Research and development remains a strategic priority for executives, even in turbulent times, a McKinsey survey finds.¹ We asked respondents about the relative importance of R&D in their companies, the changes those companies have so far made to R&D spending and strategy in 2009, and the expected results of the changes.

Forty percent of the respondents say their companies are actively seeking to reduce R&D costs—far fewer than are cutting operational costs overall, according to other McKinsey research—and about the same proportion say these companies are trimming the number of R&D projects. Some 34 percent of the executives report that R&D budgets are lower in 2009 than they were in 2008. Further, a large majority indicate that their companies are taking a new approach to R&D in the current economic circumstances; many are turning to shorter-term, lower-risk projects or focusing on minor changes to existing products.

While this tendency toward caution is understandable, other findings indicate that many companies may be overlooking longer-term opportunities to innovate. Notably, the companies that get the greatest benefit from innovation appear to be taking a different approach. Executives at such companies are far likelier to say that they are increasing R&D budgets, expanding R&D activities, and shifting to longer-term, higher-risk projects. These executives are also nearly twice as likely to report that their companies view the downturn as an opportunity to upgrade R&D. As such results suggest, companies that already excel at R&D seem to be using the crisis to extend their competitive advantage.