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IBM Chief: All CEOs Reluctant To Invest In R&D
theodp writes "In his Centennial Conversation at the Computer History Museum, IBM CEO Sam Palmisano emphasized the importance of investing in R&D, even in a down economy. 'Shareholder expectations for higher returns don't diminish when the economy stutters,' said Sam. 'And yet, Tom Watson Sr. actually increased research investment during the Great Depression.' Palmisano added, 'I will tell you that my own instinctive reflex isn't to continue investing $6 billion a year during the worst economic downturn since the Great Depression. In that regard, I'm like all CEOs.'"
The problem with R&D is that many company executives that make these investment decisions typically have trouble seeing the chain of innovation that heavy R&D investment brings to the table. Most companies right now (or at least a majority, in any case) expect instant-gratification on every damn investment, forcing every R&D department to constantly justify its existence through operational and productive changes, which almost always involve cutting costs somewhere.. and that's just not the way the fucking world works. If you want to rake in revenue, you're going to have to invest in R&D, and people may eventually figure that out.. hopefully.
vos nescitis quicquam, nec cogitatis quia expedit nobis ut unus moriatur homo pro populo et non tota gens pereat.
the social security system was one of the most massive IT projects ever undertaken in history, when it came about in 1930s. IBM made massive amounts of money off of that project.
the German Census of 1936 was a massive operation and brought huge profits to IBM, as well as Hitler's grand plans for a massively centralized healthcare system which required vast amounts of data processing.
then there was the Soviet Union, which ran a planned economy - meaning that massive amounts of data had to be sifted in a centralized fashion. IBM was there too.
then there was Japan....
so its kind of easy for IBM to spend on R&D in the 1930s, considering that every government on the planet was pouring money into it's coffers.
Not only is the modern corporation and its CEO unwilling to pay for R&D, they are unwilling to pay for the Technical Debt of their existing systems.
Software developers who work in production support know they will only be able to fix individual defects that have been targeted by the business customers. So, any production system becomes a series of code compromises. Developers fix individual issues and never do a broad refactoring of the code base. So, when a developer comes to a page, sees it's a collection of compromise/hacks, there is no stomach from the business to taking the time to refactor the page. So, instead, the developer holds his nose and adds another hack. Horrible.
So, developers do the refactoring on the sly. If they are really honorable, they come in on their own time and implement architectural improvements on their own dime.
No one in business understands it idea of Technical Debt and the value in future bugs prevented of paying that debt off.
...that cannot think beyond the next quarter's profits. And hasn't that worked out well for the economy? We used to be a country of inventors and innovators. Now we're a country of servants and finance dickheads who neither invent or implement new technology. We went from a country of Hewletts and Packards to a country run by the likes of Carly Fiona.
Please do not read this sig. Thank you.
Quite the opposite. I'm willing to bet R&D would create a booming economy.
Of course there can't be any math to support this, it's subjective to the technology developed. But I think it would be easy to agree that if you make the "next big thing" that you will earn a lot of money.
I think the Harvard Business school mentality is the most short sighted though process around and I think will be the cause of the fall of western civilization.
The focus is on short term profit with no long term thought for long term health -- it is the bonus system based on short term gains which generally are at the cost of long term health of the company.
Executives slash & hack at R&D for short term gain & bonuses. IBM is alive today because of the R&D done in the 80's & 90's and they cashed in on intellectual property.
I have worked at too many high tech companies and seen this MBA infection -- it has destroyed every company I have ever worked for despite the talent working for them.
Wake up to the real problem.
Gee, the quote in the summary makes it look like he's not in favor of R&D, but right after that he says "But I also know that if you fall behind, it becomes very difficult to catch up."
He also talks about the evolution of R&D "a deep commitment to both R and D means that it's not only important to innovate it's equally important to innovate how you innovate. "
In the end of course, like any long term investment, it take guts to spend on R&D when the returns are far from certain.
Technical debut is a term that accurately describes the sum tradeoffs of the decisions made for each release. The granularity or technicality of the debt metric may vary by management tier but it's real. Refactorings or subsystem re-designs create credit that lets future releases go out the door more smoothly. Rushed changes use up some, or more than all, of that credit putting future releases at risk. Business wants the changes. IT management doesn't want to be unresponsive. You get tradeoffs. People who say they never make those tradeoffs are either kidding themselves or they've never worked in a "go to production" IT shop.
