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How can you make innovation pay?

There’s more to innovation than R&D. Every contemporary CEO knows that innovation is important to the success of their company, writes Gina O’Connor for Harvard Business Review.

In 2008, a McKinsey survey showed that 84% of executives believed innovation was critical to the growth of their business.

Yet there aren’t many CEOs who are pleased with their company’s innovation performance. The McKinsey survey put the figure at just 6%. More recently, a KPMG-Innovation Leader survey asked executives to rate how advanced their company’s innovation efforts were on a scale of one to five. Nearly 60% rated their company either one or two, with just 2% rating their company a five.

Gina O’Connor, Professor of Innovation Management at Babson College, believes this gulf between ambition and execution is created by “an overly narrow view of what innovation entails and a tendency to conflate innovation and R&D”.


Since the 1980s, US companies have cut spending on R&D because they hadn’t seen a return on their investment.

In 2015, O’Connor, Dmitri G Markovitch and Pamela J Harper conducted a study of 141 US firms that seemed to confirm this. Until the trio looked at innovation capabilities beyond R&D and found these made the difference.

“It is remarkable that innovation, a principle worshipped in the modern business world, is still so widely misunderstood,” writes O’Connor.

Innovation is not just R&D. It involves three capabilities: Discovery, Incubation and Acceleration (DIA). R&D is just one part of the Discovery process.

“Without a single innovation function that includes a comprehensive Discovery process and the capacity to Incubate and Accelerate new technologies, companies end up stockpiling undeveloped inventions in their R&D departments and, according to our research, don’t see a strong return on investment from their exploratory R&D,” writes O’Connor.

1) Discovery. This stage involves R&D but also mapping out “the complete opportunity landscape”, i.e. all the product’s possible practical applications.

2) Incubation. The team expands and tests the most promising applications and defines a business model and strategy.

3) Acceleration. The firm prioritises the “opportunities that start to take off” and, when they have achieved the necessary scale, transition them into the “mainstream”.

For O’Connor, “a robust innovation function fosters an expansive view of what a technology might become and then shepherds it down the most promising pathways”.

For example, in the 1990s, semiconductor company Analog Devices developed an accelerometer that could sense changes in speed. It was 5% of the cost of similar existing technologies. It was designed for use in airbags in cars, but during the development process it was used in video games, satellites and scientific instruments, allowing Analog Devices to refine the technology.


“A strong innovation function should be the norm for any well-functioning, sustainable company,” writes O’Connor. “Without it, remarkable technologies fall flat and fail to break through into new business.”

Source Article: Real Innovation Requires More Than An R&D Budget
Author(s): Gina O’Connor
Publisher: Harvard Business Review