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  • Talking About R&D

    December 1st, 2011

    There’s no doubt that you can just make great inventions out of what seems to be thin air, yet a large tech company has to invest a lot of money for ongoing product development. That’s a given, although startups in garages seem to be able to make miracles without a lot of working capital, they still need funding to be able to take those grand ideas and get them into production.

    So I wasn’t surprised to read an article over at Seeking Alpha, which reported that Apple had spent some 10 billion dollars to design cutting-edge gear over the last decade. This year, the R&D is supposedly 9% of revenue, which makes sense, since developing new iPhones, iPads, iPods, Macs, the iOS, Mac OS X, and other products obviously isn’t easy. Indeed, you might come to believe that Apple spends a larger percentage of their operating budget on research than other major tech companies, but that’s not true.

    In the scheme of things, it actually seems that Apple is remarkably thrifty in finding ways to creating iconic products without busting the budget. Would that other tech companies were as efficient.

    Consider Microsoft. According to the same story, they spent $42 billion in the last five years to develop — what? A new version of Windows, upgrades to Office, failed revisions to their mobile OS, the Zune, the Kin? Microsoft is spending loads more cash than Apple, yet they consistently fail to demonstrate that they are delivering real value for such a huge expense.

    But Microsoft isn’t alone in squandering R&D funds. Take Cisco, which wasted $25 billion to build new gear over the same period. What did Cisco deliver to their stockholders for this money? A few fancier Wi-Fi routers? Well, I suppose you also have to consider their failed investment in Flip Video, a company that built tiny camcorders, which crashed largely because you can get many of the same features in your smartphone. It was a nice idea while it lasted, but it’s not as if that acquisition represented a substantial R&D expense.

    So what else is Cisco delivering for all that money? Aren’t stockholders at the least but curious?

    Now I do not pretend to know the ins and outs of setting R&D budgets, or how to make the development process more efficient and more rewarding. Certainly there are well-known details, however, which indicate how Apple does things more efficiently, largely by setting up small development teams and not maintaining a large corporate bureaucracy and multiply complex committee structure with which to approve new products and product features.

    Compare Apple’s lean and mean approach with Microsoft and other companies that choose to believe that you can innovate simply by throwing large amounts of money into the well, hoping that if you have enough people tackling a problem, you’ll inevitably find a solution. I’m not about to suggest how large a development team you need, but having multiple levels of management can’t help. You end up with egos and territorial issues that complicate rather than simplify R&D. You also end up with serious compromises from managers who don’t want to rock the boat and take any risks.

    Certainly, Microsoft’s organizational structure seems to mirror the way their products work, in an overly complicated fashion, with far too many steps required to perform simple functions.

    But it’s not just the tech industry where inflated R&D budgets and massed committee structures make for a lack of efficiency and discourage innovation. One of the big reasons cited for the failure of General Motors ahead of that corporation’s bankruptcy was the overwhelming corporate bureaucracy and putting too many cooks into the kitchen, resulting in far too many compromises in product development. I don’t say that the “new” GM is necessarily so much better, but they seem to be delivering more interesting vehicles at a more rapid rate with a far leaner company than before. Certainly customers have noticed!

    Now you don’t expect an auto company to act like a startup for every single product, and that’s not necessarily practical for any large organization. But Apple’s lean management structure ought to serve as a lesson for other companies. Certainly, Microsoft tries hard to mimic Apple when it comes to product features. Have they paid the least bit of attention to how those products came to be? Sure, Apple keeps the fine details secret, but there’s plenty of information around that describes how their R&D system works. Is Microsoft so blind that they haven’t noticed? Or maybe too many managers are striving to protect their turfs — and their jobs.

    Now it’s not as if I want to see people lose their jobs. As a company becomes larger and more and more successful, I suppose there’s the temptation to pad the staff to make sure all bases are covered. To keep that staff under control, there are more and more levels of management, all in the name of efficiency, but usually accomplishing precisely the reverse.

    Sure, there may not be another Steve Jobs in the tech industry. But his ideas and approaches were well documented, and that’s what Microsoft, Cisco, and other companies should be examining and struggling to emulate in some fashion.

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