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R&D spending doesn't always pay off--Booze Allen.

Posted by: Bruce Nussbaum on October 11, 2005

A new survey out by business consultant Booze Allen Hamilton says that big companies that spend more on research and development than their peers don’t necessarily get a higher payoff in terms of revenues of profits. After surveying 1000 companies over 6 years, Booze Allen concluded that while some minimum of R&D spending is necessary, simply piling on the R&D dollars doesn’t generate the kind of innovation you would expect.

This was also my finding in the Get Creative cover back in August 1. It is clear that more and more companies are now discovering that their innovation process is inefficient. Most are still doing innovation by pumping up their R&D labs to come up with new high tech tricks which are then turned into products (usually with a million features) that are sold AT customers. Design is brought in toward the end of this traditional innovation process to put a friendly, pretty face on the product.

But a few companies are turning the innovation process around by first using design to learn about consumer wants and unmet needs and then moving back up the innovation funnel to get the R&D labs to come up with products and services that connect with customer desires and emotions. This can really boost innovation productivity and cut down on R&D costs. Dumping NIH—not invented here—R&D also saves money. There is a world of ideas out there—in Europe, Asia and among thousands of retired scientists and engineers that can and should be tapped by companies. They cost less than home-grown R&D and even if they cost more, they should be part of any corporation’s innovation arsenal. But clearly, the Booze Allen survey shows that most CEOs and top execs still don’t get it.

Reader Comments

Bob Phillips

December 22, 2006 4:11 PM

The Global_Innovation_1000_2006 is nothing but pap. Part of the reason is that companies include costs in their "R&D Expenditure" that have nothing to do with either research or development. I know of at least two companies who include product engineering in "R&D". This activity adds nothing to the corporation's library of intellectual propert; and is development not of new technologies, but the application of existing knowledge.

The claim that "investment" in (real) R&D does not pay back is obvious, accounting-driven, nearsighted distortion.

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Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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