Don’t Mistake Increased R&D As More Innovation

Added on by Alexander Osterwalder.

Even as R&D budgets increase, the result has not been more innovation.

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I’m reading a lot about increased investment in R&D and how it can generate innovation inside large companies. It’s a myth that drives me crazy me: R&D does not equal innovation--R&D is just R&D. R&D and innovation can certainly overlap, but innovation is about creating value for the customer through better and/or new value propositions and for the business through better and/or new business models.

Innovation may or may not be driven by activities and results coming  from R&D; but at the end of the day, innovation has to be driven by value. Take the Nintendo Wii as an example. When Nintendo launched the Wii, the game console was inferior compared to its competitors in terms of technological performance. Nintendo was too cash-poor to compete on R&D. However, by targeting casual gamers with new value propositions, it was able to disrupt with a better business model (lower costs + larger market = more revenue & profit).

I’m convinced heavy R&D spenders could double their revenues and profits if they took 10% - 20% of their R&D spending and invested it in what I like to call business R&D: the search for value propositions that create value for the customer, embedded in business models that can profitably grow and scale. These new value propositions and business models could, but don’t have to, be based on new technologies and products.