Innovation Pipeline

Innovation awards often mean a ridiculous level of hype in today’s high-tech corporate culture. And for good reason. Awards can boost investor confidence and, more important, lift a company’s stock price. And that’s music to the ears of boardmembers, who love to dance in the halo of innovation, even if it’s a Paris Hilton tune–all bun, no beef.

But take a closer look at the yardsticks used to judge whether a company is innovative or not and it becomes clear that there’s a lot of room for improvement. That’s because measuring innovation is a dark art–there are many factors that evade analysis. A disruptive innovation may lurk in a corner for years, until someone sees its potential and  nurtures it into a commercial product or service.

To wit: Booz-Allen recently released a study titled “Smart Spenders,”  which looked at the relation between the amount a company puts into R&D and the amount of innovation it gets out. The study examined the world’s 1,000 biggest R&D spenders and found “no significant statistical relationships between R&D spending and the primary measures of financial or corporate success.”

In the winners circle were Google and Apple, both recognized for turning cost-efficient research into products. We’ve heard all about the innovation  culture at Google, which encourages engineers to spend something like a day each week brainstorming new ideas. It’s no wonder the report found that Google excels at idea generation against other big companies.

Who else gets maximum return on R&D spending? The names vary widely. They include Cadbury Schweppes, the European candy and beverage company, Indian automaker Tata Motors, Caterpillar and Adidas.

“All these companies spend less than their competitors on research and development yet outpace their industries across a wide range of performance metrics,” the report notes. “And they have managed to do so consistently over a five-year period.”

Also this past summer, the Boston Consulting Group revealed in one of its studies that 72 percent of companies worldwide will increase spending on innovation in 2006 and 41 percent will increase spending significantly. Surprisingly, the survey showed that, even though there is evidence of widespread plans to raise spending, nearly one out of two companies was unhappy with its past return on innovation spending.

Another report, by the Bureau of Economic Analysis, earlier this fall revealed that R&D spending adds to the overall gross domestic product for the U.S. “Between 1959 and 1995, R&D accounted for 4.5 percent of real GDP growth–however, it accounted for 6.7 percent of the growth in real GDP in recent years.”

Getting to the bottom of R&D and its overall impact on industry and the economy is a hot topic in government-policy circles. That’s why U.S. Department of Commerce Secretary Carlos Gutierrez announced this past summer an advisory committee composed of business leaders and academics. The goal of the group, the Measuring Innovation in the 21st Century Advisory Committee, is working to better understand the best ways to measure the impact of innovation.

The important takeaway from the Booz-Allen study is that those companies capable of harnessing their R&D budgets did so with concrete processes in place for generating an tracking ideas and also had ways for choosing the right R&D projects to fund.

Two other report findings: “Money simply cannot buy effective innovation and patents generally don’t drive profits.” Amen to that. –Lee Bruno