Tuesday, December 06, 2005

Money Isn't Everything

In an article sure to warm the hearts of smaller firms, process oriented types and cultural consultants, the folks at Booz Allen Hamilton have just released a new survey on innovation entitled Money Isn't Everything. You can read it for yourself here.

What I like about this study is that it emphasizes that too often senior executives throw more money into R&D and innovation initiatives, expecting greater and greater results. The study indicates that in terms of innovation and results, throwing more money at these initiatives does not necessarily increase innovation, and certainly doesn't provide tangible results. Now, there are some conclusions: larger firms have an advantage over smaller firms in the amount they can invest, and there is definitely a lower limit to the amount your firm should spend on innovation. But what's interesting is that even within industries, there's a wide variance between the amount spent on innovation, and the results achieved.

Why? The authors indicate that what's most important in innovation is defining a consistent, sustainable process and encouraging collaboration. To quote them "Yet of all the core functions of most companies, innovation may be managed with the least consistency and discipline". Of course, throwing money at a poorly managed process will not result in the expected outcomes!

The authors evaluate R&D and innovation investments across a wide range of publicly traded companies and compare and contrast investments and results. Their conclusion:

"...suggests that focus primarily on increasing the cash input to an innovation "black box" - a process presumed to transform R&D spending into results without anyone fully understanding how - are more likely than not to fail to deliver the desired performance". Note the authors' use of the words "black box". That is short hand for a process that is not transparent and not well documented or understood.

Later, as the authors begin to dissect the problem, they state that research by a colleague demonstrates that "financial returns on innovation investment depend on the effectiveness of innovation processes: the way a company generates, selects, develops and commercializes ideas."

The good news for any firm in this research is at least three fold:

- Money by itself is not that important. The process is much more important.
- Scale and size, while they can impart some advantage to a larger firm, are not the key factors to improving innovation.
- The "best practices" required to improve these processes are readily available to any firm.

What the authors don't comment on, and I think would be equally interesting, would be the question - does a dramatic reduction in R&D investment create more interesting results - can you force people to think more creatively in the absence of large investments? It seems to me that if necessity is the mother of invention, that sometimes people may be more creative and innovative when they have far less money than they think they need to succeed. After all, this is basically the model for entrepreneurs. When too much money is available for innovation and investment, there are no hard choices.

For those of you who are advocates of improving the innovation process and increasing collaboration, you've got the evidence you need to get management's attention. What more could you want? You can argue that what your teams need to succeed is not necessarily more money, but improved processes, systems and collaboration.
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posted by Jeffrey Phillips at 5:30 AM

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