If new products are the lifeblood of technology companies, and R&D is the lifeblood of new products, then how has Hewlett-Packard been able to slash $1 billion out of its annual R&D budget since 2007 while still cranking out dynamic new offering across its extremely broad product spectrum?
Look at it another way: 10 years ago, way back in 2000, HP's annual revenue was $48.8 billion and it invested $2.65 billion in R&D. This year, in 2010, HP's revenue is projected to top $120 billion and it will probably spend about exactly that same amount—around $2.7 billion—on R&D.
And its product mix today is dramatically broader, deeper, and more sophisticated than it was in 2000. How is that happening: is CEO Mark Hurd putting some potent new mind-expanding vitamin supplements in the juice machines at HP's R&D labs??
Or has Hurd found a new approach to R&D that optimizes the investment dollars around the stuff that really matters—market-focused breakthrough thinking—by bringing greater financial discipline and process enhancement to the sometimes-amorphous world of high-tech explorations?
In what I found to be the most-revealing exchange in HP's earnings call with analysts this week, top-notch analyst Toni Sacconaghi from Sanford Bernstein brought up the 2000-2010 R&D comparison and asked, "Is that just that you had a lot of wasteful R&D spending before or your portfolio is really different or how do we reconcile those statements?"
Hurd cited three factors that contributed to the massive change in approach and outcomes:
1) R&D had become an overhead hog.
2) Processes were streamlined, standardized, and where possible automated.
3) R&D dollars were sharply concentrated on the pursuit of innovation instead of keeping the lights on.
As Hurd put it, "What we are trying to do is get the innovation dollars up. So when you look at the total R&D spend, it's down, and yet the yield to the product road map is up. So, when you look at the number of introductions of products that have had meaningful change in share positions, that number is actually up for us. And that's what we want to measure. We want to get more innovative products into the market sooner," according to the quarterly earnings-call transcript on SeekingAlpha.com.
And he added this hypothetical anecdote to underscore his point about focusing on the desired outcome rather than volume of raw dollars poured in as raw material: