I read with interest comments by IBM’s Sam Palmisano on HP and the effect that cut-backs in R&D had had on the company. As he put it:
“IBM would never have paid what H-P did to buy data-storage provider 3PAR Inc.,” he said. “[H-P] had no choice,” said Mr. Palmisano. “Hurd cut out all the research and development.”
Lest you think this was one IT giant picking on another, his thoughts were echoed by Forrester analyst John Kindervag:
“HP bought the Cadillac of the business; they’re getting leather seats instead of cloth seats,” Kindervag said. “I suspect that they paid an awful lot of money compared to what they’re going to get out of it in the end. With $1.5 billion, HP could have built the world’s best product from the ground up.”
The bottom line is that, while Hurd was able to achieve some short-term goals by cutting the R&D budget at HP, the company now has to make up the loss by essentially buying innovation and they are paying top dollar. Alternative innovation investment strategies are also an interesting commentary on make versus buy and how critical innovation is as a core competence of technology companies.
Being a marketeer, I brought this back to marketing. Many organizations think that they can save money by draconian cuts to the marketing budget and, frankly, in the short term they can save money in this way. But at what cost?
I believe organizations end up feeling this cost in three ways.
First of all, you lose momentum. Assuming you are an effective custodian of the marketing investment, whatever you’ve been doing to maintain and build your brand over time either stops or slows dramatically. The less you spend, the less you can actually do.
Second of all, this loss of momentum will inevitably take a toll on your brand equity, demand generation and enablement results. Marketing (and not just markets) is a conversation and if you stop participating you just fall off the radar. Being present and visible inspires confidence. Being absent inspires questions. Out of sight – out of mind.
Finally, you feel the cost in a very literal way because once you’ve let your efforts lag, you have to spend a lot of money to get back in the game. In fact, you have to overspend to make an impact and, in all likelihood, you squander whatever savings you realized earlier just to catch up. To say nothing of the loss of revenue and growth.
This is not to say of course that marketing investments, like any other investment, are absent from the requirement to demonstrate a return. But short term cuts in marketing (and innovation) have long term implications that potentially have real and opportunity costs that will pale in comparison to the savings that seemed so seductive when the cuts were being made.