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Money cannot buy effective innovation, says new study

A new study has found that money alone cannot buy effective innovation and guarantee the high return on investment sought by companies.

The annual Global Innovation study of the world's largest 1,000 corporate research and development (R&D) spenders found that less than 10%...

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A new study has found that money alone cannot buy effective innovation and guarantee the high return on investment sought by companies.

The annual Global Innovation study of the world's largest 1,000 corporate research and development (R&D) spenders found that less than 10% of companies are 'high leverage innovators', producing significantly better performance per R&D dollar spent over a sustained period.

The 'Smart Spenders: The Global Innovation 1000' report assessed the influence of R&D spending on corporate performance and discovered insights which suggest that the relationship between R&D spending and corporate performance is not a simple one.

For only 94 high-leverage innovators, success relied on their ability to squeeze benefits from R&D spending, their economies of scale and their capabilities as 'Masters of the innovation value chain' in ideation, project selection, development and commercialisation of their final product.

Furthermore, the study found no statistical relationship exists between the number or quality of patents and a company's overall financial performance. Current important innovations in television technology are still based on patents from the first half of the 20th Century.

The report states: 'conventional wisdom often seems to view R&D as a predictable black box that automatically translates today's innovation investments into tomorrow's profits, even if nobody quite understands how it works...Innovation often does lead to higher performance, but the process isn't automatic.

'Many companies' R&D efforts are unfocused. Money is wasted 'reinventing wheels' that others have already rolled out. Good ideas get stuck in developmental bottlenecks. And promising innovations never get to market because of flawed understanding of customers' needs, and poor marketing and investment planning,' reads the report.

It goes on to say that 'there is no silver bullet. If these high achievers have one thing in common, it seems to be a focus on building multifunctional, company-wide capabilities that can provide them with sustainable competitive advantage. They design their innovation investment for the long run, and create superior growth and profitability over time.'

The European companies among the top 20 global R&D spenders were DaimlerChrysler, Siemens, GlaxoSmithKline, Volkswagen, Sanofi-Aventis, Novartis, Nokia and Roche Holdings.

However, the 10 European companies that made it onto the list of 94 global 'high leverage innovators' were Adidas, Cadbury Schweppes, Christian Dior, Meda, Phonak, Recordati, Smith & Nephew, Synthes, Trelleborg and the Volvo Group.