Blog: June 10, 2016
Topics: Innovation

Disruption vs. distraction? R&D investing for impact

How HP Labs allocates resources to fuel innovation

By Keith Moore, HP Fellow and HP Labs Deputy Director Printing and Personal Systems Group Hewlett-Packard Company

The role of HP Labs is to create novel technologies and experiences that define the future of the company.

The key question is how to invest to create the greatest impact? Do we invest in making a difference in existing businesses or do we invest in disruption?

The problem is that a “true disruption is indistinguishable from a distraction in its infancy,” as former HP executive Frank Cloutier once noted. While R&D tends to generate lots of ideas, figuring out which will truly be transformative is difficult. It typically takes seven years to scale a business from nothing to $1 billion in revenue (or $100 million in profit). HP is impatient for profit and revenue.

The advantage of targeting the existing business is that a 2 percent improvement on a $52 billion business generates $1 billion in revenue. We could strive to generate customer delighters that command a premium on our products. But is that where we should make our research bet? Much like an investor or financial strategist, we use a portfolio approach.

We budget about 10 percent of HP Labs investment in fundamental research. This has high risk (in time and technology) but if successful, will have high returns. HP Labs’ research in Surface Enhanced Raman Spectroscopy falls into this camp. This is an unbelievably cool approach to molecule identification; however, we don’t know yet how to keep samples from being contaminated. In addition, we have the business risk of whether HP will enter and pursue the nanosensor market, which is very exciting.

About 60 percent of our investment is oriented toward existing business units. This is because the best likelihood for return is through creating differentiation for our existing products/channels. Labs has to make a contribution here beyond what the division can do, otherwise the division resources are way better at meeting customer needs.

The final 30 percent of our portfolio is in stuff that likely will become a new business (i.e., very unlikely to sell through our existing channel or business units). We don’t usually start here, but many ideas end up here. This part of the portfolio is incubated to decide whether to spin in or spin out the business.

"In this wave, we move quickly and fight continuously to improve our core businesses, drive profits, and increase cash flow."
Dion WeislerHP Chief Executive

Our research portfolio of projects intersects with the business wave approach from HP Chief Executive Dion Weisler. As he describes it, the first business wave is about the current landscape.

Business wave two is about emerging businesses – you can see companies entering but no clear leader (3D print is such an example). Business wave three is about markets that don’t yet exist. This is where breakthrough technology is needed. Technology innovations are key to all three waves, but we generally focus HP Labs resources on waves two and three.

It’s never obvious where a great idea will come from. As such, we don’t plan research like a product roadmap. Instead, we establish areas that we think have longevity, and create checkpoints for deciding to continue investment or shelve the idea. History has shown this approach works well, from new technology for the Indigo digital press, to new materials for 3D print, to security innovations for our devices.

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