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INDUSTRIAL RESEARCH INSTITUTE’S

R&D TRENDS FORECAST FOR 2009


Following two years of growth, IRI member companies
anticipate flat R&D expenditures in 2009.

Member companies of the Industrial Research Institute • Breakdown of responses in various segments.
generally anticipate flat investment in research and • Responses to questions about “your biggest R&D
development in 2009, following several years of signifi- problem.”
cant increase. However, some sectors do anticipate
growth while other sectors anticipate significant reduc- The survey questions and the distribution of responses
tions in R&D investment. are presented in Table 1. This table shows that there were
seven possible responses to questions 1 through 8 in the
Across all sectors, the trend of the past few years has 2008 survey. “Not applicable (N/A)” was a possible
been a continued shift in R&D focus toward new response; these responses were omitted in our tabulation
business projects and away from supporting existing of the data.
lines of business. Also, IRI member companies antici-
pate reduced internal directed basic research and One useful way to examine trends over the years from
increased support for external technology activities, 2000 forward is the Sea Change Index, Table 2.
including participation in technology alliances, joint The Sea Change Index is calculated by taking the differ-
ventures, university engagements, and technology- ence in the sum of the last two responses (more than
focused merger and acquisition activities. 5 percent growth) and the sum of the first two (zero or
negative growth). The first two categories are considered
Trends Analysis—Looking to 2009
negative because they include no growth or a decrease;
This is the 25th IRI R&D Trends Forecast. The survey the last two categories are considered positive because
focused on expectations for industrial R&D investment they expect a growth of more than 5 percent. It is likely
in 2009, and is based on responses from just under half of that this index understates the absolute value of change
the 182 IRI member companies that conduct R&D in the but we believe it to be a good indicator of the direction of
United States. These companies also have 187 research change. The Index is expressed as a percentage of the
centers outside the U.S. in 35 countries. The survey total responses.
responses were collected in July and August of 2008.
Because this is a voluntary survey and the IRI member- The Sea Change Index indicates that no substantial
ship changes due to business events such as mergers, it is change in total R&D expenditures is expected among IRI
inevitable that the mix of companies changes from year member companies in 2009 (Question 1). However, this
to year. Nevertheless, we believe that there are a suffi- index foretells a wide reduction in capital spending in
cient number of responses from the R&D community for 2009 (Q2), following a pattern set in 2002. The one
the data to be meaningful. exception was in 2008 when capital spending increased.
The results of this survey are discussed in three areas: Among IRI member companies, R&D in support of
existing business and directed basic research are both
• Responses to the basic survey questions and compari- projected to decrease in 2009. However, R&D support-
son with past years’ responses. ing new-business projects is expected to rise signifi-
cantly. All three of these projections have been similar
over the last 8–10 years. Also, a number of IRI member
This report was written by Raymond R. Cosner, director companies anticipate a reduction in the R&D/sales ratio
of R&D process in the Advanced Systems Division of the for 2009 (Q9a).
Boeing Company, and chair of IRI’s Research-on-
Research Committee. He holds a Ph.D. from the Califor- Recent trends in the Sea Change Index for anticipated
nia Institute of Technology. Cosner’s report is based on total R&D spending are presented in Figure 1, and trends
the forecast conducted annually by the ROR committee, for selected components of total R&D spending are
with the assistance of Kimberly Williams, on staff at the presented in Figure 2.
IRI. Raymond.r.cosner@boeing.com. Text continues p. 23

