When Innovation Stagnates: The Consequences of Slowing Research and Innovation

Imagine a world where people never invented the wheel and were unaware of the phenomenon of fire. Or, more relatable to our modern era, a world without the internet. These inventions, both ancient and modern, were all birthed from the womb of research and innovation.

But what happens when this life-giving flow of ideas slows down or stops? What are the consequences when corporations and governments, constrained by budgets and funding, decide to pull back on their research and innovation investments?

“Dare to invest in the future; for every dollar spent on research and development, we could shape a $14 future.”

Let's hypothesize for a moment. Given that it takes years to build a pipeline of research and innovations, any slowdown would shrink the pipeline of ideas. In the short term, companies may see a slight impact on their bottom line. But as time goes on and the pipeline dries up, the effects would become more apparent. The result? Lost competitiveness and an inability to respond to sudden shocks of the unanticipated that research and innovation could have mitigated.

And with governments, the consequences can be even more severe. Slowing or stopping research and development can harm public health, national security, and economic growth. Without continued advancements in medicine, diseases may go uncured or untreatable. Without innovations in defense technology, military capabilities such as cybersecurity may lag behind potential threats. And without progress in other sectors, economies may experience slowdowns or recessions.

But it's not just about these obvious effects. Slowing research and development also stifles creativity and hinders progress. It limits the potential for discoveries, inventions, and breakthroughs that could vastly improve our lives.

Innovation is a crucial driving force behind economic growth and societal advancement. It creates jobs, increases productivity, and improves our quality of life. When innovation stagnates, it affects not just corporations or governments but the entire population.

Cutting back on research and development also hinders our ability to stay competitive globally. Countries compete constantly for resources, talent, and market share in today's interconnected world. If one country falls behind in innovation because of a lack of investment or support, it can have ripple effects that affect the entire global economy.

The Short-Term vs. The Long Bet

Consider a corporation that cuts back on its research and development (R&D) budget. Given the pressure to meet the quarterly numbers, it might seem like a sensible decision in the short term. But in the long term, it could be a costly mistake.

Take the pharmaceutical industry as an example. Developing new drugs takes years of research and investment, with no guarantee of success. If companies are unwilling to take that risk and instead focus on short-term profits, it could lead to a lack of breakthrough medications that could save lives or improve quality of life.

After all, R&D is often a costly endeavor, and the returns are not always immediate.

Without a steady stream of innovation, the corporation risks falling behind its competitors. It loses its edge, its unique selling proposition. It could coast on its existing products for a while, but eventually, they will become outdated. And then what? Without new products to replace the old ones, the corporation's market share dwindles, its profits shrink, and it finds itself on a downward spiral from which it may never recover.

The same principle applies to governments. A government that cuts back on its investment in research and innovation may save some money in the short term. But at what cost? Reduced competitiveness in the global arena? A decline in the quality of life for its citizens? An inability to respond effectively to unexpected crises?

Examples and Impacts

To further explain the effects of short-term decision-making by businesses and governments, let's delve into some tangible examples and their effects. These instances will underscore the profound ramifications when entities engrossed in immediate gains or cost-saving overlook the vital long-term investment in research and innovation. Be it a corporation's declining market value because of stagnant product lineups or a government's amplified vulnerability in crisis management, the repercussions of such decisions can be far-reaching and potentially irreversible.

Case Study: Kodak's Downfall

Kodak provides a powerful example of a corporation that allowed short-term considerations to guide its strategic decisions, leading to its downfall.  At its peak, Kodak was a giant in the photography industry. However, with the advent of digital cameras and smartphones, the demand for traditional film declined rapidly. Instead of investing in research to stay ahead of the curve and adapt to changing market trends, Kodak focused on maximizing its existing profits.

In 1996, Kodak's stock hit an all-time high, with a market value of over $28 billion. But by 2012, the company declared bankruptcy, unable to keep up with its competitors' technological advancements. Kodak's failure to invest in research and innovation ultimately led to its downfall and loss of market share.

Case Study: Government Funding Cuts for Scientific Research

In 2013, the U.S. government underwent a series of funding cuts, which included significant reductions in scientific research funding. This decrease in investment led to a decline in groundbreaking discoveries and advancements that could have benefited society. For instance, experts estimated that the funding cuts caused a 20% decrease in grants for medical research, hampering progress toward cures and treatments for diseases such as cancer, Alzheimer's, and Parkinson's.

Case Study: Blackberry's Decline

BlackBerry Limited, once a market leader in the mobile industry, offers a compelling example of how a decrease in research and innovation spend can lead to significant consequences. At its peak, BlackBerry was synonymous with smartphones, known for its unique QWERTY keyboard design and secure email services. However, as touchscreen technology started gaining traction, BlackBerry's decision to stick with its traditional design and not innovate in new areas quickly led to the company losing market share.

