The Booz&Co study of 2010 (Global Innovation 1000) shows that there is no strong correlation between the amount a company spends in R&D and its innovative image.
Apple, who ranks first in terms of innovative image in 2010 (according to a Booz&Co survey of 450 executives chosen in 10 different sectors), does not appear in the top 20 of the companies that spend the more in R&D. Apple today spends only 3.1% of its revenues in R&D (less than half of the average spending of the computer and electronics industry) thanks to its ability to find ideas, technologies and skills outside the company (as shown by the iPod case).
Thanks to its innovative image, Google’s share value increased by 102% in 5 years whereas the company only invest 12% of its revenue in R&D (1.3% less than the average spending of the internet and software development industry). Google for example involves the public in the development of most of its innovations
Only 3 companies appear in both rankings: Toyota, Microsoft and Samsung.
Here are the rankings, feel free to share your ideas!
When we think about an innovative company, Apple is now one of the top 3 that come to our mind.
Apple bewildered us with its ability to anticipate client needs and launch disruptive innovations faster than the competition with unique ergonomics and client experience. Yet, their R&D spending is not among the largest.
However, a recent trial against Apple concerning the iPod revealed the mystery: Apple used the “outside-in”, “open innovation” principle.
The iPod original idea did not come from Steve Jobs or its researcher’s brilliant minds. The original concept is Kane Kramer’s adopted baby. This English inventor patented the designs and concept of the iPod in 1981 with great detail and astonishing innovations for that time. Unfortunately for him he did not pay for the renewal of the patents.
The iPod project started when Steve Jobs met with Tony Fadell, a former GE and Phillips employee who wanted to invent a better mp3 player. With Apple’s support, Tony Fadell managed to develop a prototype of the iPod after only 8 weeks.
He was hired in 2001 as an independent project manager for Apple who would manage a team of 35 people from all backgrounds.
The skills were not found within Apple for the most part. In the team, you could find such companies as General Electric, Connectix, WebTV and IDEO (design) for the hardware.
The software part was developed by Portalplayer and Pixo under the close watch of Steve Jobs.
Thanks to this team of highly specialized and diverse individuals, the iPod was launched in only 6 months!
As we can see in this example, one of the key success factors of Apple is its ability to find (outside of the company) the ideas, technologies and skills it needs, and integrate them in its innovation strategy; thus allowing to go beyond its internal innovation capabilities.
Thanks to this reflex, Apple today appears as the most innovative company (in the public and top executive’s eyes) while spending only 3.1% of its revenues in R&D (less than half of the average spending of the computer and electronics industry).
However, this wasn’t always the case. In the early 1990s, Apple spent tremendous amounts of money in projects that would turn out to be economical failures (printers, scanners and the Newton PDA for example)
So should companies now try to focus on coordinating innovational project to launch them as fast as possible? Or, should R&D spending be lowered?
The answer must be balanced. For Apple, the Open Innovation principle is just an additional tool that helps to decrease time-to-market. Apple basically focused on its core competencies which were ergonomics, design and the ability to understand clients’ expectations.
Creating and patenting innovational concepts and technologies still play and will keep playing a tremendous part in the launch of innovational products or services. However, they are just one of the many subsets of innovation.
The 4P marketing model (Product, Price, Promotion, Place) shows that 3 other factors must be considered if you want your innovation to be successful: technology is only a subset of the product angle…
My friend Julien launched with two designers in 2009 his venture: LeafSupply.
They propose a cardboard bed for humanitarian crisis that can replace the historical and widely used campbed.
Innovation in products or services can be incremental or disruptive.
With the disruptive one, you know your predictability of success to be low but your return on investment is totally unpredictable.
When it comes to incremental innovations (improvements that build on existing technology, products/services, market strategy) the probability of success and what you gain out of it is more likely to be evaluated.
The thing is, if you want to succeed your innovation has to capture one of the components of disruptive innovations: diffrentiation.
“Differentiation in products or services means providing unique or superior customer functionality that commands a premium
price, generates a premium profit, or significantly increases market share” (M. George, Fast Innovation)
As shown in this graph from the Product Development Institute, highly differentiated products and services have an 82% success rate compared with 18% for me-too offerings.
To achieve that goal, the innovation process has to encompass identifying customer needs that are highly valued, and satisfying those needs either before a competitor does and/or better than a competitor does. Doing that requires more than the traditional combination of focus groups, surveys, questionnaires and competitive analysis. I’ll try to give more tips on that matter in a latter post.
Ethnography: Closely observing customer interactions with their daily environment so you can identify needs they
can’t articulate and find opportunities they can’t foresee.
This process may also uncover customer frustrations related to the use of a product and service that may help you identify entirely new products and services.
Rapid cycles of brainstorming, concept development, prototyping, and customer feedback:
Testing everything along the way (your interpretation of customer needs, elements of the product/service design, etc.) speeds up the learning curve and lets designers and developers more quickly come up with offerings that will delight customers. According to study from The Economist study only 46% of companies involve customers in concept development, and amazingly, 27% of companies wait until testing to get feedback from customers.
So remember beta testing!
Approaching design with multiple performance targets in mind:
Traditional development processes require companies to set performance specs very early in the process, which closes developers off to changes in or a better understanding of customer needs. A flexible approach allows specs to be fixed much later in the process, which allows developers to incorporate lessons learned as the design evolves (cf. Mountain Bike Product development process)
Tom Kelley in The Ten faces if Innovation gives some other tips on effective brainstorming and anthropologist like observation.
A little summary of it in this Business week article: IDEO’s Innovation Ideas
If are reading this, it means that we have something in common: we believe that innovation is key and we want to understand how it works and shapes the world or…you just know me 😉
In this blog I will tell stories of innovators and give a view of the innovation process.
Hoping some of this articles will inspire you to better innovate and launch your big idea or your small ideas, I wish you the best.