send via email
Jorma Ollila,
chairman of Royal Dutch Shell
Making the best of a recession
Chief technology officers should use the current economic crisis to fine-tune their innovation strategies and develop their leadership, according to an informal meeting of EIRMA's most senior R&D managers held in Amsterdam in October 2009.
Their meeting echoed the sentiments of Rahm Emanuel, chief of staff to US president Barack Obama, who said during a televised debate on the economy late last year: “You never want a crisis to go to waste. It's an opportunity to do things that you think you could not do before.”
One of the things that senior R&D managers can do is show leadership, helping chief executive officers and company boards to navigate the difficult decisions they need to make during a recession.
Jorma Ollila, chairman of Royal Dutch Shell, who led the EIRMA meeting, pointed out that the long-term nature of R&D naturally meant managing throughout all phases of the economic cycle, including recessions. He said that during a recession productivity usually falls and so there's an expectation that companies will cut fixed costs by up to 20%. Since R&D is a significant part of that cost it comes under scrutiny, and senior R&D managers should consider both their project pipelines and the people that they are employing. Even as they try to control costs, though, R&D managers need to be deciding which projects their companies are most likely to need when the recession ends and whether cutting R&D significantly will damage the medium-term future of the company.
Ollila also pointed out that people management is vital during recession. It's important to make sure that you keep the right people, that if you hire people they are of sufficient quality, and that during times of uncertainty you spend more time communicating with your people than you do when times are good.
In terms of leadership, it is vital for CEOs and CTOs to retain their vision and control of their company’s future, rather than simply reacting to events or external advice. Recessions can also be a time during which CEOs can bring discipline to organisations, creating the kind of positive pressure that improves productivity and using their authority and the economic circumstances to say No when necessary.
Ollila also reminded the forum that many great innovations have been born during recessions: it is estimated that about half of the Fortune 500 companies were started or significantly re-engineered during a recession. And great products emerge during recessions as well: Apple's iPod, for example, was launched in the depths of the dot-com bust in 2001.
Emmo Meijer, senior president for foods R&D at Unilever, said that the food industry is already taking steps to improve the efficiency of its R&D, for example by using open innovation techniques to run pre-competitive fundamental research projects, and by getting involved in European initiatives such as the ‘Food for Life’ Technology Platform.
Henry Tirri, senior vice president and head of Nokia Research Center, said that research becomes more interesting during crises, which tend to force a shift to new businesses and markets, and demand new competences. He said that a crisis is a good time to hire people, especially if you already have interesting people to attract them into your organisation or are trying to hire people from new backgrounds, such as the arts.
A brainstorming session suggested a number of ways to radically improve R&D during this crisis. The assembled R&D managers suggested that it is important to rotate people in and out of the R&D function to improve networking and the understanding of the rest of the business. The crisis also gives senior R&D managers the opportunity to practise saying No, in other words to take a stronger grip on the R&D being done in their organisations. This can include efforts to rationalise open-innovation relationships, to set absolute constraints from the top down, and to remind people that researchers should be doing the research and engineers the engineering.
The session also came up with a number of ways in which R&D managers can improve the quality of discussion about what they are doing and what it means for their companies. High-level road maps for clear trends, such as concerns about carbon dioxide emissions or product safety issues, can be used to reduce long-term certainties and uncertainties. This enables R&D managers to direct their research to cover the certainties and to manage the highest risk uncertainties. A similar approach with competence mapping can also help research managers decide which skills or breakthroughs they need to enable their companies to follow their road maps.
The session also discussed corporate influence, those present emphasising the importance of speaking the language of business, ensuring they had representation at the right strategic level, and also recognising that the CTO's role is becoming as much about managing interfaces with the marketing groups and supply chains as it is to do with technology and R&D management.
Public policy
The fiscal stimulus packages implemented by governments around the world have injected vast amounts of money into the global economy. Engineering and Technology magazine, published by the UK's Institution of Engineering and Technology, recently estimated that of the several trillion dollars that has been spent on, or committed to fiscal stimulus, around $320 billion will be invested in engineering and technology projects. The second part of the CTO forum discussed how businesses can take advantage of public sector efforts to stimulate innovation.