I will agree that many times what I called "Techical Debt" is just bad coding that was there when you got there.
But another kind is caused by changing requirements. You design a system to meet the needs of the requirements when it is first written. But, as we know, over time the uses for a system can change. A system that was initially intended to support 100 users can grow to support 10,000 users. When that happens, your original design may not be up to the challenge and a redesign becomes necessary. You can retort that you should have built your 100-user system to support 10,000 users but that sort of overbuilding is another kind of mistake.
In other cases, an old system could have been built with EJBs for the solitary purpose of gaining the transaction support. After that system has been in place for a few years, it may make sense to rebuild it using a technology that emerged later such as Spring or Hibernate. In that case, the old system is technically fine (as much as an EJB can be) but a lighter weight and smarter technology such as Spring is a better idea. In that example, I would consider the original system to be a "technical debt" only in light of a newly emerged technology.
Take another example: a system that was originally built using simple declarative or programmatic transactions. Then, as the needs of the system change, it becomes necessary to support higher speed transactions. In that rare circumstance, the strategy of using rigid ACID transactions may change and the architect may realize that a high-performance design needs to be implemented.
Paradoxically, a high-performance design might remove the direct implementation of rigid ACID and instead use something called a "Compensation system". That's the way super-high-performance systems are built. They don't try to implement a two-phase commit and instead build a "Compensation system" that tracks the updates that have been performed and--if some issue arises--undoes those updates in reverse order. That keeps the intent of ACID without actually using official transactions.
That is an example of a technical debt. The original system may have had no problems but outside events called for a major redesign. To my original point, no CEO would pay for that massive change. This is an example of the sort of "Technical Debt" that does not mask any incompetence--just changing use cases.
Corporations are lousy organizations for anything long term or big. 1st, they really do not have the resources. 2nd, they warp everything for profit. With the current legal climate, there's not much point in private research, as they'd try to lock up everything and then some with patents, copyrights, and so on.
Not saying the profit motive is bad, but for some things it is not the best guide. Why did we go to the Moon? Not for profit! Why was the Titanic operated so recklessly? A huge engineering project such as the Panama Canal couldn't be built by a single corporation. That was done by the US government. The transcontinental railroad was built by 2 private companies, but only with a great deal of help from the government in the form of land grants, military protection from Native Americans, and Civil War training and experience in running large organizations and operations. Some of the leaders of the UP considered cheating. They looked into whether it would be worth purposely making the route longer, much longer than necessary, in order to grab more land. Such thinking is all too typical, and the UP is hardly the only corporation to consider such schemes. Hoover Dam was another effort that could not have been done solely with private resources. The people had to negotiate all the details of water rights, power generation, and land use before turning over the work itself to private industry. The Channel Tunnel, the Erie Canal, the Transatlantic cable, and the Internet were similar. Most large civil engineering projects are government organized.
Intellectual Property is a monopolistic, selfish, and defective concept. It is "tyranny over the mind of man"
Competent? All we know about you is that you are either unable to log in or unable to sign up for an account and that you jump to very quick conclusions on the competency of others based upon insufficient evidence.
I agree (which means I shouldn't reply and instead should just mod your post up but I have something to say so here I am :).
I'll use an example (not necessarily the best example but a good enough one to certainly support your point): Apple.
Apple invests an enormous amount of resources into R&D and it is paying off (to say the least). The most important resource that they're clearly investing into R&D? Time. While they're certainly interested in making lots of money now, they've clearly made the investment into making lots and lots and lots of money over the long haul. Thus, they are developing products until they are just right. Rumour has it the iPad was shown to Steve Jobs back before the iPhone at which point he put the iPad on a shelf and said "we can make a phone out of this." My point? The iPad had been in development (in one stage or another) for many years before it was launched. Most other companies seem to give their designers and engineers a year, two max, before they expect to see a product on store shelves. Apple is taking several years to polish a product before showing it to the public.
So many companies want to do what Apple is doing but they seem to think that means "release products and make tons of money." No. What Apple is doing is making a solid commitment to R&D and releasing polished products that people want (among other things but the majority of those other things come after the R&D). Until other companies start to similarly invest time and effort into R&D, they will never be able to "do what Apple is doing."
