Wednesday, December 3, 2014

Where Do You Spend For Innovation?

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What drives innovation success? That’s the question asked by Strategy &'s annual Global Innovation 1000. Started in 2005, the study looks at the relationship between R&D spend and overall financial performance, and has so far found “no statistically significant relationship between the two”.

The top ten innovators (Apple, Google, Amazon, Microsoft, Samsung, Tesla, 3M, GE, Microsoft, IBM, Procter & Gamble) outperformed the top ten R&D spenders in market capitalization growth, revenue growth and EBITDA as a percentage of revenues. Therefore if spending more money on developing products and services does not make a company innovative, what does? 

According to results of the 2014 study, here are 3 things:
  1. Business capabilities, organization and processes. Innovative companies are organizing their business around specific innovation capabilities and prioritizing these as part of a defined list instead of trying to be innovative about everything.
  2. Customers’ wants and needs. The consumer is boss. They’re telling companies what products and services should look like and in some cases they’re even prompting the creation of new products.
  3. Tightly aligned innovation and business strategies. The R&D portfolio of an innovation company reflects business priorities, and vice versa. This reinforces a culture that supports innovation – the business side knows what it’s going to get, and the R&D side knows what it should be working on.
I’ll end with a quote from the late Steve Jobs, who said, “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.”

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