Innovation Beyond Products, Services or Technology

Here is a research finding I have always found surprising — there is zero correlation between how much companies invest in R&D and the returns that they get from that investment. By the way, it is not only me who finds this surprising. Every time I present this finding to corporate leaders, they are just as surprised.

But before you start panicking, it is important to note that a zero correlation is not the same thing as a negative correlation. A negative correlation would exist if the more companies invested in R&D, the worse the returns they got. This is the opposite of the positive correlation we expect (i.e. the more we invest in R&D the better the returns we get).

Instead, a zero correlation simply means that, for the same level of investment in R&D, some companies get positive returns and others get negative returns. So the real question to ask is, what types of companies are likely to get good returns from their investments in R&D.

The research shows that companies that combine their R&D with a deep understanding of their customers’ needs tend to get above average returns from their investments in R&D. In contrast, companies that are technology driven tend to get below average returns from their investments in R&D. What this means is that companies have to move beyond products, services or technologies.

In the end, what drives innovation success is creating value propositions that resonate with customers and designing business models that are profitable and scalable. To do this, we need to understand that:

• Having a great technology or product is not the same thing as having a value proposition that resonates with customers.
• Having a value proposition that resonates with customers is not the same thing as having a profitable business model.
• Having a business model that is profitable is not the same thing as having a scalable one.

Understanding these distinctions and actively working to resolve them, will help you improve your chances of getting returns from your investments in R&D.

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