Innovation Is A State Of Mind, Not A Budget Line Item

A new report from Booz & Co. debunks the myth that there is a direct correlation between R&D spending and higher levels of innovation; consider these findings as you determine where to invest your company’s growth dollars.



Are you struggling with where to invest your company’s hard-earned dollars in 2012, or trying to assess how to create a first mover market advantage? Recent findings about how companies invest in innovation–and what effect it has–may make you reconsider your strategy.

Booz & Co.’s newest “Global Innovation 1000” report–which identified 1000 publicly traded global companies who invest the most in R&D and conducted a Web-based survey of senior managers and R&D professionals from 400 companies around the globe–debunks the myth that there is a direct correlation between R&D spending and higher levels of innovation. In other words, today’s perceived innovators may have little to show for substantial investments. Companies cannot point to a single department or group, such as research and development, as their secret to successful innovation.

Survey respondents ranked Apple, Google, and 3M as the top three innovators, yet their 2010 R&D spending was $1.78 billion–much lower than Microsoft’s $8.71 billion, and yet Microsoft ranked number five among the top innovators list. According to Booz, “the most innovative firms outperformed the top 10 R&D spenders across three key financial metrics over a 5-year period of revenue growth, EBITDA as a percentage of revenue, and market cap growth.”

The report’s essential message is that highly innovative companies are effective at driving strategic alignment and innovative culture. They share two top goals: “superior product performance” and “superior product quality.” Culturally, they share a “strong identification with the customer. Essentially, top innovators share an overall customer-experience orientation. Companies working closely with customers to develop solutions and get them to market first display the highest levels of profitability and enterprise value. Booz likes calls this category of innovation leaders “Need Seekers.”

Here are lessons B2B companies can learn from Booz’s findings:

  1. Innovation is a state of mind, not a designated R&D budget line item. If your culture fosters open mindedness, transparency, and lifelong learning, your probability of innovation success will increase. If you are uncomfortable with this mindset, accept your growth limitations, or staff differently.
  2. R&D investment increases will not guarantee growth. Innovation-driven growth happens in the strangest of places. Perhaps your next fresh idea could emerge from a customer onsite visit or an executive luncheon. Consider increasing the percentage of time spent attending select industry and customer conferences, briefings, and status meetings.
  3. Turn to technology companies–and, more specifically, Silicon Valley firms–for inspiration. Six out of 10 most innovative companies occupy that space (although you could argue that GE occupies the technology niche as well). Find ways to study these companies, interview their thought leaders, and attend their conferences.

Before you solidify your 2012 growth plans, consider how you are going to incorporate innovation into every marketing strategy and program. The best ideas may just live outside the four walls of your office. 

You will find the Booz & Co. report here.

Read a related post on innovative growth strategies here.

–Author Lisa Nirell helps companies grow customer mind share and
market share. Since 1983, Lisa has worked with Sony, Wells Fargo
Advisors, Adobe, Microsoft, and hundreds of entrepreneurs in nine
countries. Lisa is also an award-winning expert speaker, FastCompany
expert blogger, and author of the acclaimed EnergizeGrowth® NOW: The
Marketing Guide to a Wealthy Company. Download your sample chapter and
business energy booster survey at Copyright 2011, Lisa Nirell. All rights reserved.

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