Commentary - Mike Carr,
Chief Science Officer, BT Group

Increasing R&D spend is not only a good “lead” indicator of successes yet to come, it is also a signal of business confidence.

Each year the Government publishes the “R&D Scoreboard” which provides a snapshot of R&D activity by both the UK’s most active 850 companies, and the 1250 most active globally. Over recent years the Scoreboard has become the core reference for benchmarking R&D investment data.

For BT specifically, it has become an invaluable tool. The key strength is that it provides a comprehensive review of auditable data across diverse industry sectors. As Chief Science Officer for BT I routinely use this data as a benchmark input for our internal annual Research investment case.

Of course it would be possible for BT to independently assemble a small subset of data found in the Scoreboard by analysing a handful of reports and accounts directly. However, I have found from experience that this is ineffective as it generates more questions on why a particular set of companies was chosen than it answers by giving a true benchmark on a wide range of companies.

In addition, as an open public document, the Scoreboard data reference gives confidence to our shareholders that we are taking appropriate action in the sector we operate in. BT has moved very rapidly from being a telephone company and has become a significant broadband and global ICT player. Without wide shareholder awareness of the metrics involved, our significant yearon- year R&D increase might have been difficult to understand.

In 2003 BT spent about 2% of its sales revenue on R&D. This year’s Scoreboard lists us at over 5%. This substantial increase is consistent with the fast changing market in which BT competes. The increase can be categorised into three areas:

1. BT’s success in winning significant networked ICT business globally. These wins, worth several billions of pounds, require substantial development and integration of new technology.
2. Products and services which take advantage of the new “broadband” world. Innovative products such as BT Fusion and BT Vision were not possible on narrowband. Our success with driving broadband in the UK has created some fantastic opportunities requiring R&D investment.
3. The creation of our 21st Century Network platform (21CN). This massive undertaking is all about building a global, flexible, cost effective network and service infrastructure which can support the dynamic needs of our future customers.

Increasing R&D spend is not only a good “lead” indicator of successes yet to come, it is also a signal of business confidence. However, for many companies, the challenge is to prioritise sufficient funds from today’s business to be able to invest for the future. Looking at the Scoreboard it is clear that there is massive R&D investment around the globe. Driving innovation in the UK through continued investment in R&D is absolutely key to the UK’s future success. The UK Government is keen to drive the average UK R&D investment level from its current level of about 1.8% to 2.5% of GDP. This needs to happen companyby- company, sector-by-sector. Keeping a close eye on where any company sits in R&D investment, compared to the Global benchmark, may well spark a re-examination of investment priorities.

I believe the UK is actually very well placed to take advantage of increased R&D investment from industry. We have a world class UK science base (and we need to ensure it remains so) which results from a long history of leading UK Research Universities and Science institutions. These have led to an extraordinary record of scientific discovery in this country. The real challenge is turning these innovations and opportunities into real products and real services. Only industry can do this. We must therefore continue to build our collective investment in applied R&D activities.