R&D in Marketing organizations?
The slowly ending recession in
A declining category should always bring up the critical question: How much do we invest in R&D to steal market share in our declining category? Surprisingly, most marketing organizations don’t even enter this discussion. They are not used to be thinking about client non-specific R&D, very different from any software company that spends between 2 and 10% of their revenue against R&D, not to mention Drug companies who are spending on average 12% on R&D. Even large service organizations like IBM or Accenture have a separate R&D Budget by department that can reach close to 4% of overall fee revenue.
Why do marketing organizations don’t think R&D? A few reasons:
- Most marketers are living only by solving the problem right now in front of them. Probably more than 90% of marketing organizations don’t have a three year plan that would justify and explain the value of any R&D investments. The thinking and planning in every shorter time frames hurts any serious R&D discussion.
- Agencies are used to be working only on client specific challenges and tasks. It is a very foreign concept to invest against something that no client has asked for. The concept of scale and impact beyond one single client is a rather unusual one that most agencies are not able to understand. Similar, brand marketers in large organizations associate R&D with the product department, not with initiatives within the marketing team.
- The major advertising holding companies don’t ask for real innovation from their agencies, they demand a good profit. Some of the holding companies are trying to encourage R&D projects on a holding level but it is extremely difficult to develop something unique and competitively worthwhile for them, since the entities in the holding companies are often far away from a particular client need. And good R&D is always driven by attempting to solve a particular very well understood need that can be identified across multiple clients.
I believe the weakening of marketing organization will only be accelerated by not understanding the value of R&D projects. Any marketing executive should ask “Where are the key areas that we should put R&D projects against?” and “How much should we be spending on R&D?” Most likely we will never reach R&D investments in even single digit percentages of revenue but any marketing organization can define three to five projects that could pay significant dividend in case of a success.
Today’s young talent will demand such thinking, they are not interested in just executing against a narrowly defined work scope. A R&D budget is not just a bet onto the future to create a competitive advantage but it could be the best retention tool for outstanding talent, too.