Sage: Beware the legacy R&D deathtrap

UK software firm Sage is spending most of its research and development budget on guaranteeing future revenue from its existing products rather than inventing new services, one of the company's senior executives said on Monday.

Appearing on a panel at the UK Technology Innovation & Growth Forum, David Karlin, managing director for Sage UK's mid-market division, warned that a company that devotes its entire R&D to bolstering its current revenue stream could face serious problems.

"Most of our R&D is going on products that are already out there and we couldn't afford to lose. A relatively small proportion of our overall R&D is spent on new products," said Karlin.

Once a software company develops a successful product, they face huge pressure to guarantee future success in the face of rivals who are developing their own competing offerings. According to Karlin, these companies must resist the temptation to only try and improve their existing stable of products.

"You have to stop spending all your R&D time on legacy. Companies can get trapped in that situation, especially if they're in financial problems," said Karlin. "If that happens, you know you're facing slow but certain death."

Some companies can be reluctant to devote a significant proportion of their spending to research and development, especially if they can't see a clear return on that investment.

Mark Pedley of fortuneXchange, which invests in technology start-ups, suggested that UK companies should consider working with universities to develop new ideas.

"Outsourcing your R&D into universities can be very cost-effective. If you do it all in-house you're limited by your own cast and abilities, while if you outsource the lot then you can risk losing control," said Pedley.

The UK Technology Innovation & Growth Forum is taking in place in London, and is organised by the European Technology Forum, a sister company of ZDNet UK.