Opinion: We need to get smarter about being smart

Research and development

In 1992, the National Government created the Crown Research Institute (CRI) system.

It was designed to turbocharge innovation and better align research and development (R&D) to New Zealand’s needs.

Thirty years later Megan Woods, Minister for Research, Science and Innovation, announced Te Ara Paerangi Future Pathways, a multi-year programme focused on the future of New Zealand’s research system. If implemented Te Ara Paerangi will be the largest shake up of R&D in New Zealand in a generation.

In the intervening three decades successive New Zealand governments have spent roughly $1 billion in inflation-adjusted tax dollars on public R&D every year. If we take a big step back and assess this spending dispassionately, it’s hard to identify any serious home runs from public sector science.

Yes, we’ve had some successes, but despite spending over $30 billion, we’ve generated no 3Ms, Teslas or DuPonts – the kind of economic markers you would expect to see from successful long-term R&D investment.

To be fair to the public sector our private companies haven’t performed much better.

Our track record of major R&D fuelled success is woefully short: possibly the only real recent candidates are LanzaTech and RocketLab. In short, 30 years since Simon Upton’s CRI reforms and despite continuing to perceive ourselves as “innovative”, based on results, I’m not sure we’re doing R&D right in New Zealand.

Before I start getting nasty emails, I’m not saying New Zealand scientists don’t generate good science (they do). However, in the long run investments in R&D (just like investments in education and healthcare) need to improve people’s lives and ultimately (at a pragmatic, unemotional level) that means converting it into a positive economic outcome. In other words, you spend “X” and at some stage you get more than “X” back. Anything else eventually leads to bankruptcy, whether you’re a company or a country.

I’ve spent my entire career in the technology sector offshore and in New Zealand. I’ve worked with over 2000 companies and public sector organisations, large and small, helping them make money from R&D. The single most important thing I’ve learned is this: the idea (the “R” bit of “R&D”) itself is not actually worth very much at all.

That statement comes as quite a shock to many people. Aren’t we are repeatedly told that we need more R&D not less? That New Zealand’s investment (both public and private) is below the OECD average?

Yes, that’s true but here’s the reality: there is no shortage of good ideas out there.

There are literally tens of thousands of researchers, engineers and inventors in universities, private company labs and garages globally coming up with new ideas every single day. Most of them fail. In general, they fail not because the idea is bad or doesn’t work technically but because generally the people who come up with ideas typically lack the skills to convert the idea into a useful product or service that someone, somewhere is willing to pay a reasonable price for.

Don’t take my word for it. The US Patent & Trademark Office estimates that 98% of US patents never make any money.

A ten-year 10,000 company study by PWC found that “there is no statistically significant relationship between sustained financial performance and R&D spending, in terms of either total R&D dollars or R&D as a percentage of revenues.”

Read that sentence again – it’s pretty stark: no statistically significant relationship. As Steve Jobs famously said: “innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.”

Does that mean we should give up on R&D? Absolutely not. R&D and innovation are central to sustained economic performance for both countries and companies. Every single improvement to our lives (refrigeration, the internet, modern medicine, sanitation, you name it) started in someone’s head. Every single successful company (Google, Microsoft, Procter & Gamble, Xero, RocketLab) begins as an idea.

But the key point is this: the idea is not enough. If you’re undertaking R&D or innovating it’s critical to understand *how* to commercialise these great ideas. That means having deep skill and experience in disciplines such as strategy, finance, marketing, legal and operations, not simply in general but as they relate to new products or services.

Launching a new product whose sales will expand at 500% per annum for 10 years is profoundly different than managing a 10-year-old product expanding at 5% per annum.

It’s also expensive: as a general rule of thumb for every $1 you spend on Research (“R”), you’ll need $10 for Development (“D”) and $100 for Commercialisation (“C”). Companies should bear this in mind from the outset: do you have the money to see this through? At a New Zealand level, it begs the question: where is the government’s $100 billion fund to commercialise its $1 billion annual investment in research? If this existed, what sort of returns might we expect to see from the great ideas our scientists generate but are currently gathering dust or stuttering along starved of money and commercialisation skills?

In short: innovation is essential but it’s also hard. The idea is the easy bit. Making money from ideas (for a company or a country) requires deep experience and investment in commercialisation. It’s time we got smarter about being smart.

By Paul Adams, CEO, EverEdge Global

As published on Stuff.co.nz

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