R&D Reputation and Corporate Brand Value

Abstract

Corporate R&D is under pressure. Whereas innovative technology remains one of the most important business growth factors, it is difficult to link the outcomes of corporate R&D activities directly to a firm's market performance. Although new technologies mostly originate from R&D laboratories, their market success depends on multiple production, marketing, and sales-related factors that eclipse the research contribution. Those corporate R&D centers that have survived have increasingly financed their resources through business-unit contracts and third-party funding (1). For instance, in the early 1990s, ABB's corporate research was 80 percent financed by corporate money while today about 70 percent comes from the business units. And Siemens is transforming large parts of its centralized Corporate Technology R&D department to in-house consulting, while IBM has established its industry solution labs to provide external clients with access to its research results, and thus gain research-related income for the corporation. When the allocation of corporate money to R&D is reduced in favor of contract research assignments, the capability to attract the right resources--individuals and institutional partners--from an open-innovation ecosystem becomes a decisive success factor for technology companies. Moreover, a higher R&D intensity supports a stronger corporate brand, as can be seen from the analysis of 22 technology companies depicted in Figure 1. Reputation management is an important factor in attracting partners and external funding. From interviews with CEOs and CTOs of nine large industrial and publicly-funded firms (2), we have a clear indication that a corporate R&D lab's well-managed reputation has a direct impact on the firm's brand value. In other words, corporate research labs should not be measured only by their technological outcome, but also by the impact they have on a firm's brand value, for which the Interbrand ranking serves as a well-known reference for publicly traded companies (3). How the Study Was Conducted The brand valuation method of the market research institution Interbrand is a combined approach based on the forecasting of current and future brand revenues minus business-related costs and a scoring of customers' intentions to purchase a particular brand. R&D expenditures are costs and, therefore, excluded in Interband's valuation method. In our empirical survey, 113 mostly German and Swiss industrial R&D stakeholders were asked to rank 33 European R&D institutions--mainly in the technology sector--with respect to their overall reputations. We then asked the respondents to assess the key criteria that determined their ranking (see Figure 2). [FIGURE 1 OMITTED] We found that a corporate R&D center's popular visibility in terms of its coverage in the news, as well as in popular science and business media, significantly and positively affects its sourcing capabilities. Furthermore, there is a significant relationship between a corporate R&D organization's willingness to take risks and an external organization's decision to partner with it. This suggests that the better a prospective external partner perceives the R&D organization's sourcing capabilities to be, the more willing that partner will be to enter into the partnership. [FIGURE 2 OMITTED] An R&D organization's risk-taking attitude is associated with its reputation, which is in turn another important partnering selection criterion. An industrial R&D organization's overall reputation is, finally, highly correlated with its popular and scientific visibility in terms of the number of publications in academic journals and conference proceedings. Implications for Managers Based on these findings, we deduce that: * Targeted communication in A-level popular and business-related media is a must--not a nice-to-have--if an R&D organization is to be regarded as highly reputable. …