Arthur D. Little’s Global Innovation Management Excellence Benchmark Report Reveals Decline in ROI on R&D Investments Across Industries

Arthur D. Little (ADL) releases its 2023 Global Innovation Management Excellence Benchmark Report. $2 trillion is invested in research and development annually, but the report shows that financial returns on investments have declined across industries since 2012 the satisfaction of companies with their innovation performance fell by 33 percent in the period.

The findings of the latest innovation report are clear. Ben Thuriaux-Alemán, Partner at Arthur D. Little, explains:

1. “Traditional innovation practices deliver faltering results for the investing companies. In today’s rapidly evolving world with fluctuating market dynamics, outstanding innovation skills are critical to success.

2. Strong innovation management enables companies to identify limiting factors early on, eliminate them and achieve a significant return on their R&D expenditure.

3. Increasing R&D spending is not effective and detracts from innovation returns—unless a company’s innovation management practices are already in the top quartile of our cross-industry benchmark. However, three quarters of companies can increase their returns through improved innovation management.”

Companies that avoid the major R&D pitfalls and develop sound innovation management practices achieve, on average, a 30 percent increase in the return on their R&D investments.

Arthur D. Little’s study of innovation excellence practices allows companies to anonymously benchmark and profile their innovation performance relative to their peers. As a result, companies gain a number of new insights into relevant influencing factors to increase their own innovation performance.

The most common performance enhancing factors are:

1. Be brave with disruptive approaches. Many companies prefer to invest in incremental improvements. On the other hand, companies with the greatest return on innovation take greater risks, for example by entering a completely new market or a new business model.

2. Driving business model innovation. Refine your own ecosystem, open up new market segments, combine products and services in new ways and develop into the most potentially dangerous competitor in a fictional way in order to validate your own business model. These are just a few examples of how business model innovation in fast-moving technology sectors can advance companies.

3. Closing gaps in innovation management internally. The innovative performance of the individual business areas in the companies surveyed differs greatly. Best practices are therefore not necessarily shared within the company. A company-wide approach to promoting a culture of innovation with appropriate incentives and KPIs increases the return on R&D investments.

4. The agile management emerged from software development. The mantra “Fail Fast and Fail Cheap” shows up there as a driver of innovation. Although the methodology is not applicable to all industries, today it is also used in sectors such as consumer electronics, telecommunications in the media sector and even in the pharmaceutical industry.

5. Implement key competencies of modern innovation management. Due to the increasing speed of business cycles and converging technologies and industries, there are five core competencies for managers to drive innovation in their own companies: vision, meta-knowledge, network skills, inventiveness and the courage to take a digital-first approach.

“All companies in our benchmark analysis have the potential to be innovation high performers,” Thuriaux-Aleman continues. “The desire of companies to regain ground in their stagnating innovation efforts is clearly noticeable in all sectors. By taking into account the five factors highlighted in this benchmark report, the innovation performance in the company can be sustainably increased.”

For 25 years, the Arthur D. Little Global Innovation Benchmark has provided an overview of how global companies are driving R&D and the value they are extracting from it.

The full report, including ADL’s recommendations, can be downloaded here:

About Arthur D Little

Arthur D. Little has stood for innovation since 1886. We are a recognized thought leader in connecting strategy, innovation and transformation in technology-intensive and converging industries. We navigate our clients through changing economies to find new growth opportunities. We enable our clients to build innovation capacities and transform their businesses.

Our consultants have in-depth practical industry experience combined with excellent knowledge of key trends and dynamics. ADL is represented in the most important economic centers of the world. We’re proud to serve most of the Fortune 1000 companies, as well as other leading public sector companies and organizations.

For more information, see www.adlittle.com.

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