I Agree, But I’m Not Surprised

On November 13, Booz Allen Hamilton released the 2nd Annual Global Innovation 1,000 Survey. Business week’s Jesse Stanton summarized the study in an article “How to Turn Money Into Innovation,” on November 14.

The study, which analyzes the relationship between R&D spending and performance, focused on the 1,000 public companies located anywhere in the world that spent the most on Research and Development in 2005. The study by Booz Allen Hamilton found that

• R&D spending is on the rise, but as a percentage of overall sales it is falling. Companies are finding ways to optimize their investment in R&D.
• Gross profits as a percentage of sales is the ONLY PERFORMANCE VARIABLE THAT SHOW A RELATIONSHIP.
• No correlation exists between R&D spending and the number of patents that result.
• Sales growth, financial performance, operating profitability, and earnings growth show NO STATISTICAL RELATIONSHIP to R&D spending.
• An increase in outsourcing to and funding in Research and Development in China and India is being fueld by a need to be closer to fast-growing markets

The Booz Allen Harrison study showed that some companies have learned how to successfully underspend in R&D and overperform in providing innovation — their spending on average half as much on R&D as their peers in industry, but their performance is as much as three times higher. The companies that stand out in the study include Kellogg, Apple, Boston Scientific, Tata Motos, Christian Dior, and Kobe Street.

High innovating companies each follow their own unique model.

• Black and Decker coordinates design from its worldwide headquarters, but aligns R&D closely with individual business units.
• SanDisk strategic decisions are made by a small group of executives who meet biweekly.
• Google generates ideas as part of its distinct skills set.
• Toyota develops products and processes effectively and efficiently.
• Apple understands customers and product selection.

The similaries found in the Booz Allen Hamilton Survey weren’t surprising.These common factors included what Booz Allend called a “value chain.” The value chain speaks to four key areas in which highly innovative companies exhibited strong competency: ideation, project selection, product development, and commecialization. Innovation is a company-wide investment.

Sustainable innovation depends on having the tools and processes to move from ideation through commercialization. Second, successful companies link R&D with C—customers. At Illinois Tool Works (ITW), for example, R&D engineers are required to spend time working in customers’ plants — Business Week Online on the Booz Allen Hamilton Blogal Innovation 1,000.

Mr. Stanton asks for more concrete answers. I find the value chain confirmation here is powerful enough model. Innovation thrives in a culture that values innovation beyond the simple action of throwing money in the direction of generating new ideas. The investment of currency in innovation has to be considered, thought through as any sound business venture does. Such an invetment recquires thoughtful process from ideation through the decision to move forward on a project, through every customer centered decision that drives the development, to each piece and parcle that introduces and informs the public about the new product during the commercialization phase.

In other words, innovation must be based in quality thinking that that stands on a firm and deep intimacy with the customers’ experience and understanding of the customers’ needs. That is the key driver to productive and useful innovative change that fuels growth.

How new is that idea?

–ME “Liz” Strauss

Click the title to read the Business Week article