Why Companies Hesitate to Invest in R&D, and How to Fix it

One of the most interesting and relevant things about Advantexe’s business acumen simulations is that they track all user inputs and results as they set and execute a business strategy in a learning-by-doing format. We recently conducted an intensive business acumen workshop for a group of emerging leaders, and we used AI to analyze the simulation data from more than 50 teams, each with about 5 participants. We leveraged our new and innovative machine learning tool developed by our internal AI team, which we are building into all our simulations. Our goal? To uncover trends in R&D investment and innovation focus so that we can share insights and data with our clients about the trends and culture of participants in our simulation-centric workshops. More and more, our clients are asking for training programs that help to push innovation, especially within their R&D teams.

The results were astounding! Even in a risk-free simulation, where participants could test strategies without real-world consequences, there was a strong apprehension about investing in short-term and long-term R&D. Most teams seem to prioritize short-term efficiencies and cost management to drive margins over long-term innovation and “being bold.”

So why the hesitation? Based on our data and interviews with participants, here are three thoughts and suggestions on how to address the issues we uncovered.

R&D investments often don’t show immediate returns, and that uncertainty led many teams to avoid spending altogether. The hesitation remained even when presented with clear opportunities and simulated market data that clearly showed long-term growth. The mindset was simple; if they were not explicitly told the return was guaranteed, they were not diving in and taking the risk.

Fix: Companies need to shift their culture and consider R&D a long-term driver of growth rather than just a cost. Managers and leaders who embrace a growth mindset are more likely to create a competitive advantage and unlock new opportunities.

Many teams made decisions as if they were being measured on immediate results rather than long-term results. Instead of exploring innovative opportunities, they focused on operational efficiency and managing costs. “We need to hit our numbers” is often heard by both simulated and “real companies,” and while those strategies can provide short-term stability, they can also really hurt future growth.

Fix: Businesses need to encourage leaders to think beyond the next few quarters. While organizations must balance efficiency and innovation, they should also consider positioning themselves for long-term success.

Even when teams invested in R&D, they struggled to maximize the impact. They focused on budgets and marketing existing products but overlooked key areas like supply chain and factory capacity. As a result, they had demand but lacked the ability to manufacture the product. Without cross-functional planning and alignment, innovation falls short.

Fix: Successful innovation isn’t just about creating the next bright and shiny penny, it requires functional alignment. Companies that bring together cross-functional teams to support R&D efforts will see stronger, more sustained results.

Summary: The Results Don’t Lie

The reluctance to invest in R&D isn’t just a simulation trend, as we see it in the results of our clients every day. Every quarter, as we deliver our “Decoding the Earnings Call” business acumen workshops for our lead clients, we are able to recognize the companies that are bold and believe in their strategy and people, and the companies that talk a good game but cut investments to manage to the margin. Those companies that rethink being bold, balance the trade-off of short- and long-term business metrics and goals, and get teams aligned will be the winners in the long-run.