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 a recent Booz & Co. study of public companies representing almost 60% of global R&D expenditures 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.1 Some have tried to follow prevailing trends such as open innovation — but that, too, doesn’t necessarily lead to higher innovation returns.2 Many pursue a strategy of tacit benchmarking: They invest near the average amount of R&D spending for their industries, while running development shops that use many of their peers’ best practices. That approach, over time, has led to greater numbers of minor product line extensions with often diminishing returns.
Yet some companies seem to be better at dreaming up great new products while spending less to do it. Apple Inc. commits 5.9% of sales to R&D, less than its industry’s average of 7.6%. The R&D budgets for two of Detroit’s beleaguered Big Three have been consistently higher than that of Toyota Motor Corp., at least until 2008. Where innovation investment is concerned, the key question is not how much to spend but how to spend it.
Return on Innovation Investment
It’s easy to conclude from this track record that innovation success depends on mysterious factors, part science and part magic, rather than business acumen. But there are companies that overcome these hurdles and regularly produce high-yield innovations. Examples include companies as disparate as Cisco Systems, Tata Sons, Campbell’s Soup and Volkswagen. Because these companies (and other successful innovators) are so diverse and the factors that distinguish them have been obscure, my colleagues and I have looked for a reliable analytic tool that can help explain why some innovations succeed and others fail. We believe we have found one with the return on innovation investment or ROI2 methodology.
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.3 ROI2 correlates directly with organic growth and links
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Copyright © Massachusetts Institute of Technology, 1977-2011. All rights reserved.
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).