The most recent estimates by the United Nations put global spending on research and development at US$ 1.7 trillion per year. U.S. businesses, nonprofits and government organizations spend more than $511 billion dollars per year on R&D, a rate of more than $58.3 million an hour. The totality of the European Union spends $388.3 billion per year, and China adds another $451.9 billion to the piles of cash that are bandied about by those attempting to innovate everything from new products to sustainability enhancements.
Bigger Budgets Don’t Lead to Better Innovation
While innovation spending is usually a good thing, and an overall boon to the economy, billions of dollars are being spent every year on R&D departments that have failure rates (unsuccessful results from experiments or products/services that never create revenue) of up to 85%. Many researchers, engineers and scientists hit seemingly unsolvable problems in their innovation efforts, yet the money doesn’t stop flowing at record speeds in pursuit of the elusive solution to their innovation need/problem.
This waste is heavily seen in the health and automotive sectors. While many businesses from these industries are heavy spending on R&D, they tend to fail in regards to being recognized as top innovators. Studies have shown that upwards of 85% of global spending on research is wasted on poorly-designed or redundant experiments done by the usual suspects that have always done these experiments.
The fact remains that it’s not the size of the R&D investment that matters, but how it is utilized and how leadership begins to celebrate employees saying, “I don’t know how to solve the problems because I may not understand the root cause of the problem.” Yes, CELEBRATE!
Money Well Spent?
When an R&D department is given a near unlimited budget, they often lose focus on what is important to the organization. R&D should always have a purpose, one that specifically serves the needs and goals of the organization while solving the problems that matter. Innovating for the sake of innovation is a surefire way to blow through allocated budgets quickly and having a customer marketplace saying, “why do I need what this company is trying to sell me?”
Before allocating spending on R&D, organizations should know:
- What are we solving for that a customer will need to buy
- What specific goals, methods, or technology they are pursuing that solves a customer problem or addresses a need
- What different avenues of research and/or expertise that will help them solve the intractable problem the company and customer has
- How will the company know if they have truly solved the problem and met the client need
- How much they are willing to spend on trial and error (work) without a real solution
- Can innovation found through real collaboration in-house, crowdsourcing for people you don’t pay for wor - you pay for solution success, or via both avenues using a common problem-solving methodology — Challenge Driven InnovationTM
- Will we celebrate employees that said they need help in solving problems as much as we celebrate the solution we get from crowdsourcing. This is what builds the culture that firms are desperate for!
A plan should also be developed that has both short and long-term goals. Innovation doesn’t have to go immediately from A-Z. There are steps in between, smaller goals, that can be met over time in order to reach a solution.
Broadening the Scope of Innovation While Staying Focused
Although a tight focus is one of the keys to successful innovation, organizations can broaden their search for new solutions by pursuing open innovation. Crowdsource solutions enables organizations to expand their R&D departments without bringing on new staff or increasing the size of their budget. By setting aside a small portion of an R&D budget, and using crowdsourcing and Challenge Driven Innovation (can we link to the CDI paper?) as the methodology for discovering new innovations, organizations gain access to hundreds of thousands of experts from many different disciplines located across the globe.
Contact InnoCentive today to learn what open innovation can do for your innovation efforts.