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Can Innovation Be Measured By R&D Investment?

A big investment can support innovation, but it can't guarantee its success

24Aug

The importance of R&D for innovation is discussed on all company levels from Chief Innovation Officers to business strategists. In order for product development and innovation strategy to produce maximum value, executives have to create a good environment for all teams involved in the innovation processes. Often, due to not being familiar with innovation on a practical level, and the siloing of R&D departments in companies, executive teams think that innovation can be measured by investment in R&D. In fact, innovation is much more complex in nature and its success depends on many factors.

First of all, Research and Development or 'scientific research' don't mean innovation, and an understanding of it must be present at all times. Innovation includes the entire value chain, including idea, R&D, engineering, manufacturing and distribution, marketing, and the final measurement of the product or service performance - all of these benefit from investment, but money doesn’t guarantee success.

There is no strong correlation between innovation and R&D spending. According to Strategy&’s (research unit of PwC) annual report of the Top Innovators and Spenders in the World 2015, statistically, there was no significant link between R&D and sustained financial performance that is achieved through innovation. For example, Intel and Microsoft spent more than $11 billion on R&D in 2015, whilst Apple spent $6 billion and still tops the list of the biggest innovators in the PwC ranking. Apple's attitude goes back to 1998 when Steve Jobs pointed out that 'innovation has nothing to do with how many R&D dollars you have.'

The value of R&D, especially, in tech industries, is still of paramount importance for maintaining a competitive advantage, though. R&D is there to prevent and solve technical risks and problems in product development, however, it is not the place that guarantees the success of those products in the market.

If not R&D, what is innovation about then?

Innovation is about staying alert at all stages of product development. Successful innovators don't hesitate in communicating with their customers and use open innovation principles prior to product launch. This provides valuable feedback and reflects the real needs and interests of audiences to prevent potential failure. Smart innovators use data to help them to align their products with existing strategies, so decisions are not made based on a ’gut feeling' but on reliable data. Innovation is a result of intellectual property and effective corporate and scientific collaboration, not only investment. 

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