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Cost-Cutting vs R&D: Corporate Innovation At The Crossroads

January 24, 2024
Licensing
Tech Transfer

“Innovation is our main focus” shout many corporations, especially around earnings announcements. They tout their innovation plans, especially in AI.

But quietly, some are taking different approaches. Cost concerns are a major trigger here, especially given the economic uncertainties. In such a situation, we may see a slowdown in the rate of tech transfer from universities to corporations. After all, these processes require considerable investment and risk appetite. Companies might just be playing it safe for now, focusing more on short-term profitability than long-term innovation.

So which is it? Will there be a pullback in innovation spending by corporate decision-makers in the second half of 2023? Or will companies decide to keep the innovation engine revving, or even ramp up their spending.

The answer is, a bit of both.

BCG (Boston Consulting Group) published a survey of 1023 companies (link 1 below). It found that 79% of companies surveyed had innovation as one of their top three goals, an increase from previous years.

But the same survey found that cost is a key reason for innovation among 62% of these companies. While some university innovations may be help with cost reduction, most would not – or at least, would not do so quickly. University innovations represent the cutting edge ideas – the new products and new markets of tomorrow. Not the cost cutting of today.

As a reminder, even IBM has announced that it plans to reduce back office headcount by nearly 8000 jobs in the next five years through AI (link 2).

Cost cutting, even with sophisticated technology like AI, is likely to be rolled out through focused corporate and startup products. Companies will be looking for certainty, and a “good enough” solution.

Furthermore, Arthur D Little (another consulting firm) weighed in with survey results that showed overall corporate disappointment with money spent on R&D innovation in the past 10 years (link 3). Their survey, the Global Innovation Excellence Benchmark (GIEB), found that companies which are not in the top quartile of effective innovators wasted much of their R&D spend – and that adding more money would not fix the problem.

Paradoxically, the survey also found that companies engaged in the riskiest forms of innovation had the biggest payoff from R&D spend. Furthermore, states the report, “on average, R&D provides better shareholder returns than CAPEX, share buybacks, acquisitions, debt reduction, or dividends”.

Arthur D Little put this paradox down to innovation execution. Companies who could execute innovation well had outsize returns. The rest were just wasting their time and money.

Obviously, when looking for the right licensing partner for your university/research organization, you want companies who execute innovation well – and who have the appetite for increasing their innovation spend.

These companies look at the current scenario as a unique opportunity rather than a hurdle - believing that innovation is not just a luxury, but a necessity for survival and growth. For these companies, we could witness an upsurge in university-corporation tech transfer activities. Companies will actively seek breakthrough research and novel technologies from universities to stay ahead of the curve, fostering a more robust innovation ecosystem.

Cost cutting now vs innovation now – that’s the decision companies have to make. The impact of this decision will have a lasting imprint on all companies, shaping their growth trajectory for years to come.

 

So – cost cutting vs innovation now? Which is most important? Schedule a meeting with me to go more in depth about any questions that you have about innovation through tech transfer.

 

References:

Link 1 – BCG’s survey of company attitudes to innovation: https://media-publications.bcg.com/BCG_Most-Innovative-Companies-2023_Reaching-New-Heights-in-Uncertain-Times_May-2023.pdf.

Link 2 - https://www.zdnet.com/article/ai-threatens-7800-jobs-as-ibm-pauses-hiring/

Link 3 - https://www.adlittle.com/en/insights/report/good-great-enhancing-innovation-performance-through-effective-management-processes

Two roads diverge in woods - quote from The Road Not Taken, R. Frost; photo by Jens Lelie on Unsplash

 

 

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