January—February 2009 19
0895-6308/09/$5.00 © 2009 Industrial Research Institute, Inc.
Table 1.—Results of 2009 Trends Forecast for Companies with R&D Located in the United States
Relative Change (% of Respondents Reporting)
Expected Changes in 2009 −5% >0 to >2.5 to 5 to
Compared with 2008 Experience <−5% to 0 2.5% <5% 10% >10%
1. Total company R&D expenditures 7 10 44 21 13 5
2. Capital spending for R&D operations 10 13 50 16 4 7
3. Relative distribution of R&D costs:
a) Support of existing business 7 18 53 17 4 1
b) Directed basic research 10 19 44 16 9 2
c) New-business projects 4 7 29 28 25 7
4. R&D professional personnel level 5 16 48 19 10 2
5. Hiring new graduates 10 10 48 17 13 2
6. Outsourcing R&D to other companies 1 2 57 28 7 4
7. Licensing technology from others (dollar volume) 3 6 65 21 3 3
8. Licensing technology to others (dollar volume) 1 4 68 20 5 1
9. How will 2009 compare with 2008 for the following? % Decrease Same % Increase
a) Your targeted R&D/sales ratio 22 58 20
b) Grants, contracts, etc. for university R&D 8 53 40
c) Participation in consortia for pre-competitive university research 12 64 24
d) Contracts with Federal Laboratories 5 75 20
e) Participation in alliances and joint R&D ventures 2 37 60
f) Acquisition of technological capabilities through M/A 5 56 39
g) Your new spin-offs based on developed technology 0 77 23
h) Outside-customer technical-service efforts relative to total R&D
(in time or dollars) 5 71 24
A scale of 1 to 6 was used, with 1 representing “significantly less” (below −5%), 2 “slightly less” (−5% to 0), 3 “approximately the same” (0 to
+2.5%), 4 “slightly more” (+2.5% to +5%), 5 “somewhat more” (+5% to +10%), and 6 “significantly more” (more than +10%). “N/A” also was a
response option.

Table 2.—“Sea Change Index” (Percentage of Responses)


Survey Question 2000 ’01 ’02 ’03 ’04 ’05 ’06 ’07 ’08 ’09
1. Total company R&D expenditures 0 5 −4 −15 −16 −2 4 12 27 1
2. Capital spending for R&D operations 4 3 −17 −18 −18 −15 −3 −2 27 −12
3. Relative distribution of R&D costs:
a) Support of existing business −20 −10 −6 −24 −20 −5 −13 −19 −13 −20
b) Directed basic research −9 −21 −11 −21 −17 −21 −8 −6 4 −17
c) New-business projects 34 44 30 7 1 8 31 31 33 22
4. R&D professional personnel level −3 −2 −4 −22 −24 −9 1 0 8 −8
5. Hiring new graduates −5 2 −16 −14 −22 13 4 2 1 −4
6. Outsourcing R&D to other companies 11 11 −6 −8 −8 6 4 10 20 7
7. Licensing technology from others (dollar volume) 10 4 0 −2 −5 1 10 9 11 −4
8. Licensing technology to others (dollar volume) 20 10 17 8 1 9 10 6 0 1
9. How will 2009 compare with 2008 for the following?
a) Your targeted R&D/sales ratio N/A −1 −5 −8 −15 −7 −7 1 23 −3
b) Grants, contracts, etc. for university R&D 8 3 −1 12 10 30 33 32 51 32
c) Participation in consortia for pre-competitive university research −14 −12 −19 0 20 18 20 24 42 12
d) Contracts with Federal Laboratories −9 −13 −8 28 38 29 22 28 33 15
e) Participation in alliances and joint R&D ventures 40 40 33 49 44 50 60 55 60 58
f) Acquisition of technological capabilities through M&A N/A 33 35 18 15 29 28 34 50 35
g) Your new spin-offs based on developed technology N/A 19 19 20 11 8 14 4 18 23
h) Outside-customer technical-service efforts relative to total R&D
(in time or dollars) −19 −6 −3 18 20 22 10 15 21 19
NOTE: The Sea Change Index for the 2008 data presented in RTM’s January–February 2008 issue (pp. 19–23) was presented incorrectly. The 2008
data was stated to be percentage of responses, but was actually the count of responses. That error has been corrected here.

20 Research 䡠 Technology Management


Figure 1.—Sea Change Index for R&D Spending.

Figure 2.—Sea Change Index for Categories of R&D Spending.

