Booz Allen Hamilton has just issued a report on the connection between R&D spending and innovation results, forthcoming in Strategy+Business (Winter 2005). The title tells the story: Money Isn't Everything. In other words, making it all work ain't easy.

BusinessWire summarizes:

Money doesn't buy results. While the study identified individual success stories, there is no discernable statistical relationship between R&D spending levels and nearly all measures of business success, including sales growth, gross profit, operating profit, enterprise profit, market capitalization, or total shareholder return.

. . . .

It's the process, not the pocketbook. Superior results seem to be a function of the quality of an organization's innovation process -- the bets it makes and how it pursues them -- rather than either the absolute or relative magnitude of its innovation spending. For example, Apple's 2004 R&D-to-Sales ratio of 5.9% trails the computer industry average of 7.6%, and its $489 million spend is a fraction of its larger competitors. But by rigorously focusing its development resources on a short list of projects with the greatest potential, the company created an innovation machine that eventually produced the iMac, iBook, iPod, and iTunes.

"The competitive value of a fast and effective innovation engine has never been greater," said Kevin Dehoff, Booz Allen Vice President, noting the trend toward shorter product life cycles and an ever-faster flow of new offerings. "Yet of all the core functions of most companies, innovation may be managed with the least rigor. The key is to identify the priority areas where process improvements will have the greatest impact."

(Links from Infectious Greed.)

posted by James DeLong @ 12:21 PM | Patents

Link to this Entry | Printer-Friendly | Email a Comment | Post a Comment(0)