Arthur D. Little: Companies Miss Out on Boosting Their Innovation Return on Investment by, on Average, 30%

(BUSINESS WIRE) -- Arthur D. Little (ADL) today launched its 2023 Global Innovation Management Excellence Benchmark Report, which highlights that of the $2 trillion per year that companies invest in R&D, financial returns from innovation have fallen across sectors since 2012. Companies report a 33 percent drop in satisfaction with their innovation performance over the same period.

Ben Thuriaux-Alemán, Partner at Arthur D. Little, said, “The main findings from our latest innovation report are clear:

1. “Traditional innovation practices are delivering diminishing results for companies, in spite of them facing a rapidly evolving world with changing market dynamics, where outstanding innovation capabilities are critical.

2. “Companies with strong innovation management practices are able to identify properly their specific limiting factors, eliminate them, and gain significant return for R&D spend.

3. “Increasing R&D spending is a bad idea and will reduce return on innovation – unless your innovation management practices are already in the top quartile of our cross-industry benchmark. Three-quarters of companies can get better returns by improving innovation management capabilities.”

Businesses that overcome the main R&D pitfalls and develop strong innovation management practices stand to benefit, on average, from a 30 percent boost in return on R&D investment.

ADL’s research into the practices of innovation excellence, running now for over 25 years, allows companies to anonymously rank and profile themselves on their innovation performance versus their peers. The result is new and calibrated insight into the key areas that can often dramatically increase their innovation performance.

The most frequent boosters to innovation performance include:

1. Be bold with breakthrough innovation. Companies choose to invest in incremental improvements, whereas businesses with the biggest return on innovation will take the risks to enter an entirely new market space or business model and invest proportionally more in this area.

2. Embrace business model innovation. Working with the ecosystem, finding new market segments, combining products and services in new ways, and developing “nightmare competitor” capabilities to future-proof your business are just a few ways managing business model innovation shows its value, particularly in fast-paced technology sectors.

3. Close the innovation management gap within companies. ADL sees very wide variation in innovation performance capabilities in business units within companies. This means best practices are not being shared. A company-wide approach, with incentives and KPIs to support it, will help create a shared innovation culture that improves return on R&D investments.

4. Agile business management methodology grew out of software development, in which the mantra “fail fast and fail cheap” was a proven driver of R&D. Although not applicable in all sectors, agile is now regularly used across industries such as consumer electronics, telecoms and media, and even pharmaceuticals. The speed with which the COVID-19 vaccine was developed shows the success the Agile method can have when the risks of rapid development are outweighed by those of inaction.

5. Adopt five key skills of modern innovation leadership. As the speed of business cycles increases and technologies and industries converge, leaders today need five core skills to drive innovation in their organizations: vision belief, meta knowledge, network skills, perspective originality, and a digital-first approach.

“All companies in our benchmark have the potential to be innovation high performers,” continued Thuriaux-Alemán. “The appetite for businesses to regain ground on stagnating innovation efforts is clear across sectors, and new value can be gained, particularly from exploring the five innovation boosters laid out in this report.”

The Arthur D. Little Global Innovation Benchmark is a quarter-century perspective into how global businesses conduct R&D and the value they generate from it.

The full report, including recommendations from ADL, can be downloaded here: https://www.adlittle.com/en/innovex

For further information, please visit www.adlittle.com.

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