As you said, if you want to rake in revenue, you have to invest in R&D. That simple.
When there is an economic downturn it is due to the fact your current process of getting money is no longer viable. In order to change to a viable process of getting money you must start by looking for a new process. In the world of technology this requires researching technology.
Having to work for a living is the root of all evil.
to IBM in the era, including several in europe.
Watson destroyed them, partly through competition, but partly through IBM's endless schmoozing with high government officials, including Nazis.
it would be like saying that Microsoft invested in R&D during the Great Recession. Of course they did. They also bribed teachers to teach students their products, forced Andriod phone makers and linux vendors to pay them protection money, launched a patent war (through SCO) against Linux, schmoozed with high government officials, etc.
Innovation does not always lead to future profit. Sometimes you sink billions into a project only to find out that it can't possibly work. Taking chances like that requires disposable income, which is not available when times are bad. In a boom a company can easily afford to invest in long-term projects that provide no immediate benefits, but now when companies struggle to stay afloat amid all that debt they took on while betting on infinite growth, it would be totally insane to spend money on flakey things like research.
Actually, American corporations are awash with cash. They could very well afford more R&D, and don't need the shareholders.
There is no risk of failure in many cases. Simply, the habit is to hire psychopath as CEOs, who are really good at squeezing the lemon. This works in times of boom, but when a crisis comes along, and some real insight is necessary, as well as long-term thinking, there is no one.
The culture of the deification of the CEO-psychopath is what is killing America.
THIS!
This is what is happening. because you can get the best of your competitors by paying a china firm to go and steal the details and make you a product. They will even deliver you a "clean room reverse engineered" certificate. Because how can it be proven otherwise...
Here you go.
Do not look at laser with remaining good eye.
In the case of civil engineering, failure is not really an option, for one, and further modification of buildings is rare. But it is still the case that wrong urban planning incurs a debt : case in point, suburbia will take tens of years to resorb, until cities are densified again.
In the case of aerospace, you need only look at the space shuttle to see this effect in action. Design decisions had to be lived with for 30 years, because the shuttle was not treated as the prototype it was. It should have operated for 5 years, and given rise to a new design based on the lessons learnt.
Technical debt is not just incompetence: sometimes, there is no optimal solution, and you cannot know which tradeoff is the best. Then as you have a deadline, you get something out, and you hope that iterating to a better solution will not be too painful. Sometimes, I write code that is there purely because it might be needed later -- and this time ends up sometimes having been a waste, and sometimes a saviour. In general, it is not wasted, but I have the luxury to do such developments.
Pressed more for time, and if I depended on tighter schedules, many of those developments would have never existed. And I would be less efficient in the long run. Many managers do not understand this.
Incorrect. China does very little if any R&D for Western Companies. Rather, the big western companies outsource R&D, and the associated risk to small Western companies. If a breakthrough is made, they will buy out said companies. The problem with this is of course that the R&D results can go to ANYONE who is willing to write a check, so it is actually very dangerous for said big companies. They won't always (and in fact very rarely are) the first ones to write a check. Usually it is smaller, hungrier companies that are willing to invest in a promising but incomplete proof of concept that get the license in these types of situations.
Basically, by eliminating their R&D departments, they have destroyed their competitive advantage that served them so well in the past. This is the result of the rise of the MBA, who on the whole are a pack of fools who don't know anything about real business, as opposed to the earlier industrialists who worked their way up from nothing by rising through the ranks and learned how to run a business on the side, while keeping the "business" stuff secondary to the engineering and science.
But there is little need to fear. This system won't last much longer.
Here is a little secret.
CEO's are not in it to bring profits for a company. That is not their job. Their job is to boast the share price at all costs. Its taught in finance 101 in any college.
