Deere & Company: R&D Allocation and See & Spray Development

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When I look at the main areas that Deere is investing in, there seem to be three major ones for now, it seems like See & Spray, Operations Center, and Autonomy are the three big categories. I'm just wondering what the potential savings are that each of these is generating or could generate.

It's important to view this on a timeline to understand the potential. It's much bigger than most people currently believe. Private equity firms often make wrong judgments by not anticipating this. The off-road industry is different from the automotive industry. Equipment is a key element for farmers, who spend money to increase productivity. If they don't see a return in about 18 months, they typically won't invest because they lack the financial strength to wait longer. This 18-month return rate is crucial globally, with some variations.

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Did you have an internal metric to prioritize different opportunities? As a CTO, you have a budget and need to decide how much to allocate to each opportunity.

I use John Deere not as a blueprint because it's unique to Deere for reasons I can explain. When I started, the corporate-wide R&D budget was close to $1 billion, sometimes reaching $800 million, depending on the year. We began this process seriously about 15 years ago. I upfront said to the CFO, CEO, and my colleagues on the executive team that we needed to agree on this because it would take money from other areas.

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Did you have an internal metric to prioritize different opportunities? As a CTO, you have a budget and need to decide how much to allocate to each opportunity.

The normal industry spend was between 2% and 2.5% of revenue on R&D, and everyone was content with that. John Deere was already leading the pack at 2.5%, while most competitors were lower. I proposed increasing our spend to a minimum of 5%. Whether we need to do this forever, I can't say for sure, but my gut tells me it's necessary if we want to remain a smart industry. It didn't happen overnight, but surprisingly, it took a short time to get the executive team aligned.

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