R&D in the collaboratory

Irving Wladawsky-Berger offers his thoughts on a Booz Allen study, the results of which have been published in Strategy+Business under the title "Money Isn't Everything" (free registration required). The article's broad theme is that innovation processes must be a baked into business strategies. Furthermore, it provides data to back its claim that simply growing the research and development budget is a poor innovation substitute.

The empirical claim is astonishing. You'd expect to find some relationship between R&D any number of healthy business indicators. Instead:

   

Contrary to conventional assumptions, R&D spending levels within the Global Innovation 1000 had no apparent impact on sales growth, gross profit, operating profit, enterprise profit, market capitalization, or total shareholder return. Whether we looked at R&D as a leading or a lagging indicator, whether we looked at absolute dollar amounts or growth trends for the performance measures, and no matter what the time horizon for the analysis, the story was the same.

The only positive correlation was that higher R&D-to-sales ratios (the percentage of revenue spent on R&D) were associated with higher gross margins.

Wladawsky-Berger raises an objection to the study results, believing, based on his history in the business of technology transfer, that R&D is a necessary but not sufficient element of innovation. He does, however, completely agree with the article that collaboration is the key to successful and repeatable innovation.

   

What is clear is that the nature of innovation in the 21st century is changing.  Innovation needs to be much more open and collaborative, involving not only all the units in the organization, from sales to marketing to R&D, but the world at large. No company, regardless of its success or wealth, can do the bulk of its own R&D and ignore the powerful forces at work out there in the larger community.

He concludes that:

The proper management of innovation in our times is one of the most important tasks facing every business.

Innovation as the product of interaction is, incidentally, the point made forcefully by Richard Florida and Jim Goodnight in this past summer's publication of Managing for Creativity in Harvard Business Review.

The collaboratory matters most.

Wayne

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