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Fascinating study on R&D Spending and return on innovation by Booz Allen & Hamilton

My colleague, Gray Hammond, drew attention to this year’s installment of the fascinating study of innovation conducted annually by Booz Allen and Hamilton. To access the study click here

Synopsis:

Booz Allen Hamilton’s annual study of the world’s largest corporate R&D spenders finds two primary success factors: aligning the innovation model to corporate strategy and listening to customers every step of the way.

They have also identified three types of innovators among firms that spend the most on R&D.  To quote their study:

Need Seekers: These companies actively engage current and potential customers to shape new products, services, and processes; they strive to be first to market with those products.

Market Readers: These companies watch their markets carefully, but they maintain a more cautious approach, focusing largely on creating value through incremen­­tal change.

Technology Drivers: These companies follow the direction suggested by their technological capabilities, leveraging their investment in research and development to drive breakthrough innovation and incremental change, often seeking to solve the unarticulated needs of their customers.

Perhaps the most important finding that emerged from the study was that no one of these strategies performed consistently better than any other — indeed, high-leverage innovators can be found in each of the strategy categories. The most significant performance differences correlated not with their innovation strategies but with those critical factors mentioned above: strategic alignment and customer focus. Over the past three years, companies that say their innovation strategies are tightly aligned with overall corporate objectives boasted 40 percent higher growth in operating income and 100 percent higher total shareholder returns than those whose innovation strategies are less aligned. Companies more focused on customer insight or market needs are also more successful than their less-customer-focused peers. In particular, companies that directly engaged their customer base had twice the return on assets and triple the growth in operating income of the other survey respondents.

There are loads more interesting statistics and conclusions in the report.  Worth having a look at!

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