Monday, May 17, 2004

Raising Your Return on Innovation Investment Authors Alexander Kandybin and Martin Kihn make the observation that simply spending more money on innovation won't make R&D investments pay off - instead (insert breaking news...) you should be trying to raise the effectiveness of that spending.

To that end they have developed 3 pillars of innovation which they believe will improve the return on innovation investment of any company.

1) Understand your Innovation Effectivess Curve - Simply put, their research has found that increased spending on R&D is subjet to the law of diminishing returns - ie, each dollar more you spend gets you less than the previous dollar. Plotting this curve out allows you to then decide upon the point at which to cut off future spend in this area.

2) Master the Entire Innovation Value Chain - According to the authors, an innovation capability requires owning or sourcing 4 critical sets of capabilities - Ideation, Project Selection, Development, and Commercialization. Mastering these 4 elements will raise your Innovation Effectiveness Curve.

3) Don't Do It All Yourself - Superior innovators are learning to outsource segments of the innovation value chain and obtaining ideas and inventions from outside sources - usually smaller companies who have spotted a small niche that is initially too small or not profitable enough for larger companies.

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