The new face of R&D: What's cooking at IBM, HP and Microsoft

Three big research houses have shifted their R&D strategies, proof positive that innovation these days is a moving target.

Is R&D in the U.S. losing focus, or just shifting focus?

Pundits in recent years have taken to bemoaning a retreat by U.S. industry from basic research in science and technology. And indeed, it's easy to cite research labs whose glory days have come and gone -- Bell Laboratories comes to mind. But consider this: IBM, Microsoft and Hewlett-Packard together spend $17 billion annually on research and development.

That's right, $17 billion.

While many of those dollars are directed at product development, hundreds of millions are flowing into areas like computational biology, nanotechnology and advanced mathematics that may take years to bear fruit, if ever.

It's significant that each of these companies has undergone substantial changes in its research labs recently:

  • In July 2007, IBM named a new research director and announced plans to invest more than $100 million in each of four long-term exploratory research projects.
  • A month later, HP also brought in a new research director and shortly after that launched a new strategy based on five mega-areas of IT research.
  • Then, earlier this year, Microsoft China said that it would build a new R&D center in Beijing, and Microsoft Research announced that it would open a new lab in Cambridge, Mass.

While the three companies have strikingly different research agendas, they have one important thing in common. All three are increasingly reaching outside of lab walls to collaborate in research with other companies, universities and customers. With that outreach comes a new openness that can speed the flow of ideas into the marketplace, according to Henry Chesbrough, executive director of the Center for Open Innovation at the University of California, Berkeley.

A short history of R&D

"R&D is basically seeking out new knowledge, and the question is, where are the good ideas?" Chesbrough says. "After World War II, the good ideas were loaded up in a small number of large companies -- Bell Labs, IBM, Xerox PARC, GE and so on. These were islands of towering knowledge in a relative desert."

At the time, he says, universities generally disdained working with companies and instead relied on a federal government that was eager to fund research that might help win the Cold War.

Then the Berlin Wall fell, and much of the federal largess dried up, Chesbrough continues. With its antitrust actions, the government turned its attention to reining in technology giants like AT&T and IBM. Meanwhile, Silicon Valley was born, and so was the Internet.

"The result was product markets got more competitive, and those big companies couldn't sustain the long-term investments in research that they could in the earlier period," he says -- their money went instead to competing in their markets in the short term.

Into this research breach stepped smaller, newer technology companies, universities, companies in Europe and Asia, and in some cases, even customers. To Chesbrough, that's all good news. "Today, no one has locked up the really good ideas, and the R&D processes of large companies have to connect to these parties and make use of them," he says.

In fact, HP, IBM and Microsoft are all currently showing a strong move toward a favorite research concept of Chesbrough, "open innovation." As Chesbrough spells out in his book of the same title, open innovation calls for good ideas to come from both inside and outside the company. In turn, companies take the fruits of those ideas to market through internal as well as external paths.

What follows is an overview of how three of the biggest names in research are putting open innovation and other concepts into practice in a changing R&D landscape.

HP Labs: Five big bets

Hewlett-Packard Co. last year hired Prith Banerjee, the engineering dean at the University of Illinois at Chicago, as the new director of HP Labs, overseeing 600 researchers in seven labs around the world. The company followed up with an announcement the following March that HP Labs would shift focus from a large number of smaller projects to a few "big bet" projects in five major research areas -- information explosion, dynamic cloud services, content transformation, intelligent infrastructure and sustainability.

"These are the big research challenges that we think are most important to our customers in the next decade," Banerjee says. Individual projects include exascale computing, social computing, quantum computing and so-called green computing.

Explains Banerjee, "We had taken the approach of letting 1,000 flowers bloom and hoping a few would pan out. [But] we were working on a large number of projects without enough resources on each one. We'd have two or three people on a project, but now we'll have 20 to 30 large projects, each with 10 to 20 researchers working in teams." As a consequence of this change, he says, product divisions at HP will get research prototypes from HP Labs that are more fully developed, enabling products to be brought to market faster and at lower cost.

Some observers of the new strategy at HP Labs -- including competitor IBM -- suggested it was yet another retreat from long-term basic research in favor of short-term, product-oriented work.

But Banerjee insists the opposite is true. In the past, he says, less than 10% of HP Labs' budget went to exploratory, or "blue sky," research. Under the new plan, he says, one third of spending will be on "exploratory research," one-third on "applied research," and one-third on "advanced product development." (See below for details on one HP "blue sky" research project.)

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