Toyota's Projected Growth -- And the Context of Booz Allen Hamilton's Recent Innovation Survey

Posted by: Reena Jana on December 26, 2007

Last year, as my brilliant colleague Jessie Scanlon wrote on BusinessWeek.com, the annual Booz Allen Hamilton survey on the top 1000 spenders on research and development concluded that “money simply can’t buy effective innovation.”

The proof: the top spender listed in the 2006 survey (based on 2005 data) was Ford – “hardly a paragon of innovation,” as Jessie wrote — a company that saw tremendous struggles the same year it spent $8 billion on R & D.

But this year, it seems that the story might be different.

Toyota, listed as the top spender in Booz Allen Hamilton’s newest survey, published earlier this month, has just stated that the company expects global sales to rise 6% from last year. (See the overview Jessie and I co-wrote of this report and other innovation surveys published in 2007.) The Japanese automaker hopes to innovate further in 2008 by focusing on vehicles for so-called emerging markets. The company has an ambitious goal to grow its sales by a whopping 20% next year.

In the context of innovation metrics and the recently released Booz Allen Hamilton survey, can Toyota’s case be seen as helping us see some correlation between R & D spending and innovation ROI? Or, in the context of last year’s survey – and the lack of correlation between Ford’s R & D spending and its track record of sales and innovative new products only a year ago – does it simply confirm that R & D budgets might not be an appropriate indicator of successful innovation?

Reader Comments

Frank Evan

December 29, 2007 4:42 PM

Raising R&D budgets does not automatically create innovation. Money can be squandered in many ways without a single breakthrough thought occurring across a company’s R&D staff of a dozen or several thousand people.

Breakthroughs can be created by fostering new thoughts and points of view. While there are many ways to facilitate the generation of new thoughts for breakthrough innovation, one proven approach is expanding your network. New thoughts can be enhanced by widening the circle of people an R&D team interacts with beyond the same old colleagues they worked with last week.

If the auto industry R&D teams interacted with aerospace R&D team members, appliance R&D teams or teams specializing in biomimicry they would hear new ideas from a new point of view that could contribute to new breakthrough thinking and solutions.

This process is often referred to as open innovation.

My company, NineSigma, has been facilitating open innovation for companies since 2000.

In 2003 Henry Chesbrough wrote the book titled, “Open Innovation”.

Reena Jana

December 31, 2007 9:48 AM

Thanks for writing, Frank. Your point about open innovation as a tactic for fostering fresh ideas is a good one. You might be interested in reading Henry Chesbrough's column for us, on the very subject. He's written a couple of thought-provoking and timely essays on piracy as well as the writers' strike in Hollwood, applying ideas from his books, both "Open Innovation" and "Open Business Models" (the latter published in December 2006).

Jack Ray

December 31, 2007 10:33 AM

The correlation would only be compelling if a large proportion of the top 10 or 20 showed exceptional profit growth above the mean. What this demonstrates is that R&D money invested in the right way yields returns, and that spending even more money the right way yields even better returns.
From our experience R&D that is customer-centric, driven by a deep understanding of existing and future customer experiences yields consistently higher gains.

Luther

December 31, 2007 1:22 PM

Innovation comes from incentives for inventors, not from incentives for businessmen, who do not invent things.

Thus "hired-to-invent" policies that exclude R&D people from patent incentives in the United States stifle innovation. Japan has mandatory compensation for employed inventors, so naturally they are taking the lead in innovation. You'd think businessmen would understand incentives, but they preach capitalism for themselves and practice communism for inventors.

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What comes next? The Bloomberg Businessweek Innovation and Design blog chronicles new tools for creativity and collaboration, innovation case studies in both the corporate and social sectors, and the new ideas that have the power to change the way things have always been done.

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