Realigning the innovation spend

In his Forbes article, “The Folly of Trying to Spend Your Way to Innovativeness,” Bill Fischer, MIT Sloan Executive Education faculty and Professor of Technology Management at IMD, cites a Booz & Co. 2011 study finding that “only three of the most innovative companies in the world were among the 10 biggest spenders on R&D.” As Fischer points out, “Booz & Co.’s research has consistently shown over the past eight years, [that] there is no long-term correlation between the amount of money a company spends on its innovation efforts and its overall financial performance.”

The Booz & Co. study specifically looked at internal innovation and R&D efforts. But innovation does not necessarily need to be developed in-house; in fact, it can be purchased. For example, since 1999, IBM has acquired more than 130 companies—some of which are truly innovative.

In fact, IBM’s path of acquisitions has had a significant impact on the company reinventing itself. According to Fischer in another Forbes article, “The Reinvention Epidemic,” “When Lou Gerstner and his successors did get the IBM elephant to dance, they did it by shedding old, formerly reliable businesses [personal computers, for example] and adding completely new competencies as bets on a fundamentally different future [by buying PWC’s consulting business]. The result was a completely different way of thinking about the world—smarter planet, for example—that would not have been possible before these rather large choices had been made.”

Fischer suggests part of the “innovation” problem is that it is harder to innovate in larger companies. “It is the smaller companies who appear to have the higher success rates at conversion, which may well be attributable to their being freer of the burdens of past success than are the larger, and probably incumbent champion firms,” said Fischer.

As 2013 wound down, IBM went the acquisition route again; acquiring Aspera, a company with file transfer technology that would contribute to IBM’s innovations in the cloud and one that “will be a key component of its big data strategy.”

The Booz & Co. study revealed that many companies, by their own admission, say they simply aren’t very good at innovation. That finding makes the case that sometimes the most successful way to innovate is to acquire. Maybe companies with large R&D budgets should re-think how they are spending their innovation dollars.

Bill Fischer is a Professor of Technology Management at IMD. He teaches in the Driving Strategic Innovation: Achieving High Performance Throughout the Value Chain program, which is offered twice yearly, once in Switzerland and again at MIT Sloan Executive Education.



This entry was posted in Innovation on Sat Apr 05, 2014 by MIT Sloan Executive Education

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