Highlights of our 2009 Investment Confidence Survey provide a glimpse into the investment decisions being made by laboratory management in staffing, outsourcing, facility improvement and new technologies–taking the pulse of confidence in economic security in these uncertain times.
Survey Reveals Less than Gloomy Expectations for 2009 Budgets, Compensation, Outsourcing Dollars, and More
(To see the entire survey results right now, go to: http://www.labmanager.comhttps://cdn.labmanager.com/assets/articleNo/20516/doc/37182/a0ea4351-98f9-4f71-9331-f3add87d1ffa-lm-inv-rpt-2009.pdf)
It has been observed many times that emotion drives the world of finance and investment as much as or more than research and analysis, which is equally true when it comes to investments in scientific research. To get an idea of where R&D investment dollars are currently going and how those investments are changing was the purpose of the “Lab Manager Magazine 2009 Investment Confidence Survey.” The survey provides a glimpse into the investment decisions being made by laboratory management in staffing, outsourcing, facility improvement or construction, and new technologies and takes the current pulse of confidence in economic security in these uncertain times.
The survey is based on a questionnaire sent to subscribers of Lab Manager Magazine and to registered users of the LabX web site. The 510 respondents are executives, directors and managers responsible for lab and R&D, project managers, researchers and other scientific staff. They work in pharmaceutical and biotech research, industrial labs in specialty chemical, food, beverage, energy and other areas, and in hospital, medical, government, university and college laboratories.
Researcher confidence levels
While the mood of researchers tends to skew, not too overwhelmingly, towards the negative, results of the survey seem to indicate a higher level of confidence in researchers own organizations and markets than might be expected. Confidence levels were measured in ten categories (investments in R&D, staff, equipment, etcetera). Averaging all the categories together, 20 percent of respondents are very confident and 28.6 percent are mostly confident in the ability of their markets and organizations to make investments in R&D in 2009. Those that are only somewhat confident represent 30.4 percent of the survey group, while 21 percent are not very confident.
Nearly three-quarters (72 percent) of respondents felt very confident or confident that senior management appreciates the role of R&D in the organization’s success. But only 29.4 percent of respondents are very confident or confident that there will be sufficient funds to properly staff R&D initiatives. And while 57.5 percent respondents are very confident or confident that senior management is willing to make the necessary investments to achieve research objectives, only 34.8 percent of respondents are very confident or confident that there will be sufficient funds available to acquire the technologies necessary to achieve R&D objectives.
The survey data were used to create a Combined Overall R&D Investment Confidence Index Score (see Table 1). In the ten categories measured, scientists and managers indicated scores between roughly 50 and 75 percent confident. One reasonable interpretation of this data is that perceptions are formed by responses to multiple layers of experience. Overall feelings about the economy in general, individual security in particular, and events at the respondents’ own institutions, are tempered by another layer based on a more fundamental understanding about the long term viability of their places of work and of the economy (domestic and global) over the long term.
Table 1. 2009 R&D Investment Confidence Index
Average Score Out of a Maximum of 100 Points
|Confidence that your organization's senior management understands/appreciates the role of R&D in the organization's success||75.5 points|
|Confidence that your organization's senior management is willing to make the necessary investments to achieve research objectives||66.0 points|
|Confidence that investments will be made to gain access to the proper background information for the R&D process (e.g., databases of research papers, patents standards, chemical reactions, books, etc.)|| |
|Confidence there will be sufficient funds to maintain the proper work space and working environment.||62.3 points|
|Overall confidence that your organization will support or attract the required funding for R&D objectives||61.8 points|
|Confidence that investments will be made to outsource work when required to achieve your R&D investments.||59.5 points|
|Confidence that your market sector will be robust enough to support or attract significant R&D investments.|| |
|Confidence that the proper investments will be made in the training/continuing education of R&D management and staff (courses, professional meetings, etc.)||55.9 points|
|Confidence there will be sufficient funds to acquire the technology necessary to achieve your R&D objectives (i.e., equipment, systems and instruments).||53.4 points|
|Confidence there will be sufficient funds to properly staff R&D initiatives (appropriate compensation, additional staff if necessary, etc.)||50.2 points|
|Combined Average Confidence Index Score (All 10 Factors Combined)||60.6 points|
Confidence levels are a little bit lower overall at government laboratories than in other non-profit and commercial laboratories. Perhaps the reality that research funding has been flat or negative relative to inflation in recent years is weighing on them, or perhaps researchers are looking at federal debt burdens and anticipating cuts, despite encouraging words from the new chief executive and his administration.*
The data in Table 2 indicate that senior management and managers in general have a higher level of confidence in their ability to run their organizations and support its activities than general research staff. No surprise there. For example, 92.9 percent of senior managers are confident that they appreciate R&D’s role in their organizations success, while only 71.5 percent of research staff share their level of enthusiasm, and only 60.2 percent of academics concur. These are numbers that a Human Resources department would find very positive, but still reflect a significant difference in perspective.
