Thursday, August 27, 2015

Short term-ism and industrial research

I have written multiple times (here and here, for example) about my concern that the structure of financial incentives and corporate governance have basically killed much of the American corporate research enterprise.  Simply put:  corporate officers are very heavily rewarded based on very short term metrics (stock price, year-over-year change in rate of growth of profit).  When faced with whether to invest company resources in risky long-term research that may not pay off for years if ever, most companies opt out of that investment.  Companies that do make long-term investments in research are generally quasi-monopolies.  The definition of "research" has increasingly crept toward what used to be called "development"; the definition of "long term" has edged toward "one year horizon for a product"; and physical sciences and engineering research has massively eroded in favor of much less expensive (in infrastructure, at least) work on software and algorithms. 

I'm not alone in making these observations - Norm Augustine, former CEO of Lockheed Martin, basically says the same thing, for example.  Hillary Clinton has lately started talking about this issue.

Now, writing in The New Yorker this week, James Surowiecki claims that "short termism" is a myth.  Apparently companies love R&D and have been investing in it more heavily.  I think he's just incorrect, in part because I don't think he really appreciates the difference between research and development, and in part because I don't think he appreciates the sliding definitions of "research", "long term" and the difference between software development and physical sciences and engineering.  I'm not the only one who thinks his article has issues - see this article at Forbes.

No one disputes the long list of physical research enterprises that have been eliminated, gutted, strongly reduced, or refocused onto much shorter term projects.  A brief list includes IBM, Xerox, Bell Labs, Motorola, General Electric, Ford, General Motors, RCA, NEC, HP Labs, Seagate, 3M, Dupont, and others.  Even Microsoft has been cutting back.  No one disputes that corporate officers have often left these organizations with fat benefits packages after making long-term, irreversible reductions in research capacity (I'm looking at you, Carly Fiorina).   Perhaps "short termism" is too simple an explanation, but claiming that all is well in the world of industrial research just rings false.

11 comments:

Anonymous said...

I worked at GE Research recently. GE projects I saw typically had time frames from "research" to "product" of 3 years with funding coming from a business unit. "Long-term" initiatives typically had a 5-year horizon with funding coming from the CEO's office. From an academic perspective these timelines are pretty short. Also, even the most exploratory "long-term" could be quickly killed after an unfavorable quarterly review. The result is that even the most "research" of projects can become bogged down in justifying it's existence 4 times a year and focusing on short term progress in order to survive.

Anonymous said...

Of course Doug left out oil exploration corporations in his list.

His naive idea of industry is the "mighty" solar cell.

"Why are we deindustrialising"..."I dunno"...

Douglas Natelson said...

The oil and gas industry has not been immune. See this article, in terms of how much it has historically been spending on research and development, and how $40 oil will cut that further: https://www.energyvoice.com/opinion/81228/opinion-oil-and-gas-what-comes-after-the-cuts/

Tahir said...

I concur. I feel that this has also spilled over to academic research, with more short-term pressure and less freedom and flexibility than in previous decades...what do you think, Doug?

Anonymous said...

Having worked on three different large corporations researching Phase Change Memory, a MEMs reflective display and solid state storage, I can vouch that Doug is right on - I also had to help deliver respective products in each of these jobs! And I have cringed at how the corporate research directors have begged and cheated their way through keeping the research projects alive with the bean counters, every quarter.

And been even more disgusted at University engineering (and even some science) faculty making similarly outlandish claims their research might deliver, while knowing full well that any self-respecting scientist/engineer who understands what they are talking about, fully gets the borderline fraudulent claims that their research output would be leading to miraculous "products". All for the sake of "research funding".

JonB said...

Prof Richard Jone's blog is running a series of articles looking at the relationship between reduced R&D investment and the productivity gap in the UK economy. The articles are very much centered on the UK, but there are certain themes that chime well with Douglas's comments:

www.softmachines.org/wordpress/

Douglas Natelson said...

Thanks, JonB - interesting reading!

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