary Hamel “Our future no less than our past depends on innovation.” Which is very true. But I always love Hamel’s “The bottleneck is at the top of the bottle”. We need good leadership to drive a culture of innovation.