Jan van Der Eijk, CTO of Shell, pointed out that the Dutch government is already using a combination of physical and tax measures to protect its innovation base, such as cooperating with technology companies to retrain surplus workers during the recession so that they can be reabsorbed into large companies when the economy improves, but with improved or updated skills.
Peter Wierenga, CEO of Philips Research, said European technology companies are already using major public sector initiatives such as the Technology Platforms and the Joint Technology Initiatives, but asked whether companies could get even more benefit from such projects. He suggested that companies could consider extending these collaborations into joint businesses, perhaps even signalling their commitment by establishing shared facilities. This approach could increase the probability of disruptive innovation and so eventually lead to a stronger Europe.
Peter Honeth, Sweden's state secretary for research, was unable to attend the meeting as planned but provided an extremely useful written analysis of some of the steps that major governments are taking to protect innovation during this recession. In his submission to the forum he wrote: "when the going gets tough, it becomes crucially important to invest in new knowledge for the future."
Sweden was already doing so as the economic crisis began. In the autumn of 2008, Honeth's government proposed the most substantial strengthening of Sweden's research and scientific competitiveness to date. "A Boost to Research and Innovation" increased public spending on research by 20%, and included for the first time an investment of €170 million on strategic research areas, chosen to reinforce the competitiveness of Sweden's business sector.
A European Commission survey from March this year concluded that eight member states are increasing their R&D investment in 2009, 15 member states are maintaining their planned R&D budgets and that in 2010, nine member states will increase or maintain their public research budgets. The Commission remains concerned that a short-term shift of expenditure from public R&D to other budgets, which may be perceived as having a stronger short-term effect on consumption, could damage long-term competitiveness. But there is good news on private spending on R&D: "Compared to previous downturns, a growing number of large companies seek to maintain or limit reduction of the R&D investment levels".
Honeth gave a brief overview of what other major economies are doing about funding public research during the recession. Germany has added €1.4 billion to its budget for public R&D to an existing commitment to spend €14.6 billion between 2006 in 2009. And €500 million of the €1.4 billion of additional funding has been allocated to mission-oriented research on clean-car technologies. The Dutch government will spend €1.6 billion over the coming years investing in a clean, sustainable and innovative economy. In the US, the American Association for the Advancement of Science estimates that the stimulus plan includes $21.5 billion in federal R&D funding, about 2.7% of the total stimulus budget. This is additional money on top of the ordinary 2009 budget, which is claimed to have seen the biggest ever increase in R&D funding in the United States. Some of the funding is being directed towards energy efficiency, renewable energy and biomedicine.
Japan is adding about $2.65 billion to its existing public science and technology spending, directing some of it to research on next-generation supercomputers, and on creating world-class innovation centres that link industry, university and government efforts in particular fields. China's total economic stimulus, estimated at 13.4% of 2008 gross domestic product (GDP), will include investments in innovation and industrial upgrades. Other budget measures are expected to push total government spending on R&D in China to 1.6% of GDP.
Honeth's conclusion is that many countries have recognised the importance of research, development and innovation and have taken steps to protect or increase the public's investment in it during this economic crisis. Some countries, such as Sweden and Japan, have even identified national strategic technologies or research areas to receive additional funding. Meanwhile in the private sector, large companies in particular are not cutting R&D as much as had been expected.
The discussion on the opportunities and frustrations of working with the public sector suggested that industry needs to explore how governments can play a stronger role in developing science and innovation. Public-sector interventions, such as Europe's decision in 1986 to back GSM as the standard for digital cellular telephony, show the power that policymakers can have to enable markets and prompt profitable innovation. The increasing number of national governments that are using this recession to invest in technologies and research directions that they believe are of strategic importance demonstrates that some, at least, have recognised that this is one crisis that shouldn't be allowed to go to waste.