Research and development is a great way to bring a company to a new level of innovation. When the investment is made to create an R&D department, a company can move from working on projects to creating projects.
- R&D. What does that mean to you? Is it just a tax credit? Research and development. Now, I've seen many companies really mistake what categorizes as R&D on a tax credit application for true research and development. So let's talk through that. First, on our annual survey we actually asked companies, "What percentage of your budget do you allocate "towards research and development?" 2015, only 32% of companies had an R&D budget.
I'm happy to say one year later, 42. We saw a 10% uptick in companies that had some type of dedicated budget or staff for research and development. Just to understand where the majority of this research and development activity was going on, we took a look at sales volume versus presence of R&D department and found it wasn't until $200 million in revenue or building volume that we saw the presence of an R&D department break 50%.
Once we got to 500 million, it hit almost 2/3 of the company. Then we looked at number of employees and saw the exact same thing. Once we tip past 500 employees, companies, 55% of them, decided, hey, let's start experimenting and conducting active research and development. But what does that really mean for them? Well, I would argue that true research and development involves experiments, thousands of little, medium-size, and large experiments.
But I love the little ones, the ones that are fast to start, fast to measure, fast to finish. There's a really great book by the Google Venture guys out there called Sprint. It's all about innovating and changing things in a five day period. That's a fantastic format for very rapid innovation and research and development. Many famous companies have run their own research and development labs and you really should too. Google X. Google X was started with the idea that they wanted to target moonshot ideas that impacted over 100 million people.
I mean, you got to think, that's a lofty research goal. 100 million people. And out of that project has come some fantastic things, including the Google Loon Project, which is actually balloons over Africa that actually provide a WiFi blanket to the areas underneath them. Lockheed Martin had a very famous R&D lab called Skunk Works. And Bell Laboratories, of course, was the progenitor of many of our modern technology and telecom capabilities that came out of this private R&D lab.
Now, we see successful and not successful R&D efforts, and I just wanted to talk to you for a minute out of what we see out of the successful ones. The successful R&D efforts really start by allocating return to investment. That way they understand later when they commercialize into their business operation something that comes out of the R&D group. They actually measure, calculate, and allocate return to it. I mean, business owners can tend to be an impatient bunch. And if they don't see a calculated return, they can often lose interest in the investment.
I've got a couple of examples. DPR 2010 actually did a lot of BIM work with clash detection in BIM on a very large billion and a half dollar hospital project. They measured how many mistakes they found during the BIM process and calculated the total volume of change orders that would've been issued had the project gone forward without BIM and clash detection. This is a great methodology for calculating the ROI of your research and development efforts.
You know what they found on a billion and a half dollar project? They shaved five months off the project and $100 million off of that budget. Those are all mistakes that would've happened that would've turned into change orders. Robotic total stations are the other area that I often see return miscalculated. This is another area where you could conduct a legitimate R&D project. Let's say you're a mechanical contractor and you have to do layout of hangars, right? Doing hundreds of hangars a day.
Robotic total stations allow you to load your points in and then paint with a little green laser or whatever color the laser is, paint where that particular hangar should go. It's a really fascinating technology. It's very accurate. And the new robotic total stations that are coming out provide an incredible level of accuracy and detail. But when you actually take the time to calculate the return on investment, guess what you find. Mechanical contractors we work with say that their crews went from 200 hangars a day to 600 hangars a day.
They tripled the labor crew output of their crews putting hangars up. Isn't that incredible? All from one experiment. So you can conduct research and development experiments with something larger like BIM and something medium-sized like robotic total stations or something as simple and small as a mobile app to manage one of the functions in your system, like planned file management. You can take one of the many planned file management apps off the internet and try it on one of your projects. You can also build your own tech.
There's a lot of great example projects. What I tell people is whatever you do, don't be a Luddite. The Luddites were a group of textile workers in England in the early 1800s that were opposed to all things in the Industrial Revolution. They were so opposed to new technologies, said the jobs are going to disappear and they're never going to come back. This is a pervasive mentality than can infect construction companies too and really crush the spirit of an R&D team.
The Luddites really weren't correct. Now, they were correct in their specific jobs didn't come back because their specific jobs were replaced by machinery. But what actually happened? Unemployment upticked by a few percentage points for about nine years and came back down to pre-Industrial Revolution levels because these workers retrained. They delegated and elevated. They delegated menial tasks to machines and they assumed higher functioning tasks. So don't be a Luddite, and don't let this mentality infect your R&D group.
You have to hire the right leader. Go and find the right innovator. Not the naysayer, the right innovator to be in charge. I can't tell you how critical it is to have the right one person in charge of R&D. Remember, if you take something seriously in your business, you have to hire someone and put them in charge of it. Secondly, build a dedicated team. Now, these don't have to be full time dedicated R&D, but you have to go find the innovators in your organization and bring them in. Put them on a weekly meeting schedule. Now, we love EOS.
You can reference that at eosworldwide.com. You can check out the EOS methodology for running effective meetings every week. So put them on an EOS methodology with R&D. Have the right leader. Allocate a speculative budget. Give them money they can work with that they don't have to seek approval for. It can be as small as 10,000 bucks, 20,000 bucks. I actually had one CEO come back to me after one of my talks and said, "James, your message really rang true.
"I've been really holding back my group. "I just went to my CIO and I gave him a $350,000 budget "to conduct speculative research and development." I was like, "Wow, that's a bold step." It's awesome. Huge bold step. I actually got to check in with that company six months later. It had already had a massive impact in the attitude, excitement level, and productivity of research and development in the field. But you can start small. You can hire a group of interns and have one full timer be in charge. Give them a $10,000 budget.
Go buy a 3-D printer. Go buy a drone. Go buy a VR or augmented reality headset. Allocate a speculative budget. And by all means, don't kill it with committees. I see more ideas get executed by the death squad of committees than I care to talk about. Committees are a really bureaucratic way of dealing with situations. You'll say, okay, well, let's form a study committee and talk about it for six months. Then we'll talk about talking about it for another three months. Then we'll allocate a committee to discuss committees.
And then you have to form a sunset committee to sunset the committees you created to start the committees. This is how things get confused in your company. Keep it simple. Keep it simple and focus on innovation. You can do this too. And who knows? Maybe your R&D group can be the next big one that we talk about.
Follow James Benham—the CEO of JBKnowledge, Inc.—as he explains how construction science and computer science are merging into one joint field of study. James shares essential terms that you need to know to speak intelligently about topics like the cloud and machine learning. Plus, he dives into topics like the Internet of Things, the evolution of drones, and 3D printing. To wrap up the course, he covers IT budgets, staffing, and investing in research and development.
- Learning about the origins of construction technology
- Reviewing essential construction tech terms
- Understanding the Internet of Things
- Reviewing the evolution of drones
- Learning about the 3D printing process
- Investing in IT
- Investing in research and development