Raising your return on innovation investment + innovation’s new performance standard


Sarinda Wongkosolsuk

Article Title: “Raising Your Return on Innovation Investment” and “Innovation’s New Performance Standard”
Authors: Alexander Kandybin & Martin Kihn and Kevin Dehoff & David Neely
Publication: Strategy+Business

Concepts / Theories involved:
– The three pillars of innovation
• Pillar One: Understand Your Innovation Effectiveness Curve
• Pillar Two: Master the Entire Innovation Value Chain
• Pillar Three: Don’t Do It All Yourself
– Four factors make or break innovation programs; Senior Leadership Support, Continuous Improvement, Organization as Enabler and Extended Innovation Enterprise

Key Findings:
• There is almost no correlation between increased R&D spending and improvement in profitability.
• Innovation effectiveness curve is the marginal return on innovation investment, which can vary widely even within a single industry and does not correlate well with company size or with the scale of R&D investment. Therefore, only firms that can raise the innovation return curve will have high profits from R&D.
• The successful innovation does not come purely from R&D lab, but the entire innovation value chain of ideation: to have new products or services with both new market needs and new technology, project selection: to select the best projects from many criteria, not only NPV, development: to launch the project in the right time, and commercialization: to promote the products or services by using all kinds of IMC, cooperating with internal & external customers, and doing accurate sales forecast.
• If the company is not an expert in some links of innovation value chain, for example, ideation and development, it should do outsourcing. However, project selection and commercialization can’t really be outsourced. The company can hire others to calculate financial numbers for project ranking and do advertising campaign, but the company is the one who choose the project and execute its vision through all kinds of IMC.
• Innovation programs can’t be done successfully without full support from senior leadership, the continuous improvement in company’s overall approach to innovation, efforts of all people in the organization, and cooperation from stakeholders.

Strategic Implications:
• As the authors found that the more the company spends on one project, the less profits yield, the company should not focus and spend heavily on one best project, but allocate specific amount of budget to many good projects.
• The company must eliminate the bottlenecks along the innovation value chain, so the project can go smoothly from the very first step till the last. Some companies establish project management team to handle each project and it seemed to be more effective than companies with hierarchical structure. Also, authors implied that all links in the innovation value chain are as important, so the company should manage all well and not focus on only one of them.
• Presently, the ideation is to be outsourced more and more because of changing trends and intensive competition. As people in the same organization will have something in common, they wouldn’t have ideas of how others think and live. Therefore, ideation outsourcing is one thing that companies should do.
• The firm that wants to be successful on innovation must turn the whole organizational system to be innovative, persuade all stakeholders to participate in this change, and do it continuously (Kaizen).

Any Other Recommendations:
• Some innovative products, especially technological ones, for example, mobile phones, computers, and etc., have short product life cycle. Therefore, it would be better for these kind of companies to often launch new minor changes to keep up with the markets and competitors than launch a new big change once a year.
• Although outsourcing can help companies perform faster, more effective with lower cost, the companies should scope and control those works by themselves, so they can go altogether with the companies’ mission, vision, objectives and strategies.


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