Companies are failing to get value from innovation

Originally posted on The Horizons Tracker.

Innovation is something that everyone says they want to do, but it seems increasingly clear that this desire is often rather superficial. For instance, recently I wrote about a new study from Harvard Business School showing that innovation is rarely a top priority for executives. Indeed, just 30% placed it in their top 3 issues to focus on in the coming years.

A new study¹ from Accenture may shed some light into this apparent lack of enthusiasm at board level. It reveals that just 14% of companies have managed to secure the return on their innovation investment that they had originally hoped for.

The report reveals that companies have spent around £2.5tn on innovation in the last five years, but have very little to show for it. I’ve mentioned previously that the ROI of innovation, in patent terms at least, is getting worse as R&D expenditure has boomed in recent years to produce the same output as more meagre investments earned in the past.

Research² from the Stanford Institute for Economic Policy Research found that truly novel ideas are not only harder and harder to come by, but they tend to be ever more expensive to explore.

The analysis found that whilst research spending is going up considerably (around 200 billion Euros in the EU alone), the ideas output by each researcher is going down considerably. They suggest that this huge increase in research inputs has helped the American economy to maintain growth as this increase has offset the decline in productivity. This is reflected in the number of people engaged in R&D, which has mushroomed twentyfold since 1930.

Getting a return on innovation

Accenture suggest that the amount one spends is nowhere near as important as how you spend it. They believe that the companies getting the best returns have invested in breakthrough innovation rather than aiming for the more incremental sort.

“Fortune favours the bold when it comes to investing in innovation. The companies reaping the biggest rewards show a “go big or go home” mentality by investing in truly disruptive innovation projects. They don’t just tinker around the edges,” Accenture say.

The report goes on to suggest a number of characteristics that they believe distinguishes the best and most innovative companies from their peers. They suggest that to be truly innovative, companies should be:

• Tackling only the problems that are most important to customers

• Harnessing the power of ‘the crowd’ to tap into breakthrough knowledge

• Tapping into the best talent, both from inside and outside the business

• Ensuring that your work is data-driven, so that it generates, shares and applies data in the application of new innovations

• Mastering the latest technologies to power innovation

• Including a broad range of stakeholders to tackle the needs both of customers and wider society.

These all seem pretty obvious and straightforward tips, yet Accenture believe even these are rarely being seen in practice, which has contributed to a 27% decline in innovation return on investment in recent years.

“The fact that return on investment overall is dropping is a worrying trend. Business are spending more than ever, but their inability to see proper returns is shocking. One of the reasons for this could be that many organisations still see innovation as a peripheral activity separate to the core business; an “ad-hoc creative process” rather than a set of practices that will fundamentally change their way of doing business,” Accenture say.

Hard science

With around a third of respondents to the Accenture survey planning to increase their spend on innovation in the coming years, it is undoubtedly true that companies need to get better at it. What perhaps the Accenture report fails to address however is that making truly breakthrough innovations requires a level of science that is increasingly hard to explore.

The importance of hard science was highlighted in a recent study³ that highlighted the clear connection between pure scientific research and patentable inventions. The research looked at any connections that exist between every single patent issued between 1976 and 2015 by the US Patent and Trademark Office (of which there were around 4.8 million), and every single journal article published since WW2 (around 32 million).

They found a clear and constant flow between pure science and practical innovations. Whilst there are, of course, some papers that are rarely cited by future work, of those with at least one citation, a whopping 80% contributed to a future patent. Similarly, 61% of all patents referenced a research paper.

Whilst there are no shortage of ‘recipe books’ aiming to guide leaders towards innovation success, the evidence underlines just how difficult it is. If innovation is to retain the attention of executives however, it’s vital that innovation professionals manage to up their game and provide a clearer path to returns than is currently the case.

Article source: Companies Are Failing To Get Value From Innovation.

Image source: Adapted from image by Mary Ana on Pixabay, Public Domain.

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