Every economic downturn comes with the same refrain: The world, we’re told, is losing its creative capacity, hurting our chances for a speedy recovery. Yet inevitably, when worries about innovation erosion surface, some company rises up with a great new product, technology, or service to prove the naysayers wrong. And all too often, observers simply fail to pay attention to the many companies that make successful innovation part of their regular practice — indeed, their operating model — in ways that don’t necessarily make big headlines.
Those companies are the quiet stars of our annual Global Innovation 1000 study of R&D spending. As our study has consistently shown over the past eight years, there is no long-term correlation between the amount of money a company spends on its innovation efforts and its overall financial performance; instead, what matters is how companies use that money and other resources, as well as the quality of their talent, processes, and decision making. Those are the things that determine their ability to execute their innovation agendas. In 2011, corporate spending among the Global Innovation 1000 increased 9.6 percent over the previous year, slightly faster than the 9.3 percent gain in 2010. But because corporate revenues grew by a robust 13 percent last year — even faster than the year before — R&D intensity, or the percentage of sales that companies spend on innovation, actually declined to traditional pre-recession levels.
Of course, some companies get more bang for their innovation investment buck than others. Over the past few years, we have carefully analyzed the innovation strategies, capabilities, and cultural factors that enable some companies to consistently achieve superior financial results. This year, to further clarify those performance drivers, we surveyed nearly 700 companies and interviewed 12 senior innovation executives and chief technology officers at leading companies. Our goal was to gain insights into the early stages of innovation — when companies generate ideas and then decide which ones to develop.
Authors Barry Jaruzelski and John Loehr discuss the results of the Global Innovation 1000 study, focusing on the “fuzzy front end” of the innovation process.
The Up-Front Process Revealed
Perhaps the most surprising result of our study of the up-front innovation process is how many companies say they simply aren’t very good at it. Just 43 percent of participants said their efforts to generate new ideas were highly effective, and only 36 percent felt the same way about their efforts to convert ideas to product development projects. Altogether, only a quarter of all respondents indicated that their organizations were highly effective at both. (See Exhibit 1.)
“If you have a creative idea and it doesn’t create value,” says Matthew Ganz, vice president and general manager of research and technology at the Boeing Company, “it’s not technology. It’s art. If you’re all about value creation with no creativity, the accountants are going to take over. You need to prime the pump with creative ideas, and then you need to have rigorous processes in place to turn those ideas into dollars.”
The second critical finding calls into question a common assumption about innovation. It’s often said that the means by which companies seek out and find good ideas tend to be vague, or fuzzy, or highly variable from one company to another. Yet according to our survey, the most successful innovators in all industries have developed a variety of consistent, manageable ideation practices that are well aligned with their innovation strategies. And when moving ideas into the development stage, they tend to depend on an equally consistent set of principles and processes. Indeed, any company in any industry can take advantage of these tools and processes to get the most out of the money they spend on innovation.