InformationWeek

September 14, 1998

Executive Report: IT Research Must Not Forget Long-Term

By John Eckhouse

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ost companies consider IT research a necessary expense. But in an increasing number of farsighted companies, IT research departments are undergoing a major transformation. Instead of being a drain on corporate profits, IT research must pay its own way and develop new products that can quickly contribute to the bottom line.

At companies such as American Express, General Electric, and the Hartford Financial Services Group, the bulk of the IT research budget comes from business units that literally hire the research department. Often, IT departments must bid on projects against outside firms. And sometimes they even work on projects for outsiders, including firms that may compete directly against their parent companies.

chart GE's research and development center in Schenectady, N.Y., has 10 salespeople who make deals for the 1,500-person lab with other GE operating units and outside companies. And next year, the Advanced Technology Group at Hartford Technology Services Co., a wholly owned subsidiary of the Hartford Financial Services Group, won't get any funding from the parent company unless it's hired by the business units for specific work. "We're learning sales and marketing by the seat of our pants," says Vi Beaudreau, director of the IT research group in Hartford, Conn.

Companies are also unleashing the creative potential of IT research to develop new products. For example, the American Express Interactive Services Group launched a speech-recognition program to improve travel-reservation services. Callers now get the information they need in one to two minutes, instead of in five to six minutes. The group also created an extranet travel-reservation service for client companies; employees book their travel on the Web site, taking advantage of negotiated discounts with airlines, hotels, and car rental companies.

But R&D managers have to be careful not to fixate on the quick hit to stay in the ball game for another inning. If too much effort is spent on sure-thing singles and doubles, basic research that could, over time, lead to triples and home runs will be jeopardized. "It's a tough question to decide how to do multigenerational planning beyond the next product release," says Norm Sondheimer, manager of the 150-employee IT lab within GE's R&D center. Sadly, a quarter of the IT managers surveyed by InformationWeek Research say none of their research budget goes toward basic research-the entire amount is spent on applied research.

It's important for IT managers to save some funds for research on products or services that aren't on business leaders' radar screens. After all, these developments could be vital to the long-term health of the organization. Hartford's Advanced Technology Group often engages in stealth research: It invests a portion of its money in promising products or services, then tries to convince key business decision-makers of the projects' value.

Just 25% of companies surveyed say IT research is used "frequently" to develop and launch money-making products and services. But even if a company isn't using IT research in new ways, chances are the department no longer operates in a vacuum, hidden away in some far-off and unknown lab. InformationWeek Research found that top corporate management is more likely to determine how IT research budgets are allocated-not CIOs, IT VPs, chief technology officers, or IT departmental committees. That's why IT managers must get top executives to see the value IT research can bring to the overall health of the company and its future. But that may not be so easy. IT managers say that, on a scale of 1 to 10, where 10 is extremely important, senior management views the importance of IT research as only a 5.9.

John Eckhouse is a senior editor of InformationWeek Events and Research.

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