Despite the rising popularity of the Apple iPhone and Android devices, BlackBerry failed to invest adequately in research and innovation to compete with these new technologies. The company continued to focus on its existing products, underestimating the impact of touchscreen technology and the shift in consumer preferences towards more app-oriented smartphones.

Eventually, the lack of innovation in their product line resulted in BlackBerry's market share plummeting from a peak of 20% in 2009 to less than 1% in 2014. BlackBerry's story serves as a stark reminder of the importance of consistent investment in research and innovation as a long-term strategy for maintaining competitiveness and market relevance.

Case Study: U.S. Investment in Space Exploration

Another example is the U.S. government's decision to curtail its investment in space exploration in the late 20th century. When the Space Race peaked, the U.S. invested heavily in NASA, resulting in groundbreaking innovations like GPS, satellite technology, and the internet. However, in the years that followed, investment in NASA diminished significantly. The short-term savings were apparent, but the long-term effects were detrimental as other countries caught up in space technology and the resulting spinoff innovations. Recently, recognizing the strategic and economic advantages, the U.S. government has renewed its commitment to space exploration. Still, the reduced investment period has resulted in a competitive disadvantage in certain areas of space exploration and technology.

The Counter-Argument: Investing in the Future

But what if corporations and governments kept up their research and innovation investments instead of focusing on short-term funding challenges?

The benefits are manifold. For corporations, continued investment in R&D can lead to developing new products that drive revenue growth and increase market share. It can also lead to improvements in existing products, making them more appealing to consumers and thus boosting sales.

For governments, investing in research and innovation can lead to advancements in technology and infrastructure that improve the lives of citizens. It can also stimulate economic growth by creating jobs and attracting foreign investment.

A consistent commitment to research and innovation can help corporations and governments become more resilient. Thanks to their ongoing investment in new ideas and technologies, they will be better equipped to respond and adapt when unexpected challenges arise.

What Can You Do?

Become educated and understand the level of investment in the corporations you depend on – along with your government. While you may not be a leader, you can vote with your vote, voice, and wallet. Choose to prioritize research and innovation. Advocate for policies that promote long-term thinking and investment in the future.

What should you look for?

1. Track Research and Development Expenditure: Monitor the annual reports or financial statements of corporations and the budget allocation of governments. A decreasing trend in the expenditure for research and innovation is a red flag.
2. Monitor New Product or Service Launches: Frequent introduction of new products or services indicates a healthy innovation pipeline. A slowdown could be a sign of reduced focus on long-term progress.
3. Look for Patent Filings: The number of new high-quality patents filed indicates innovation. A dip in this number or quality might hint at a lack of investment in research and development.
4. Check Updates on Ongoing Research Projects: Regular updates on ongoing research projects consistently focus on innovation. A lack of these updates could signal a shift towards short-term goals.
5. Assess the Quality of Products or Services: Short-term decision-making often results in compromised quality. Negative customer reviews or increased complaints can be a sign of this.
6. Watch Out for Layoffs in R&D Departments: Staff reductions, particularly in the research and development department, can indicate a shift towards short-term cost-cutting at the expense of future innovation.
7. Scrutinize Leadership Communication: Pay attention to the messages conveyed by corporate and government leaders. Prioritization of immediate profits over long-term innovation in their communication can be a warning sign.

If you notice any of the red flags mentioned above, let them know your concerns and share why you believe investment in research and innovation is crucial for their (and your) long-term success.

A Call to Action

“Shockingly, every dollar invested in research and innovation sparks a $14 surge in our GDP—imagine the future we could create with sustained commitment to the unknown.”

So, to leaders of corporations and governments, here's the message: Don't let short-term funding challenges blind you to the long-term benefits of research and innovation. Yes, it's an investment. Yes, it's a risk. But it's a risk worth taking.

Consider this startling fact: According to a study by the National Bureau of Economic Research, every dollar spent on R&D returns an estimated $14 in GDP growth over the long run.[1]

Now, that's an investment with a promising future.

In a rapidly developing world, we cannot afford to stand still. We must continually strive to push the boundaries, explore the unknown, and innovate. It is through innovation that we shape our future. And it is through research that we pave the path to get there.

 

[1] Jones, Benjamin, et al. “A Calculation of the Social Returns to Innovation?” National Bureau of Economic Research, 2020. An interesting review of the paper can be found here.

 To learn more about the effects of businesses and governments slowing down research and innovation spending, listen to this week's show: When Innovation Stagnates: The Consequences of Slowing Research and Innovation.