R & D v ROI

As per previous postings, Pingar is instinctively committed to Research & Development. It is a key aspect of our long-term Business Plan.

As well as deploying our own internal resource, we work closely with 'best-of-breed' technology and business partners. These include Microsoft, FAST Search, Global Graphics and HBI Software.

Closer to home, and hot on the heels of yesterday's blog, Pingar is also actively engaged with Waikatolink; (University of Waikato). Over the next few weeks, I want to talk more about the importance of private sector / tertiary education engagement. It seems to me that there is real failure of the private sector in NZ to understand the benefits that such engagement can bring.

Let me spell out my position on this.

The Pingar / University of Waikato relationship is not academic. It is commercial with a capital C. I do not regard Research as not a cost. I regard it firmly as an investment. To understand this, I will introduce you to my 'x5 valuation' theory. It is not scientific, but is based rather on offshore experience of this space. It is my take on the Return of Investment (ROI), Pingar and its shareholders can expect from hard-core Research.

In simple dollar terms, every dollar spent on Research, increases the value of IP within the company by a factor of 5. So you spend NZ$200,000 on a specific Research project and the impact of its successful development and deployment increases its value to NZ$1 million at the point of commercialisation.

This increase of valuation of course appears on the Balance Sheet, not the P&L. So cash flow does dictate the level of investment that can be committed to Research at any one time. This is particularly important for SME's where cash flow is critical. The important lesson for business however is that Research should become a core value within the Business Plan model. It will create the innovation necessary to both build value and ignite competitive edge.

Because of their skill-sets and researcher resource, Universities and others engaged in tertiary education make the perfect partners for the private sector. It is unlikely that most SMEs will have the internal resource necessary to manage the whole Research process.

In March 2003, I gave evidence to the House of Lords Select Committee on Science & Technology on the subject of 'Science in the Regions'. A key aspect of the Committee's study was to identify routes by which SMEs could engage with University and Polytechnic research functions. It was clear during that study that both real and imaginary obstacles and perceptions existed and neither the private sector nor the tertiary education sector were engaging effectively.

I guess those same forces exist here today. The private sector in NZ does not understand the value that tertiary education and Research can bring through joint engagement. And Universities and tertiary research providers have collectively failed to convey the value such engagement can bring to the private sector.

The impact in New Zealand is clear. Spend on R&D by the private sector falls well below the OECD average. So does productivity. So does pay. This issue has to be addressed.