Insider Business Club: nurturing

What do you consider to be the most significant obstacle to

Craig Aston, sales manager, IBM Global Financing

It is interesting, especially given the current financial climate with the
credit squeeze going on in the financial markets, that one of the first things
that many companies will cut if they have problems with financials and things
like that is innovative projects, new projects and new products.

From an IBM point of view, it has always been made very clear that research
and development is an absolutely key strain of everything that IBM does. If you
do not continue to develop and innovate new products, then the company dies,
especially in the technology sector.

There is another point in that you actually need an open-minded management
team. There are a number of incredibly talented young individuals in most
companies; the problem can be getting them airtime with the right people and
actually making sure the management teams are receptive to listening to the
ideas that are coming through and not seeing them as a threat.

Because it could be that a monumental change needs to happen to the company,
and some of the management teams don’t feel confident with that and cannot see
how they can make that work, but it should not stop them being open-minded to
that change.

If you look at Nissan in Sunderland and Toyota in Derby, they are two of the
most successful Nissan and Toyota plants around the world with huge process
innovations, and all that sort of stuff.

That then makes you wonder whether it all comes back down to the culture of
the companies. The corporate culture of Nissan and Toyota is actually driving
their employees to innovate.

The skills are there for companies to innovate, but is the actual environment
right to drive that innovation?

What is your organisation’s primary source of finance to fund

Dr Mike Tubbs, managing director, Innovomantex Limited

In compiling the DTI scoreboards, particularly the R&D scoreboard, we
noticed that in the downturn of 2001/2002 when many companies in technologically
related sectors found their sales were dropping, some of them were actually
responding to that by increasing their R&D investment.

That is quite difficult to do. Your sales are falling, and therefore your
profits are inevitably falling but you’re increasing your R&D investment.
Then when you track forward a few years, you find that those companies have
reaped big benefits.

Of course what happened was that, compared to their competitors who didn’t
enhance R&D, the companies that were investing found that their products and
services got more competitive against their competitors. You then found when the
upturn came, that their sales increased much faster, their market capitalisation
went up and they achieved rewards. If we look at some of the companies that did
that, one of the classics is Renishaw. I remember their chief executive saying
in 2002 that because of the difficult situation in the world, his sales had gone
down 17% so his response was to increase R&D by 15% because that was the
engine that would drive future growth.

You then track forward to in 2006 and he was then in a situation where sales
had gone up 70%. Market capitalisation had more than doubled and profit margins
were over 20%. Then you look at other companies that have done the same ­
companies like Nokia, Adobe, Autonomy, Juniper Networks, Intel ­ and you see
back in 2001/2002 they had all
adopted this policy

There was a large study I found back in the 1991 recession in which they
looked at about 3,000 companies and found a similar thing; that the companies
that had invested at the beginning of the recession had actually gained when the
upturn came, relative to the ones that tried to batten down the hatches.

The option is not going to be open to all companies, if you are in financial
difficulties; you are not going to be able to increase your R&D by 15%
probably not by 5%.
But if you cut your product development, you’ve got to think, now what is that
going to do two years ahead, if my competitors are doing the opposite.

Chaired by David Rae

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