Do innovative companies spend a lot on innovation? Contrary to widely held belief, the answer is NO.
A simplistic way to measure the impact of R&D spending is to look at the top line growth resulting from the investment in innovation (R&D expense). To arrive at this conclusion, I focused on the high tech sector. The companies that I sampled for highest R&D expense were IBM, Samsung, Canon, Microsoft and Intel (using no of patents as a proxy). The companies sampled for innovation are Apple, Google and Amazon. While somewhat arbitrary, these companies are frequently profiled in list of most innovative companies.
The graph above paints a very clear picture – more dollars invested in R&D does not always result in top line growth. All the companies in the list have a core competency that is a cash cow. However, what differentiates them is the focus of their research. Apple, Google and Amazon are fanatically focused on products/services that matter to the consumers. IBM, Microsoft and Intel have a global research organization that taps the best minds. Yet, their R&D investments have not paid their shareholders a good return on the investments. Is it time for these blue chip companies to reconsider their research investments? I surely think so.
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