Wednesday, March 19, 2014

When The Going Gets Tough, The Tough Invest in Research

By:  Patricia Muoio
       Director of R&D, G2 Inc.

There is no denying that we have just emerged from a year that was fiscally problematic for government contractors into a period with a somewhat rosier prospect that is still marked by a high degree of fiscal uncertainty.

Some may wonder why G2 would choose to go large in research, an uncertain prospect, in this time of uncertainty. Or, more personally, we may individually be wondering whether it makes sense to go out on a limb and ask for research time when we could be maxing out our billable hours.

Prudence might suggest we concentrate on revenue-producing activities while we wait out the storm. While this may be a comfortable tactic and enable us to maintain the status quo with little risk, I’d like to argue this is a terrible strategy for the company’s long term health.

One argument in favor of increased investment in research during tough fiscal times is the tried and true “don’t eat your seed corn” argument. If one devotes all their resources to addressing today’s immediate needs, they will be under-resourced to address tomorrow’s challenges.

Another argument for increased research investment is based on the notion of improved competitiveness in times of scarcity. Contract opportunities are fewer when times are tough and G2 will need to win a higher percentage of the opportunities we bid on.

We could perhaps do this with superhuman pursuit efforts and lots of luck, or we could establish a systemic advantage: a reputation for innovation and problem solving backed by concrete evidence of solid processes and a track record of success in innovation.

Many large companies with established research divisions have taken this track, to great success. Tweak this basic idea to account for smaller margins and a less diverse market, and you have a strategy that enables a small company to flourish.

In addition to providing an edge in the short to medium term, prognosticating about the future that will follow these current uncertain times suggests that establishing a reputation for innovation will have big payoff in the long term. It is likely government budgets will stabilize, but my bet is they will likely be no larger, and more likely will be somewhat smaller, than they are today.

The unhappy reality of the government budget with which I am familiar, is that an unhealthy percentage of the money is devoted to personnel and keeping the lights on. The discretionary spending needed to keep up with the rapidly changing technical environment is inadequate.

Given my bet that there will not be much new money, and given we can’t ask the tech environment to slow down so we can catch up, agencies are going to need to reduce personnel costs and increase efficiency in their installed base in order to increase their investment in new technology.

It is innovation that enables automation, low-power commodity solutions, smart systems with lower maintenance costs, and other efficiencies needed to break the stranglehold of investment in sustaining current operations. And it seems to me as if this is the kind of innovation G2 is best at.

By going large on research at this time, we can be poised to provide solutions of this type, perhaps even before the customer asks for them.