January—February 2009 21
Figure 3.—Comparison of 2009 R&D Investment Characteristics, By Segment (presented as “Sea Change Index”).

22 Research 䡠 Technology Management


Table 3.—Survey Responses, By Segment expected to decline, except in the food and tobacco
Segment Responses
segment. Across the board, the level of R&D personnel is
expected to change little, although increases are antici-
All Responses 84 pated in the petroleum and revenue-high segments, with
Chemicals 23
Consumer Products 12
reductions foreseen in the consumer products segment.
Food and Tobacco 7
Petroleum 5 External Collaboration
No U.S. 5
R&D Low 8 Anticipated changes in R&D collaboration with external
R&D High 9 parties are presented in Figure 4 as the Sea Change Index.
Revenue Low 13
Revenue High 10 The most dramatic shift anticipated in 2009 is a signifi-
cant increase in outsourcing R&D to other companies
within the petroleum segment. The revenue-high
segment also anticipates materially increased R&D out-
sourcing in 2009, compared with the average among all
Segment Data survey respondents.
Text continues p. 26
At the request of the IRI membership, we collected data
this year to allow us to analyze responses in various
industry segments. We only present data for which we
had at least five responses in each segment. Table 3
presents the number of responses in each segment.

Eighty-four companies responded to our survey.


However, some companies did not respond to every
question. There were sufficient responses to present data
in four industry segments: chemicals, consumer
products, food and tobacco, and petroleum. Additional
segmentation was done for the following categories of
interest:

No U.S.—Companies without major operations in the


United States.

R&D Low—R&D expenditures no more than $10 million.

R&D High—R&D expenditures of at least $1 billion.

Revenue Low—Corporate revenue no more than


$1 billion.

Revenue High—Corporate revenue of at least $50 billion.

Figure 3 compares responses by segment for certain


gross characteristics of expected 2009 R&D investment.
The reader is cautioned that the vertical scales differ
among the charts in this figure. In several of these invest-
ment categories, the 2009 expectations of the food and
tobacco, petroleum and revenue-high segments are sub-
stantially higher than those of the other segments. On the
other hand, the 2009 R&D expectations for the consumer
products segment are somewhat dismal. The expectation
for capital spending is generally less robust, but follows
similar segment trends as the net R&D investment.

There is a clear trend in all segments to reduce R&D in


support of existing products in favor of new-product
development. Directed basic research is generally Figure 4.—Anticipated Shifts in R&D Sourcing.

January—February 2009 23
Figure 5.—Anticipated 2009 Change in R&D Investment Characteristics, By Segment.

24 Research 䡠 Technology Management


Table 4.—IRI’s “Biggest Problems” Facing Technology Leaders from 1993 through 2008 (Expressed As Percentage of
Total Responses)
2008 ’07 ’06 ’05 ’04 ’03 ’02 ’01 ’00 ’99 ’98 ’97 ’96 ’95 ’94 ’93
Growing the business through innovation 33 22 29 32 33 41 37 20 20 16 14 17 10 6 N/A N/A
Accelerating innovation 14 22 23 17 16 12 12 26 23 5 6 3 9 8 11 11
Attracting and retaining talent 10 13 8 4 4 2 2 2 N/A N/A N/A N/A N/A N/A N/A N/A
Balancing long-term/short/term R&D
objectives/focus 8 15 16 15 17 12 12 14 14 19 18 19 17 15 17 14
Integration of technology planning with
business strategy 8 6 3 6 3 5 8 7 13 13 12 13 11 7 10 11
Manage innovation cycling local/global
economic conditions. 6 3 0 7 0 2 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Management of global R&D 5 1 2 5 5 2 2 5 4 4 3 6 5 4 3 4
Measuring and improving R&D
productivity/effectiveness 4 4 2 2 4 5 3 7 5 6 6 4 12 12 15 15
Leadership of R&D within the
corporation 3 1 8 5 9 5 12 8 8 13 8 8 8 5 6 7
New business ventures 3 6 2 4 4 3 3 4 2 N/A N/A N/A N/A N/A N/A N/A
Sustainability in response to climate
change and environmental issues 3 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Gathering/evaluating competitive
intelligence; sensing disruptive
technologies 1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Improving knowledge management 1 3 4 3 4 2 3 1 4 N/A N/A N/A N/A N/A N/A N/A
Organizational structure of the company 1 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A
Total Responses: 78 78 101 102 99 133 151 113 191 230 174 223 242 258 193 248

Figure 6.—Top Two “Biggest Problems” Facing R&D Leaders.

