Techinfocenter

There is a big cry for innovation these days.  Unfortunately, despite spending a lot of money on it, most innovation simply isn't. And that's why companies don't grow.

The giant consulting firm Booz & Co. just completed its most recent survey on innovation.  Like most analysts, they tried using R&D spending as yardstick for measuring innovation.  Unfortunately, as a lot of us already knew, there is no correlation:

"There is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues. Many companies — notably, Apple — consistently underspend their peers on R&D investments while outperforming them on a broad range of measures of corporate success, such as revenue growth, profit growth, margins, and total shareholder return. Meanwhile, entire industries, such as pharmaceuticals, continue to devote relatively large shares of their resources to innovation, yet end up with much less to show for it than they — and their shareholders — might hope for."

(Uh-hum, did you hear about this Abbott? Pfizer? Readers that missed it might want to glance at last week's blog about Abbott, and why it is a sell after announcing plans to split the company.)

Far too often, companies spend most of their R&D dollars on making their products cheaper, operate better, faster or do more.  Clayton Christensen pointed this out some 15 years ago in his groundbreaking book "The Innovator's Dilemma" (HBS Press, 1997).  Most R&D, in most industries, and for most companies, is spent trying to sustain an existing technology - not identify or develop a disruptive technology that would have far higher rates of return. 

While this is easy to conceptualize, it is much harder to understand.  Until we look at a storied company like Kodak - which has received a lot of news this last month.