10
Markovitch et al. (2015) provide reinforcing evidence regarding the lack of a
direct relationship between R&D efforts and innovation outcomes: Using data from
141 US firms across a decade of data, they could not find any statistically significant
relationship between a firm’s investments in basic, exploratory R&D (measured by
each firm’s number of patents over the previous decade, weighted by how scientifically novel they were) and the firm’s stock market value.
This should not be a surprise once the meaning and purpose of innovation are
understood. R&D can only contribute to the development of goods or services that
are technically superior to previous alternatives.
What about other examples?
As you will see throughout this book, successful innovation requires much more
than technical advantage. If this were the sole factor driving success, the Betamax
system developed by Sony would have become the dominant design and the commercial winner in the video cassette recording market in the 1980s. Instead, it rather
quickly became obsolete.
A successful example of limited R&D expenses related to a successful innovative product is the Japanese company Nintendo, which developed the Wii home
video game console from off-the-shelf components. It achieved remarkable commercial success with a technologically inferior product compared to those of competitors. And it did it in a market where Sony and Microsoft spent much more on
cutting-edge gaming consoles.
Yet another well-documented example about the non-existent or weak relationship between R&D spending and innovation success is the garment industry in the
Philippines. Despite no access to formal R&D or academic collaborations, it has
introduced incremental innovations in both products and processes, through reverse
engineering and combining knowledge on new ways to successfully innovate and
remain competitive in global markets (Rosellon and Del Prado 2017).
This is not meant to discourage R&D efforts. Many successful innovations have
required long and expensive public or private research efforts. Many companies
have translated large R&D budgets into successful innovations that are rapidly
adopted. The takeaway message here is that an expensive R&D effort does not guarantee innovation success. The opposite also holds true: it is perfectly feasible to
achieve large returns from innovation and become a successful organization in the
field of innovation with a rather limited R&D investment. Furthermore, Open
Innovation (see Chap. 3) is a very effective approach to increase the ratio of success
of innovation efforts.
Innovation can succeed regardless of an organization’s size, the nature of its
users, or the economic sector within which it operates. That’s encouraging news for
young start-ups, small, and cash-strapped organizations. If they have the talent and
boldness to lead, design, and execute innovation plans, they have a high likelihood
of successfully challenging and even defeating older, larger, and much better-funded
organizations.
H. Campos
Markovitch et al. (2015) provide reinforcing evidence regarding the lack of a
direct relationship between R&D efforts and innovation outcomes: Using data from
141 US firms across a decade of data, they could not find any statistically significant
relationship between a firm’s investments in basic, exploratory R&D (measured by
each firm’s number of patents over the previous decade, weighted by how scientifically novel they were) and the firm’s stock market value.
This should not be a surprise once the meaning and purpose of innovation are
understood. R&D can only contribute to the development of goods or services that
are technically superior to previous alternatives.
What about other examples?
As you will see throughout this book, successful innovation requires much more
than technical advantage. If this were the sole factor driving success, the Betamax
system developed by Sony would have become the dominant design and the commercial winner in the video cassette recording market in the 1980s. Instead, it rather
quickly became obsolete.
A successful example of limited R&D expenses related to a successful innovative product is the Japanese company Nintendo, which developed the Wii home
video game console from off-the-shelf components. It achieved remarkable commercial success with a technologically inferior product compared to those of competitors. And it did it in a market where Sony and Microsoft spent much more on
cutting-edge gaming consoles.
Yet another well-documented example about the non-existent or weak relationship between R&D spending and innovation success is the garment industry in the
Philippines. Despite no access to formal R&D or academic collaborations, it has
introduced incremental innovations in both products and processes, through reverse
engineering and combining knowledge on new ways to successfully innovate and
remain competitive in global markets (Rosellon and Del Prado 2017).
This is not meant to discourage R&D efforts. Many successful innovations have
required long and expensive public or private research efforts. Many companies
have translated large R&D budgets into successful innovations that are rapidly
adopted. The takeaway message here is that an expensive R&D effort does not guarantee innovation success. The opposite also holds true: it is perfectly feasible to
achieve large returns from innovation and become a successful organization in the
field of innovation with a rather limited R&D investment. Furthermore, Open
Innovation (see Chap. 3) is a very effective approach to increase the ratio of success
of innovation efforts.
Innovation can succeed regardless of an organization’s size, the nature of its
users, or the economic sector within which it operates. That’s encouraging news for
young start-ups, small, and cash-strapped organizations. If they have the talent and
boldness to lead, design, and execute innovation plans, they have a high likelihood
of successfully challenging and even defeating older, larger, and much better-funded
organizations.
H. Campos