Now imagine you are the CEO. You can invest in R&D and have your shareprice get cut down by almost half in this recession and risk your job for not using the money to hire more marketing and sales people, but if you stay on for 5+ years you will make tons of money and create long term value. Or you eliminate R&D and your company will die within 5 - 7 years right? As CEO you get a 20 million bonus for selling your prized assets that make you money for short term gain and your stock price goes up a good 35%. You do not think such CEOs who do this stay right? They jump ship within 2-3 years with a golden parachute. Even better with that track record you go on raiding the next company for even more money and become a guru and genius to stroke your ego. 90% of CEO's would pick this and let the next CEO take the fall when they go out of business or fade to the competion. Meantime you buy a yatch and retire or buy a bigger one as you ruin the next company, etc.
This is how the real world works.
If this needs to change we have to stop having Wall Street reward short term behavior and start punishing companies like HP who do retarded things for long term shareholder wealth. I do not know how and do not think it is our job to do this. Steve Jobs was fired from Apple initially because of R&D and a lack of results. Wall Street hated him for his long term ideas and R&D. They wanted the mac done cheap like a generic PC. HE came back and risked everything for the IPOD as most CEOs refused to work for Apple thinking they were dead.
http://saveie6.com/
Sorry, but no. You can manufacture in China, but doing R&D there will lead to a disaster.
In China, working to spec is the be-all-end-all way to do something. I had my share of work with Chinese companies, and they will do everything to your specification. Exactly. This. Way. Which is good if you have a finished product and just need it assembled a billion times. It gets completely out of hand the moment you try to let them decide anything. Because they will invariably choose the way that's cheapest to do. Don't be surprised if the task is "add another button" to find the button inside the device, unreachable, because it was simply easiest and cheapest to put it there.
In a nutshell, never ever let a Chinese company design anything. Invariably, you'll end up with a product you can't use.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
The problem is that those MBA CEOs have little attachment to the company. Their goal is to rip as much money out of it in as little time as possible, if that means bleeding the company dry, so be it. The "old school" tycoons who built the companies themselves wanted the companies to thrive and prosper, they were their baby, their legacy. They gave their life, blood and sweat for their company.
Not a single one of those wannabe CEOs today would shed as much as a tear over the company they're responsible for. And if the crisis told us anything, why worry? If everything fails and your gambling puts the company in jeopardy, the tax payer will cover for you!
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
Only?
A third expenses for R&D alone sounds quite a lot, I doubt many companies spend that much on R&D alone.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
What puzzles me to no end is that they didn't even lose their divine status when they had to grovel for MY (and your, don't feel left out) money to keep their company from failing because they themselves are utter failures as managers. I wouldn't trust the management of my spending money to those duds, let alone a company where thousands of people are working hard.
These people proved they cannot manage, they cannot run a company and they cannot handle money, yet they not only keep their job, no, we (as taxpayers) get to pick up the tab for them and those friggin' morons continue moving from one blunder to the next without remorse or regret.
Care to explain to anyone why these people are supposedly worth the money they rake in? I refuse to call it "earning", they most certainly didn't earn it. But I guess if I post what I think they'd earn instead, in this day and age this might be grounds for a lawsuit.
We used to have a Bill of Rights. Now, with the rights gone, all we have left is the bill.
It's so amusing to me when people trump up the "outsourcing" solution. I have had to deal with many many overseas outsourcing companies, some with shoddy talent, but some with some extremely bright and talented individuals as well. Unfortunately, none of the endevours bore fruit. Why? Because no matter how hard you try, you face the tyranny of distance. Not just geographical location, differing timezones etc., but cultural distance. This is why numerous banks are bringing their overseas talent onshore, rather than outsourcing cheaper overseas. Oh yes, and before everyone gets all huffity and up in arms about bringing workers in to work cheaper etc, note that these guys aren't cheaper. In fact, they are more expensive than their local equivalents for the business due to visa's, relocation costs and finally in some cases, their negotiated wages. Remember those bright sparks I was mentioning before? Well, they're these guys, and hence why at the end of the day the outsourcing companies don't have many of the bright sparks left, because you get what you pay for, and some companies are willing to pay more than others.
It will be a simple matter of a few years until a substantial portion of work comes back onshore as more companies understand the distance issue (and of course, talent becoming more expensive overseas), but there will be fewer seniors available to train the juniors.
At the end of the day financially for the effort and risk expended, the intelligent manager knows it is better to land R&D talent onshore rather than funding a research lab overseas; Unless of course, it's simply a bottom line fudge to get the shareholders to agree that you've met your 2 year KPI, and burying a nice little landmine for the next sucker CTO to find and rebury when he steps on.
