I have been gathering data about corporate response to difficult market conditions, especially the impact on R&D spending. Tough times impact every aspect of an organization’s operations and they have changed R&D spending as well (reduce focus on long-term R&D). Even so, organizations tend to fight to maintain R&D spending levels. We have seen that CEO of companies such as 3M have maintained R&D spending despite the downturn. Here is another data point from the Marketwatch post CEO says Ford won’t back off R&D spending:
Ford Motor Co. CEO Alan Mulally said Tuesday at the Geneva Motor Show that the auto maker will focus not on forging further alliances in Europe to help drive growth but on continuing to invest heavily in new products. “We have never backed off, even through this entire recession,” he said. “We actually have increased investment in our new vehicles during the toughest of times.
As a background, the European slowdown is likely to lead to a $0.6B loss in Ford’s European operations (Ford launches B-Max subcompact – seattlepi.com):
Ford will focus on cost containment to return to profitability until demand is restored, but he declined to speculate on possible measures. Booth said Ford Europe could lose $500 to $600 million dollars this year, after recording losses of $190 million in the last quarter of 2011.
Interestingly, the cost cuts are going to be in manufacturing operations rather than R&D – especially since R&D has probably more flexibility. Even more importantly, we have discussed many times that how you spend on R&D is far more important than how much. In fact, many leaders such as CTOs of Texas Instruments and Pfizer have found that R&D cost cuts actually improved results!
The effort to maintain budgets is even more surprising in light of the fact that surveys show most R&D executives do not see R&D as driver of innovation. May be some of these CxO statements are for public relations perspective, but still important to understand.
The second important point Mr. Mullaly makes is that Ford will not form R&D alliances. Sharing R&D across multiple companies is a simple way to reduce R&D costs near-term. Here is another article from MarketWatch discussion R&D alliances (BMW, GM still talking over technology cooperation):
BMW AG Chief Executive Norbert Reithofer confirmed Tuesday that the German car maker’s cooperation projects with PSA Peugeot Citroen remain unaffected after the French peer last week forged an alliance with General Motors Co.. He added that cooperation talks between BMW and GM over “future technologies” such as fuel cells are still ongoing, but declined to elaborate.
As we have discussed in the past, automotive companies make a complex web of alliances. May be the Ford approach has some value considering the difficulty and cost of managing these alliances and maintaining IP rights across them.