The final measure in this series is ultimately the one that really matters: Innovation Return on Investment. While most of us are seeking growth from innovation, we must also compete for investment capital and be good stewards of the firm’s resources as we pursue that growth. The innovation ROI metric attempts to demonstrate that we are delivering returns on capital in the form of incremental margin. The simplest form of the metric is incremental gross margin from innovation divided by total investment in research and development.
I presented on an Innovation Leader webinar a couple of weeks ago. The title was Seven Chronic Problems for Innovation Leaders to Address. Regular readers of these posts will remember that series from earlier this year.
In the thirty year period from 1981 to 2011 the share of US R&D investment made by companies with more than 25,000 employees fell by more than half. Yes, the total investment in R&D rose substantially during this period, as did the number of companies with this many employees, but all of the growth in investment came from smaller enterprises. Startups and companies with fewer than 1,000 employees grew their share by almost six fold.
Continuing to think about Clayton Christensen’s article in the June 2014 edition of the Harvard Business Review, “The Capitalist’s Dilemma”. The article contends that investor myopia and outdated assumptions about capital being a scarce resource cause companies to underinvest in market-creating innovations that are necessary for their long-term prosperity.