Science advances one funeral at a time- Max Planck
This.
You are spot on right. Unfortunately there is no penalty to be paid for instant gratification. Hopefuly after this correction, investors will learn that 5-10% is an appropriate ROI. Currently the banks are facing an interesting problem. They had a group of essentially conmen, providing unsustainable 20-30% returns, a mad rush on profits and valuation of shares, rather than stable long term business. Now, when the reality cheque's bounced, the shareholders are unhappy with the 5-10% return, so the banks are cutting deep into their costs to try to maintain this ludicrous state. Something will give. It is a certainty. Unfortunately, we all know that it will be investment, because this is not instant gratificaiton. Unfortunately CEO's don't like, and certainly are not rewarded for saying no to shareholders. Unfortunately, it would take a far more intelligent person that I to come up with the solution. Let's hope that person steps forward sooner rather than later.
Science advances one funeral at a time- Max Planck
A very important fight/evolution in society is the evolution of democracy in the corporations. Not just worker representation (it is a good idea to have worker representative on the board, if only to provide dissenting voices when decisions are taken) but real shareholder representation. If I own stock in a company, the CEO is basically my employee. If he is incompetent, I should be able to fire him. The shareholder assembly should work like a parliament, responsible for setting the objectives and the regulations internal to the corporation, and the board is really the executive power.
Notably, the salary scale should be voted on. The CEO would then stop stealing shareholder money (because their outrageous salaries are stealing -- they sure did not add that much value), and long-term strategy would be encouraged. Most shareholders are in for the long haul, and they expect dividends more than stock-price upticks. If they don't it's their own damn fault.
And as this structure would never arise while the CEOs are in charge, it should be mandated by the government: the government allows the corporation to exist, and grants it certain rights. Thus it is reasonable that it decides how it should be run. Not the decisions, but who has the power. And the power should go to the owners.
An incompetent manager will allow the incompetent developer to get away with crap like that. Then, later on, the incompetent developer and the incompetent manager will cry about "technical debt" and other bullshit like that, instead of owning up to their incompetence.
To me, "technical debt" is a way that developers can tactfully point out to management the incompetent practices that allow poorly factored code to remain in a codebase.
That last bit sounds a lot like Keynsian economics. The Tea Party crackpots are going to get their panties in a bunch over that sort of thinking.
Infrastructure and public investment looks good on paper. But it interferes with the economics elites' drive to accumulate assets under their control. The military-industrial debt is tolerated because it provides business opportunities and finances R&D. But no permanent assets are created.They are all blown up.
R&D spending us undertaken often as a defense against competition. But with huge piles of cash sitting around, its easier to buy up the competition than to invest in high risk ventures (even if the successful ones are high return as well). If nobody else can enter your market, due to a lack of funding or the risk of patent wars, building the same old crap is low risk.
There are several ways of getting cash flowing again in the economy: tax it away from the people sitting on it (not likely in this political environment), inflate it away from the people holding it. Tomorrow's dollar will be worthless. Keep your money moving. Or open up our borders economically. Let the Chinese make direct investments here. If our capitalists won't move, maybe theirs will and push the lazy bastards over to the side.
None of these involve using the carrot that the GOP is so fond of. All make use of a liberal application of the stick.
Have gnu, will travel.
R&D Expenditures for Tech Companies. As a percentage of revenue, Microsoft is highest (14.6%), followed by Cisco (14%) and Google (12%). Apple is down at the bottom with 2.3%.
Why would a CEO care about providing new revenue? That's beyond the horizon of the couple of years he will "lead" the company.In that time, he can gut the business, funneling the cash to the "investors", and leave on his golden parachute, leaving a rotting corpse behind. We should put some of the local lamp posts to good use, pour encourager les autres.
Ubi solitudinem faciunt, pacem appellant.
Apple is a terrible example of a company doing well due to R&D. Apple sells 70% on marketing and 30% on product. The fact that they made a tablet, just like lots of other companies have done, and Jobs said, "Lets make a small one like the Palm" followed by a realization years later that people might actually want a the large version, doesn't mean Apple is investing heavily in R&D. Apple doesn't wait until a product is "just right". The iPad isn't an example of Apple "taking several years to polish a product". The fact that you think that shows just how much of Apples success is in quality marketing.
