R&D's New Face

Is R&D going down the tubes in the U.S.?

Pundits have taken to bemoaning a retreat by U.S. industry from basic research. And indeed, it's easy to find research labs whose glory days have come and gone -- Bell Labs comes to mind. But consider this: IBM, Microsoft Corp. and Hewlett-Packard Co. collectively spend $17 billion annually on research and development.

That's right: $17 billion.

While much of that is for product development, hundreds of millions flow into areas like computational biology and nanotechnology, which may take years to bear fruit, if they ever do.

It's significant that all three companies have recently seen major changes like these in their research labs:

• In July 2007, IBM named a new research director and announced plans to invest more than $100 million in each of four long-term research projects.

• A month later, HP brought in a new research director and launched a strategy based on five mega-areas of IT research.

• And this year, Microsoft announced that it would greatly expand its research campus in Beijing and open a new lab in Cambridge, Mass.

Although their research agendas are strikingly different, the three have one important thing in common: They're all increasingly reaching out to collaborate with universities, customers and other companies. With that comes a new openness that can enrich and speed the flow of ideas into the marketplace.

"R&D is basically seeking out new knowledge, and the question is, Where are the good ideas?" says Henry Chesbrough, executive director of the Center for Open Innovation at the University of California, Berkeley. "After World War II, the good ideas were loaded up in a small number of large companies." Universities generally disdained working with industry, instead relying on the government, which was eager to fund research that might help win the Cold War.

But once the Cold War was won, much of the federal largesse dried up. "Product markets got more competitive, and those big companies couldn't sustain the long-term investments in research that they could in the earlier period," says Chesbrough.

Into the breach stepped smaller technology companies, universities, companies in Europe and Asia, and even customers. "So today, no one has locked up the really good ideas," Chesbrough notes.

He says HP, IBM and Microsoft are all demonstrating a move toward "open innovation," which means that good ideas come from both outside and inside and that companies take the fruits of those ideas to market via both internal and external paths.

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