A recent PwC study looked at a large rise in global R&D spending in 2018, more than a 17% gain over 2017. Many pundits shared the article as evidence of an innovation revolution despite the warnings in the article. Silly, huh?
The piece states, “rising R&D spending is an indication that companies are committing to the future, and should portend future growth in productivity.” Yet the authors of the study caution that there exists no direct correlation between a company’s R&D spending and its innate and overarching ability to innovate.
“For the entire 14 years we have conducted this annual study we have consistently found there is no statistically significant relationship between how much you spend on R&D and how well you perform,” Barry Jaruzelski, partner at PwC’s strategy consulting business development says plainly. “What does matter is the depth of your customer insight, the quality of the talent assembled, and rigor of the processes you employ.”
Outside of Pharma, Research and Development typically means either (a) making an existing product or product line better by optimizing it in an incremental manner or (b) exploring new advanced technologies that have the potential to add value to a user’s life (or, “looking for solutions to problems that do not yet exist,” as it is know in the trade). Most of this technical exploration yields solid thinking, some possible intellectual property, and a few gains in the market if executed.
Yet, as Jaruzelski points out, without customer insight and R&D effort remains an uncertain gamble. If the R&D team spend their time creating me too products you will always remain a second- or third-place fast followers—and never a category leader, an innovator. Without insights based on real needs in the context of a user’s life, they create a form of fine art, a technical masterpiece created by and for engineers, but not a customer-centric solution. If you do not provide inputs and parameters around what is being researched from a market-based perspective, you are wasting your investment in these technical resources.
Furthermore, if you don’t organize and manage your talent for innovation, you will end up with a brow-beaten team happy to not take risk who seek out status quo results. Feeding insights to a team that is organized around specific challenges and giving them room to explore and experiment is key.
Many companies can take Six Sigma to the extreme—to a zero defect culture. If this is the only process in your toolkit, you will never make a leap into the leadership position of the category. You also need to include the R&D team in customer discovery sessions, prototype testing sessions with customers, and get them out of a production-based mindset and more into a value-creation framework.
R&D teams need both the technical skill of their category and the methods of successful front end innovation to realize the return on investment being spent on them. This simple lesson is lost not only on Wall Street analysts but also on many corporate leaders and company owners.
Image Credit: Pixabay
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Michael Graber is the managing partner of the Southern Growth Studio, an innovation and strategic growth firm based in Memphis, TN and the author of Going Electric. Visit www.southerngrowthstudio.com to learn more.