R&D spend not a sure ticket to success

Investing heavily in research and development won't necessarily prove a boon to your business, according to new research.

A report out today from consultancy Booz Allen Hamilton failed to discover any definite relationship between the amount companies spend on R&D and key performance metrics such as sales, profits, market share and stock price.

Reaping good return on R&D investments, the report suggests, is more complicated than just boosting spend. Organisations must instead align their development strategy with their corporate strategy, encourage collaboration between all parts of the business - such as product development, sales and customer service - and clarify the processes used to manage research projects.

It also helps to figure out which of your R&D projects are most promising and give them bigger budgets, the consultancy said. Apple was pointed to in the report as a good example here. While the company is a below average spender on R&D, it has produced innovative products such as the iPod and the iMac by concentrating its spend on a few quality endeavours.

The consultancy found no exact correlation between R&D and corporate performance but it is possible to underspend. The bottom 10 per cent of companies studied in the report did do worse than the average spender.

The average R&D budget for firms was 4.2 per cent of revenues, though the report said there's no perfect investment level - how much a firm spends must be guided by the industry, the type of business and both short-term and long-term goals.

The report, Booz Allen Hamilton Global Innovation 1000: Money Isn't Everything, analysed 1,000 public companies from around the world that in 2004 made the largest R&D investments, measured as a percentage of sales.

Computers and electronics spent more on R&D than any other industry. It accounted for 25 per cent of the total investment by the 1,000 companies, and was followed by the heath and automotive industries.