It used to be that when major companies wanted to grow their business, they would reinvest profits into research and development to build new and innovative products. This sounds like a solid game plan, but there is one big problem with this approach… it takes time.
Unfortunately, CEOs do not always have the luxury of time. Every three months, publicly traded companies report their quarterly results, and Wall Street can seriously punish a company's stock when earnings fail to meet or exceed expectations.
In some cases, stocks can get hit even when earnings do come in above estimates if earnings growth slows down, or if the company says it expects earnings growth to slow in the months ahead.
Investing in research and development is an easy way for a company to slow earnings growth. It takes years to develop new products, and Wall Street does not have the patience to wait years for the investment to pay off.
A recent study shows that a remarkable number of CEOs believe that investing in research and development is not helping their company's future growth.
The consulting firm Accenture (ACN) conducted the study, and while 93% of CEOs in the study believed that long-term success for their company was dependent on the ability to innovate, only 16% said that they are seeing benefit from recent investments in R&D.