January—February 2009 25
In general, reduced activity in licensing technology from
external sources is anticipated in 2009. However, both
the R&D-high and the revenue-high segments anticipate Substantially more
increased in-licensing. It should be noted that there is
considerable commonality in the membership of these
two segments. Conversely, a significant reduction in
R&D collaboration
licensing technology from others is anticipated in the
consumer products, no-U.S., R&D-low, and revenue- with other companies
low segments.
Across all our responding members, no significant
is expected in 2009.
change is expected in the 2009 level of licensing technol-
ogy to others. However, three segments do anticipate 2008 R&D Investment—Actual vs. Budget Projection
increased out-licensing (food & tobacco, R&D-high, and
revenue-high), while five segments—most notably the Survey respondents were also asked to assess their initial
non-U.S. and the low-dollar R&D segments—anticipate plans a year ago for 2008 R&D investment, com-
reduced out-licensing. pared with the reality of their 2008 R&D investment.
Forty-three IRI companies (55 percent) replied that their
Anticipated trends in collaboration with external organi- actual 2008 R&D investment was about the same as their
zations, other than licensing arrangements, are presented initial plans for 2008, while the remaining 45 percent
in Figure 5. The vertical scales differ among the charts in said there was a meaningful difference from their initial
this figure. Increased activity is expected in almost all plans. The primary reason for differences from initial
segments in collaborations with universities—both in the plans was ascribed to decline in business conditions;
form of grants and contracts, and through participation in secondary issues were a change in strategy and lack of
consortia for pre-competitive university research. appropriate personnel.
Several segments also anticipate increased activity in
contracts with federal laboratories during 2009. In Conclusion
Nearly half of the member companies of the Industrial
Substantially increased R&D collaboration with other Research Institute anticipate flat R&D budgets in the
companies is also expected in 2009, via alliances and coming year, following growth the last three years.
joint ventures, through mergers and acquisitions, and by Funding in support of existing products and directed
spin-offs of technologies developed internally. These basic research is expected to drop, while funding for new
expectations are broad-based, shared by all segments business projects is expected to increase in all sectors. A
responding to our survey. broad increase in R&D outsourcing to other companies is
also expected.
Biggest Problem
One of the most notable messages is that across all
Every year since 1993, we have asked our IRI member sectors, a significant increase is expected for 2009 in
companies to identify the biggest problem they face as participation in alliances and similar joint R&D ven-
R&D leaders. The percentage response in each category tures, and in acquisition of technological capabilities
since 1993 is presented in Table 4. Every year since through mergers and acquisitions. Most sectors also
2002, IRI member companies have reported that foresee an increase in grants and contracts for university
“growing the business through innovation” is their R&D. 䡩 䊱

biggest problem. Other top problem areas include: accel- Acknowledgements


erating innovation, attracting and retaining talent,
balancing long-term and short-term R&D objectives, and Special appreciation is due to Kimberly Williams of the
integrating technology planning with business strategy. Industrial Research Institute staff who conducted the
survey, with thanks to IRI members who took the time to
This year, for the first time, we also asked the companies respond. Thanks also are due to Jim Scinta who wrote the
to identify their second biggest problem (see Figure 6). summary article the past two years and advised the
The two related categories of “growing the business author, and to Tom Balsano and Phil Russell who
through innovation” and “accelerating innovation” provided insights from reviewing the data and then
clearly dominate the responses. critiqued this article.

26 Research 䡠 Technology Management