For many companies, developing new products is a hit-or-miss proposition. Some businesses with successful innovation practices are relying on a new analytic tool to ensure that the hits are much more likely.
Successful innovation–the kind that leads to customer engagement and profits–is rare and hard to
achieve, or so one might conclude from observing the results of many companies’ innovation efforts.
Some have tried investing intensively in research and development. But the author recently studied public
companies representing almost 60% of global R&D expenditures and found that above a certain
minimal level, there is generally no correlation between R&D spending and financial metrics such as
sales or profit growth.
For many companies, developing new products is hit-or-miss. But according to the author’s research,
successful innovation is not magical. It comes from careful attention to a small number of important
criteria. The key question isn’t how much to spend, but how to spend. The author introduces a “return
on innovation investment,” or ROI2, methodology that correlates directly with organic growth and links
innovation spending with financial performance in ways that can lead decision makers to generate
higher, more reliable returns on innovation and R&D. The ROI2 approach is based on a series of innovation
studies conducted during the past seven years with companies in the consumer products, health
care and chemical industries.
To become more effective, a company needs to diagnose its innovation practices and capabilities. The
diagnosis can be quite different from one company to the next, and that is why adopting industry
benchmarks doesn’t work. The individual innovation profile represents the value and quality of a company’s
innovation portfolio and can be clearly expressed as an “innovation effectiveness curve.” This
curve lets companies plot annual spending on innovation projects against the financial returns from
those projects–and “solve for growth.”
3 Comments On: Which Innovation Efforts Will Pay?
From: Pradip (Peter) Bhatt
CEO, Business Growth Consulting Int’l, Inc.
Tel. 702-845-5462
Email: bgciinc@yahoo.com
Website: http://www.innovationeering.com
________________________________
Comment:
ROI … Return On Innovations depends on:
1. Continuously creating knowledge advantage and then making knowledge productive through identifying, eveluating and implementing market driven and new markets creating innovations.
2. Continuously and concurrently identifying, evaluating and implementing 3 fundamental types of innovations – Product, Process and Management/Business.
3. Enabling, Creating, promoting and supporting “Innovation Culture” through out the Company.
Innovations occure based on “Inventions” e.g. Internet/WWW = Invention and then related innovations.
“Inventions” happen in the “R & D Lab”. When inventions are successfully commercialized, innovations are born. Only few true “Inventions” happen in a given Century. But they cause millions of innovations to happen.
As evident in this article (and many similar articles in MIT Review Journal, HBR, Fast Company, Knowledge@Wharton, etc.), why do we have to make “Simple Innovation Subject” so complicated, difficult to understand even by big businesses, difficult to implement and manage and could only be implemented through high priced consulting services ????
How about keeping “Innovation Subject” simple so that small and mid size companies can participate?? They are the “Job Creating” engine for the Country. Why don’t we focus on enabling them to innovate??
The innovations happen when the formal values of the development are respected that are: Respect to the individuality, collaboration and continuity in a creative atmosphere eager to extend, as much for the company, the organizational structure and the colleagues.
Guillermo Garza Milling
CEO BSP de Mexico SC
gmilling@yahoo.com
One concept in this article that is on target is that some innovations are “hits” and not replicable. In other words, don’t build your processes and businesses around a blockbuster drug or product that happened last year. Those things happen but are not always repeatable. Go for more singles.
The framework proposed is a little complicated and it does feel like a recasting of existing models of portfolio management (risk and return models).