NCPA - National Center for Policy Analysis

Corporations Discover Innovation Swapping

December 3, 2002

Half of the largest companies in the United States cut spending on research and development by 15 percent in the first half of 2002, while the other half did not increase spending. While reduced R&D spending might suggest a decline in innovation, some large companies are finding that need not be the case.

  • Some companies are selling or swapping ideas, research and patents they don't plan to develop for innovations that would fit in better with their existing product lines and business objectives.
  • Until recently, Proctor & Gamble, for example, guarded its innovations as corporate secrets and took a dim view of licensing -- but has now set up a special group to solicit complementary technologies from the outside that fill gaps in its intellectual property portfolio.
  • Today, P&G uses search engines and other tools to mine billions of pages on the Web, in global patent databases and scientific literature.
  • So despite reducing R&D spending, the company had six of the top 15 new consumer goods products last year, according to the Industrial Research Institute.

In 1825, the economist David Ricardo observed that businessmen benefit most when they concentrate on the things they do best. The best hope for companies to keep innovation alive when R&D spending falls is to lower barriers and let ideas flow freely.

Source: Darrell Rigby and Christopher Zook, "Manager's Journal: The Marketplace of Ideas," Wall Street Journal, December 3, 2002.

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