Poor ROI from top R&D companies is a red flag, says Forbes columnist

Which companies are truly (disruptively) innovative and which are merely using their R&D to maintain a low-growth franchise has become the subject of worthy debate.

Forbes columnist Alan Hartung, believes that some of the largest tech companies – not coincidentally some of the biggest R&D spenders and patent holders – are the worst investments for shareholders. And he has data to back it up.

In a compelling column here Hartung argues that big companies want to spend to keep themselves in business, not to break new ground and grow significantly. Companies best suited for that are sometimes spending their R&D dollars more wisely.

Moribund tech leaders try invest in startups, Google and even many others do, or buy companies through M&A like Pharma companies do, but they tend to wait to secure others’ success rather than initiate their own, similar to when they were start-ups. .

“Most big R&D spenders are not really seeking innovations” says Hartung, a business growth expert.  They are spending money on historical programs, following historical patterns and trying to defend and extend the historical business.  In other words, they are spending vast sums attempting to sustain (or recapture) historical success.  And, as the list shows, largely doing a pretty lousy job of it.

A more effective formula for innovation/IP management today could be expressed something like this:

R&D + IP rights (+ M&A) = >ROI

Top R&D Spenders

biggest-corporate-spenders

IP rights without the right timing and reliability do not mean much. It appears from Hartung’s timeless 2012 story that in most cases extraordinary R&D spending is no guarantee of success. In fact, he thinks it is an indication of weakness. The really great innovations are not necessarily about spending more. Besides, much of R&D is accounting anyway, with little R and a very big D when it comes to costs.

  • Microsoft is #5, spending $9 billion and nearly 13% of revenue,” write Hartung.  “For this massive investment customers and investors in 2012 received —- updates to the aging operating system and office automation software.  Updates which failed to register favorable reviews by industry gurus, and are considered clear updates – but far from innovative.  And Nokia, which is so floundering some consider it a likely bankruptcy candidate, is #7! Despite spending nearly $8 billion on R&D in 2011 Nokia is now completely reliant on Microsoft if it is to even survive.”

Innovation and IP Needs

It’s difficult to believe that a business today, no matter how smart or solvent, can fill all of its innovation and IP needs internally. Hartung is suggesting that companies that believe they can by outspend each other on R&D are effectively chasing their own tail. That’s why they are bad investments.

Image source: BusinessInsider.com

About Bruce Berman

Independent IP observer, adviser and author.

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