Table 2: Average Index of Confidence Scores
How confident are you are regarding each factor for 2009:
Market sector will be robust enought to support significant R&D investments
|Organization's senior management understands/appreciates R&D in the organization's success||437 |
|Organization's senior management is willing to make investments to achieve research objectives||435 |
|Sufficient funds to properly staff R&D initiatives||436 |
|Proper investments will be made in the training of R&D management and staff||440 |
|Investments for proper background information for the R&D process||433 |
|Sufficient funds technology to achieve your R&D objectives||445 |
|Sufficient funds to maintain the proper work space and working environment||456 |
|Investments will be made to outsource work when required to achieve your R&D objectives||364 |
|Organization will support or attract the required funding for R&D initiative||426 |
Managers and researchers offered a number of salient comments related to this data as well. A sampling of these remarks reflects the myriad ways the economy has affected the individual institutions represented. There is belt tightening—“ R&D efforts will continue, but priorities may change to projects with less capital expense;” the lingering threat of doom—“2009 is going to be a challenging year for business survival, never mind business profit;” business pragmatism—“Senior management internal statements say we will be okay, but such statements can be self-serving;” business philosophy—“American business is based on quarterly earnings [and it is] impossible to make significant R&D advancement in that atmosphere;” overwhelming uncertainty (or is it pie-eyed optimism?)—“Anything can happen;” optimism—“I am very positive;” caution— “Will spend money on something that is needed for development;” and the never-ending search for profit—“The funding market is tight, but there is usually money looking for good return in understandable endeavors.”
Interestingly, 23.8 percent of respondents reported a 2009 increase in R&D budget, while 54 percent indicated that R&D spending would remain the same. Given current economic conditions, 77.8 percent of respondents indicating flat or increased budgets is remarkable. This information seems to be somewhat contradictory to the level of confidence respondents feel about the near term investment their organizations will make in R&D. While sentiment holds strong sway in the overall outlook, there seems at bottom a determination to forge ahead at many businesses and institutions.
Changes in R&D Budgets Vs. 2008
Table 3: Changes in R&D Budgets Vs. 2008
|AVERAGE NET CHANGE |
IN R&D BUDGETS 2009 VS. 2008
|A. Total (All Respondents)||+1.3%|
|B. By Type of Organization|
|- Pharma/biotech companies||+7.7%|
|- Industry (non-pharma/biotech)||- 0.8%|
|- All industry||+ 2.3%|
|- All commercial firms (incl. private/contract research)||+ 3.4%|
|- Hospitals/medical centers||+ 0.9%|
|- Government agencies||6.7%|
|- All public organizations (hospitals/colleges/gov't.)||- 2.5%|
|C. By Size of Organization (R&D Budget)|
|- Less than $250K||+5.6%|
|- Less than $500K||+ 5.9%|
|- $500K or higher||- 2.2%|
|- $1 mill. or higher||- 1.2%|
|- $5 mill. or higher||- 2.0%|
Organization sales revenues did not seem to be a relevant factor in whether or not budgets were increased or decreased. The data skewed up and down throughout the budget level categories, with smaller sales revenue operations just as likely to have an increase or decrease as larger sales revenue companies.
Asked to look into the future, those surveyed reflected similar sentiments about budgets for 2010, with overall 28.1 percent expecting an increase, 47.4 anticipating that budgets will remain flat, and 24.5 percent expecting a decrease. So, again, three-quarters of those surveyed expect at least flat if not increased budgets for 2010.
So how are these budgets being allocated? Where are the limited dollars going?
Staffing: Some negative impact on staffing is anticipated, but the percentage of respondents who think staffing will increase (16.4 percent) or remain at current levels (71.9 percent) combined, is a surprising 88.3 percent. These numbers hold constant across all organizations, across all job titles—however the data is sliced.
Compensation: As for compensation in 2009, compared to 2008, 22 percent of the locations are experiencing increases in the total R&D compensation budget for all managers/staff members. 2009 compensation budgets remain the same at 70 percent of the locations, and are decreasing at 8 percent of the locations. All together compensation budgets have increased by an average of 2.6 percent. Compared to 2-3 years ago, now when R&D hires are made, 25 percent of the compensation packages are higher, 15 percent are lower, and 60 percent are about the same.
