Friday, November 17, 2006

More Bang for the Innovation Buck?

A new study confirms the weak link between R&D spend and innovation output

As I had pointed out in an entry on this blog in March, measuring a company's success in innovation by looking at the size of it's R&D budget is pretty much futile. If confirmation of this was required, here it is: A survey released on November 13th by management consulting firm Booz Allen Hamilton, reported in Business Week, finds that

"there are no significant statistical relationships between R&D spending and the primary measures of financial or corporate success: sales and earnings growth, gross and operating profitability, market capitalization growth, and total shareholder returns."

An interesting discovery of this survey is that there are some 'high leverage' innovators - companies that spend, on average, half as much on R&D as their industry peers but perform two to three times better. The study identifies companies from diverse industrries -Kellogg, Apple, Boston Scientific, Tata Motors, Christian Dior and Kobe Steel - that have the ability to do this.

How do they do this? As may be expected, there is no single answer. The study concludes that these companies are noted for their distinctive skill in at least one element of the innovation process - such as generating ideas (Google), developing new products and processes (Toyota) and customer understanding (Apple).

One thing common to all high leverage innovators: they listen closely to their customers across the entire innovation cycle.

So it appears the customer, after all, is King.