There is no value in outsourcing work as far as the customer is concerned.
Outsourcing is motivated by CEO stock share value, nothing else.
Does outsourcing build a better product? No, it does not.
Does outsourcing provide better customer service? No, it does not.
Does outsourcing simply reduce manufacturing to where you can find slave labour, ala FOXCONN? Yes, yes it does.
What does outsourcing eventually lead to, which nobody talks about?
Jobs outsourced domestically, eventually leads to a domestic market which cannot buy the goods you make, ala the United States which had a very strong consumer market.
After NAFTA and outsourcing, it is just a strong consumer FOOD STAMP market.
-Hackus
Got Geometrodynamics? Awe, too hard to figure out? Too bad.
On what planet does Apple gloss over new product models. Here on Earth, they throw major events for every single model upgrade.
I agree (which means I shouldn't reply and instead should just mod your post up but I have something to say so here I am :).
You don't understand the moderation system, huh?
Investors GOT a long term interest. Speculators do not. Wall street has NOTHING to do with investment anymore, when you hear indexes fall and rise it is speculation that is driving it.
Investment: I give you 1000 dollars to build your business and you pay me a percentage of the profit.
Speculation: I buy 1000 dollars of stocks hoping they will go up, then sell them when I think they reached a peak and repeat with OTHER stock.
That is why the market must continue to grow and grow and grow for speculators. An investor who gets 1000 dollars back each year for his 1000 dollar investment would be through the roof. A speculator would be highly upset because after the first year, the stock wouldn't be going up, the dividend would be insanely high but the stock price itself could well remain stable.
That is why during the bubble stock prices for internet companies with no business model went up. NOT because regular business was a bad investment anymore BUT because there was nothing to speculate on. Wall street NEEDS instability (constant growth is a form of instability) to allow speculation to happen.
Learn the difference between investors and speculators. It is vital if you want to understand economics.
MMO Quests are like orgasms:
You may solo them, I prefer them in a group.
When your point and conclusion rests on rumors, legends, and "it seems" or "I believe" rather than actual facts.... it makes your conclusion valueless.
But you'll get +5 anyhow, because your conclusion coincides with one of Slashdot's most treasured bits of dogma.
Actually, it's standard operating procedure in big business. Most large corporations will have the 5-10 largest/best law firms on retainer throughout the world so as to eliminate the ability of litigants to utilize those firms in their lawsuits. Google, Facebook, Apple, Microsoft, along with any other large multinational corporation have strategic plans in place to mitigate the caliber of talent that can be brought against them in these lawsuits. This does not make them immune, but merely hedges their bet and pushes the odds in their favor.
Such is the world we live in.
I bet Apple's success really annoys the hell out of you. All those mindless sheeple buying shiny glossy worthless gadgets because of Apple's "marketing" and "Reality Distortion Field", right?
You couldn't get any more ignorant. Apple succeeds because they understand technology and human beings. I think you'd be surprised how little they spend on marketing -- certainly nowhere near the 70% you claim. Apple's products are superior over the competition, so they sell themselves. There's no secret to this, it's just good old-fashioned hard work and vision, something that most companies lack.
Geeks who hate Apple should at least try to understand what drives its success, rather than ascribe it all down to "marketing" and the general public being mindless zombies. They could learn a thing or two about real strategy and innovation. Apple will eventually go down in history as the most influential and successful computing company in history, eclipsing even Microsoft.
>Apparently Finance 101 professors are idiots.
Actually, it's judges. What the professors are teaching is true -what you are saying is perfectly sensible... and false.
Thanks to a standing court decision decades ago which determined that a CEO must AT ALL TIMES put shareholder value ABOVE ALL OTHER CONSIDERATIONS. These include ethical ones, environmental ones, and indeed long term profitability and growth.
Unfortunately for sensibility - the law actually DEMANDS that CEO's act stupidly.
Unicode killed the ASCII-art *
tl;dr version: APPLE RULES! MICROSOFT AND GOOGLE DROOL! (And just to prove my point, I'll make stuff up and plead special exceptions, and handwave vigorously.)