How R&D Budgets Are Allocated By Area of Expenditure
Outsourcing:Half the organizations (51 percent) are budgeted for outsource activities. Those activities represent 4.5 percent of overall budgets (among all respondents). Compared to 2-3 years ago, there has been only a slight overall increase in outsourcing R&D activities, with two-thirds experiencing no change. The activities most frequently outsourced are routine testing and information technology. [See Table 4]
Table 4: Trends in Investments in Outsourcing
% OF ALL RESPONDENTS
OUTSOURCING THIS ACTIVITY
|Routine Testing|| |
|Information Technology|| |
|Finance Functions|| |
|Human Resources|| |
|Facilities Management|| |
New Construction/Renovation: Half of all R&D organizations have recently had or will have lab construction activities and half have or will have modernization activities. Almost half foresee such activities in 2010/2011. Issues that are driving these activities includes aging technology that needs to be upgraded, facilities that are simply outdated, organizational growth, and the need to upgrade in order to attract customers. Therefore, despite the recession, many labs continue to invest in construction/modernization and many will continue to do so into the future.
Technology: Although 40 percent of respondents indicate that “funding for R&D equipment/systems has been reduced/is on hold”, substantial spending on technology is nevertheless taking place. Across all types of products and equipment, 82 percent are either increasing their spending or spending at the same level as in 2008. Overall, by the end of the year, expenditures are expected to increase slightly (+3.9 percent). The greatest amount of technology dollars is going for consumables, supplies and chemicals. The smallest allocation is for contract research and lab furniture. The greatest significant increase is in analytical/separation equipment. [See Table 5.]
Table 5: Trends in Investments in Specific Types of Technology Vs. 2008
|Significant Increase||Increased||Sub-Total||No charge||Significant Decreased||Decreased||Sub-Total|
|Basic Lab Equipment||3.6||20.3||23.9||58.5||14.5||3.1||17.6|
|Chemicals & Biochemicals||4.1||24.8||28.9||60.9||9.3||0.9||10.2|
|Antibodies, RNA, Microarrays, PCR, Assays, etc.||3.8||17.6||21.4||69.7||7.1||1.7||8.8|
|Systems Service & Maintenance||2.4||17.9||20.3||67.9||9.4||2.4||11.8|
|Contract Research Services||2.8||11.9||14.7||72.3||11.1||2.0||13.1|
New vs. Used: Of the existing R&D-related equipment and instruments in respondents’ labs, nearly two-thirds was initially purchased new and one third was purchased used. Currently, three-quarters of the organizations own used technology. Forty one percent expect to increase their purchasing of used equipment and there reasons for doing are presented in Table 6 below.
Table 6: Reasons for Purchasing Used Technology
|Seeking to save money/stretch our budget||89.6|
|Buy used when we have a small or moderate level of usage||43.3|
|Used is usually just as good as new||38.1|
|New equipment/instruments often comes with "bells & whistles" we don't need||23.8|
|Buy used when we have a short-term need for the equipment/instruments||21.2|
ROI: It is recognized that most lab managers are under pressure to enhance the return on their investments. However, in the last 12 months, four of ten have felt increased pressure to seek out higher levels of ROI. Approaches they are initiating in response to this pressure include: adding new technology to improve productivity; purchasing used equipment; hiring staff members who can perform multiple tasks; and enhanced training of staff members.
In a time of bankruptcies, foreclosures and a serious financial malaise, when flat looks like up and up requires oxygen, that an average of 25 percent of businesses and institutions are increasing budgets or anticipating positive results seems positively heady. The fact that any confidence at all is shown by R&D professionals is remarkable. Yet approximately eight out of ten respondents to this survey are either very confident, confident, or at least somewhat confident that they will have the resources to achieve their R&D objectives. However, this guarded confidence has them looking over their shoulders almost constantly. Most, if not all, recognize that their organizations are, to a greater or lesser degree, in harm’s way. Well-founded and deep concern resides on a solid base of determination, optimism and a keen awareness that research and development is essential to business in the long run. Acceptance of financial reality is accompanied by a long-range view that ongoing development is essential to an economy’s ability to grow.
For complete survey results, including expected investments in staffing, compensation, outsourcing, new labs, new technology, and much more, go to:
“Lab Manager Magazine’s Annual Investment Environment Study of the U.S. R&D Market: 2009” was conducted by Martin Akel & Associates.