Perception vs Reality: Top-Ranked Business Innovators Often Scrimp on R&D Spending

Putting your money where your mouth is doesnt buy you much of a reputation in the innovation game.

When asked which firms are the most innovative, surveyed American executives almost always think of tech, particularly Apple and Google. But those two dont even crack the top ten in R&D spending. And the companies that do, primarily big pharmaceutical companies, dont get a lot of love or credit for their efforts.

Gadgets have it all over pills because they are consumer-oriented, aggressively marketed, conceptually understandable and popularly priced (relatively). By contrast, pharmaceuticals, while frequently life-saving or health giving are expensive, complicated, dispensed through your doctor and health insurance company. Oh, and their names defy logic and are almost always ridiculously hard to pronounce.

The implications are potentially serious. Companies are less inclined to invest in R&D if they dont believe there is any financial or reputational benefit. Meanwhile, the tech companies, like alot of the cool kids at school get by on looks and wealth. That is not to say that what they do is not innovative, but as the economy is mired in stagnation and the nation yearns for some new breakthrough one senses that next generation phones are not going to provide the solution. Ironically, Microsoft, that often disrespected paragon of technological stodginess, is the only big tech firm in the R&D top ten.

No one said life is fair. Lots of people get credit for being something they are not. But as we wrestle with how to restart the stalled economic engine, paying more attention to the real source of R&D spending - and why - might help us better focus on the best opportunities for growth. JL

Melissa Korn reports in the Wall Street Journal:

Many companies say innovation is a top priority, but even those who spend the most on research and development can have little to show for it, a new study says.

A report expected to be released Monday by consulting firm Booz & Co., says that few of the biggest R&D spenders crack the top 10 in terms of being considered "innovative" by their peers
Booz identified 1,000 companies with the biggest 2010 research-and-development budgets and invited 600 executives from those companies to rate which ones they deemed most innovative. The most frequent pick was Apple Inc.—the 70th biggest research-and-development spender—followed by Google Inc. and 3M Co., also not among the top-20 spenders.

Different industries demand different types of innovation, and can bring products to market at varying speeds.

Health-care companies held four of the five top-spender spots, but none made the top 10 in terms of being deemed innovative. It can take upward of a decade for drug companies to push new treatments to market, while a consumer-products company can sometimes bring a product to market in months.

But infusing a company with practices that encourage creativity can help in any industry, management experts say.

The biggest innovators involve employees company-wide to help generate ideas, says Rosabeth Moss Kanter, a strategy and innovation professor at Harvard Business School. They might hold interdepartmental brainstorming sessions, provide a Web forum for recommendations or offer funding for creative projects.

Pharmaceutical company Pfizer Inc., which ranked second for R&D spending in the study and 16th for innovation, has for the past few years tried to spur creativity by inviting researchers to attend commercial meetings and encouraging employees on the commercial side to attend scientific reviews.

The idea is to focus more on patient needs and marketplace trends in product development, says Dr. Mikael Dolsten, president of world-wide research and development at Pfizer. The company also plans to cut its R&D budget, currently over $8 billion, to as low as $6.5 billion as it focuses on fewer, targeted disease areas.

Diversified technology company 3M, which spends relatively little money on its research and development, landing at number 86 on Booz's spending list, allows employees to spend 15% of their time exploring side projects. It also offers seed "grants" to encourage innovation.