Even companies that claim to have a long-term orientation worry about whether R&D is worth the investment. Sarah Williamson is the CEO of FCLTGlobal (formerly Focusing Capital on the Long Term), an organization cofounded in 2016 by BlackRock, CPPIB, Dow Chemical, McKinsey, and Tata Sons to encourage a longer-term focus in business and investment decision making. According to Williamson, a current concern among many institutional investors as well as corporations is that companies don’t get credit for long-term investments in R&D. This is both because the resulting knowledge might walk out the door, as employees join other firms or start their own, and because you can acquire firms who have the needed technology. If everyone followed that logic, however, there’d be little innovation to walk out the door or to acquire! Fortunately, neither of these concerns is warranted, and my research shows why companies, investors, and the nation will be better off if companies make long-term investments in R&D.
There’s No Good Alternative to Investing in R&D
Even companies that claim to have a long-term orientation worry about whether R&D is worth the investment. This is because they worry the resulting knowledge might walk out the door, as employees join other firms or start their own and because you can acquire firms that have the needed technology instead. If everyone followed that logic however, there’d be little innovation to walk out the door or to acquire. Fortunately, neither of these concerns is warranted, and research shows why companies, investors, and the nation will be better off if companies make long-term investments in R&D. In summary, there is no free lunch. Acquiring your way to innovation doesn’t work — the only way to stay innovative as a big company is to invest in R&D. Luckily for big companies, investing in R&D is a good strategy.