The Annual Global Innovation 1000 Study by Booz & Company includes a list of the companies with the highest R&D spending. Forbes magazine did investment related research into these top R&D spenders and concluded that contrary to popular belief, companies that spend more on R&D are not necessarily innovative, nor are they good investments. Forbes conclusion is that most big R&D spenders are not really seeking innovations, but are rather continuing to spend money on historical programs, doing what they've done in the past, and primarily defending and extending their existing business products and services.
Forbes makes a really good point that “ innovators don't focus on what they spend, but where they spend it.”
While the Forbes conclusion is based on sound ROI and investment reasoning, there are at least three important factors that contribute to the low relative ROI on R&D spending by these companies:
- Companies with large portfolios have to spend relatively more of their R&D budget on maintaining and updating their existing products and services to retain and grow market share and competitiveness.
- Companies must have a balanced portfolio of innovation and new product or services development initiatives between maintaining existing business, line extensions, new to market, and new to world initiatives. Each has a different level of risk and potential reward that needs to be balanced.
- Read just about any company's annual report, analyst briefing or investor communications and you'll find references to innovation initiatives, commitments, strategies, etc. They're all taking about pursuing innovation, but the results show otherwise. There's a disconnect between what they're saying and what they're doing.
It's this disconnect between executive ambitions and operational execution that's a struggle for many companies. What typically happens is the executive team has their annual planning sessions where strategic initiatives are formulated for the business – many of them related to innovation and new product or service development. However, what typically happens is that all these great plans and strategies are captured in static documents such as presentations and spreadsheets that aren't connected to the operational and execution areas of the business. So, after all the work on these strategic plans and initiatives, the operational and execution areas of the business mostly continue to do what they've been doing.
A recently published whitepaper by CIMdata, a leading research and consulting firm specializing in Product Lifecycle Management (PLM) solutions, discusses that although innovation is an imperative for most companies, many companies don't meet their goals because of this gap between strategic planning and execution. This whitepaper, titled Driving Innovation from the Top Floor to the Shop Floor – Crossing the Chasm in Strategic Business Alignment (click to download), also includes case studies of three companies that have successfully implemented processes and systems to add significant business value from their R&D spend on innovation and new product or services development initiatives.
Where does your company rate on returns for R&D spend and do you have the strategic planning and execution gap that inhibits getting the most business benefit from your R&D spending?