In a nod to the current economic climate, Tom Nicholas of Harvard Business School has published a nice piece in the McKinsey Quarterly about innovation during the Great Depression and its implications for innovation today. (Unfortunately, registration is required for access to the full article, but it's free.)
Nicholas examines the number of US patent filings between 1921 and 1938 as a measure of investment in R&D (and hence innovation in general). The trend is pretty obvious: when GDP growth was positive, the number of patents increased. When the economy contracted, patent applications declined. Business leaders were clearly letting their economic concerns drive their R&D decisions.
But Nicholas also provides examples of companies that continued to support innovation despite the turbulent climate. Firms such as DuPont, Hewlett-Packard, Polaroid, and RCA developed extraordinarily successful products during this period. In the process, they became some of the most successful and admired companies of the 20th century. Had they slashed their R&D budgets, they might today be relegated to the footnotes of history.
The point is not that every company should always and everywhere maintain its R&D budget. The point, rather, is that slashing investment should not be a knee-jerk reaction to today's economic woes. In many cases, the sensible manager may decide to postpone innovative projects in the face of uncertainty. However, it's important to evaluate the company's competitive situation before making a decision. Just as we saw during the Great Depression, innovation today may create the giants of tomorrow.