R&D & IT

A new study from Booz Allen Hamilton says there's no relationship between R&D spending and business performance. Amazing, huh? And it's true -- sort of. The study, by Booz analysts Barry Jaruzelski, Kevin Dehoff and Rakesh Bordia, does report that simply spending lots of money on R&D doesn't guarantee good business results - which is not quite the same as saying there's no relationship between R&D spending and performance.

You can download the study, titled "Money Isn't Everything," at www.computerworld.com/q?a7310. Do it now -- if only because you'll soon need to explain to your CEO what this study isn't saying.

Yes, I know -- you're in IT, not R&D. But here's how the dots connect: R&D is in the innovation business. So is IT. Sure, IT also does operations and maintenance. But every new IT project is developing something new. You even call those new things "products," just like the R&D guys do. And if spending on R&D doesn't produce the desired business results, why should anyone expect spending on IT projects to work any better?

If your CEO draws that conclusion, your new-projects budget is headed for the shredder.

Fortunately, to prevent that, you have an ally: that same study from Booz Allen Hamilton.

See, when these Booz analysts looked at the 1,000 publicly traded companies that spend the most on R&D, they didn't really find no connection between spending and results. And luckily, their key findings make nice, simple bullet points for you to show your CEO:

• If you don't spend enough on R&D, business performance suffers.

• If you spend too much on R&D, you won't get enough business performance improvement to justify that spending.

• Nobody knows exactly how much is "too much."

• What matters isn't how much you spend, but how you spend it.

Some companies with moderate R&D budgets get great results. Some with huge R&D budgets get mediocre results. The difference, as the Booz analysts say, is "processes, not pocketbooks."

Does this all sound blazingly obvious? Of course it does. It's just as true about your car as about your R&D (or IT) department. Fail to spend enough on auto maintenance, and your car won't run well. Spend too much, or on the wrong things, and your car won't run any better; you've wasted money.

Then why did Booz do the study? Because it's an article of faith among investors that beefing up R&D is a way of goosing growth. So when CEOs want to show investors that they're serious about corporate growth, they invest in R&D. And investors, seeing the R&D investment, figure that means future growth, and buy in.

But according to the Booz study, that's a myth. More R&D spending doesn't guarantee a return on investment. R&D is no silver bullet. And that myth-busting "no relationship" statement makes perfect sense -- for investors.

But not for CEOs who still have to figure out how to create innovation, both in R&D and in IT.

So now you have two new items on your agenda. First, you want to make sure your CEO sees a copy of this Booz study. He's probably already seen the headlines; you want to make sure he sees the rest of it, too.

And second, you need to dive deep into the study yourself. Nearly everything these analysts say about R&D is also true of IT. That includes their advice for improving product-development processes by listening to customers, betting on the right projects, improving development speed and cutting product costs.

If you can apply that advice, you can become like those R&D departments that don't under- or overspend but still get great returns on their innovation investments.

And you'll create a clear relationship between your IT spending and business performance -- no matter what's going on at a thousand other companies.

Frank Hayes, Computerworld's senior news columnist, has covered IT for more than 20 years. Contact him at frank_hayes@computerworld.com.


Copyright © 2005 IDG Communications, Inc.

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