Booz Allen Hamilton consultants Alexander Kandybin and Martin Kihn offer up this great Strategy + Business article on how to Raise Your Return on Innovation Investment. Basically, they take a close look at innovation and try to figure out to exactly what degree it translates into accelerating sales, share, or profits. Not much, they find. More R&D spending does not actually yield more returns.
Profitable innovation, in other words, cannot be bought. Simply spending more usually leads to a waste of resources on increasingly marginal projects. The solution to innovation anemia is not to boost incremental spending, but to raise the effectiveness of base spending — to increase the return on innovation investment, lifting the firm’s “ROI squared”.
Kandybin and Kihn suggest three principles that they believe can improve the return on innovation investment of any company engaged in the development of new products or services. These so-called pillars are: Understand Your Innovation Effectiveness Curve (invest in innovation smarter and focus on the good ideas); Master the Entire Innovation Value Chain (understand that innovation is not a discrete activity, that it is a multifunctional capability that requires several types of competencies: ideation, selection, development and commercialization); and Don’t Do It All Yourself (outsource and accentuate extended supply chains and external knowledge sources).