CEO Blog: Now Is Not the Time to Hoard Cash

It’s hardly headline news that the United States is in the midst of the worst economic downturn since the Great Depression — and that these conditions extend to global economies as well. An oft-repeated mantra in business circles is that what’s needed most now are the “animal spirits” of innovation that will spur the next wave of productivity to lead us out of recession.

As the CEO of a global audio and multimedia company, I more than ever believe that now is not the time for companies to hoard cash and “wait it out” in a defensive position.

Conversely, companies should be ratcheting up their research and development investments, and R&D should be the top priority for companies looking to deploy cash.

For corporations around the world, I firmly believe that R&D is more of a core business driver now than it was 5 or 10 years ago.

My particular company, Harman, has a deep amount of engineering heritage, so R&D investment has always been an important part of our strategy. However, I would argue in favor of R&D investment regardless of a company’s industry or sector. With regard to technology, devices are increasingly interconnected and networked, and the fast pace of tech evolution is having a profound effect on all consumer products. We at Harman see this every day, particularly in the multimedia audio and automotive infotainment areas.

Man with wings
Mike Timo | Photographer's Choice | Getty Images
Man with wings

Despite the negative effects of the economic downturn, I believe it’s critical to sustain investments and spending on innovation, so that companies can be prepared to seize market opportunities as the economy recovers.

I will use my own company as an example.

Through the height of the downturn, Harman launched two new scalable infotainment platforms to broaden our reach in the automotive market, and we opened up a $5 billion market for entry-luxury and mid-segment vehicles.

We opened state-of-the-art R&D centers in China and India, now staffed by more than 500 employees, so many of our best and brightest engineers are now immersed in the world’s fastest-growing markets.

These investments paid off, and despite the tough automotive climate, Harman won major multi-year contracts with automakers such as Toyota, BMW, and Mercedes. In fact, Harman became Toyota’s first non-Japanese infotainment supplier and will equip 2011 models with next-generation connectivity based on this technology.

Harman now has a backlog of more than $10 billion in awarded automotive business from customers such as Audi,BMW, Chrysler, Ferrari, Mercedes Benz, Porsche andToyota .

Extending this to a macro-business level, my advice to global CEOs is as follows: weight your R&D spending more toward pure innovation — rather than modifying your existing products for evolving customer needs. This is an investment strategy that I am personally very committed to. Such a leading-edge POV on innovation helped my company to not only weather a tough economic cycle but to emerge with the largest new business backlog of any company in our sector.

"Embracing a strategy for sustainable R&D investments, even through economic turbulence, will continue to pay dividends for companies, as well as pave the way for their ongoing future success." -Chairman & CEO, Harman International, Dinesh C. Paliwal

It’s crucial that CEOs — regardless of company, industry, or geography — constantly challenge their organizations to find ways to speed new product introduction, improve product lifecycle management, and feed the innovation pipeline.

There is no doubt in my mind that for a company to stay competitive and to be a profit leader, it must also be the cost leader. That means, among other things, keeping an eye on the economic climate and adjusting accordingly when necessary. A key priority for CEOs should be to have their organizations operate profitably in any economic climate, but not at the expense of robbing a company’s future.

Embracing a strategy for sustainable R&D investments, even through economic turbulence, will continue to pay dividends for companies, as well as pave the way for their ongoing future success.

Dinesh C. Paliwal is the Chairman and Chief Executive Officer of Harman International – a leading provider of premium audio and infotainment systems for the automotive, consumer, and professional markets.