The success of R&D is a complex and multifaceted issue, and while there’s general consensus that R&D spending is crucial for innovation and long-term growth, measuring its success and return on investment (ROI) can be quite difficult. The four buckets of R&D success below is a helpful framework for thinking about this issue.
- Failed Discovery This category represents R&D efforts that ultimately do not result in any usable product or innovation. While this might seem like a total failure, it can still provide valuable lessons, reduce future risks, and refine the strategic direction of the company. Sometimes, failures help eliminate unviable paths, saving time and resources in the long run.
- Necessary, Not Revolutionary R&D in this bucket leads to incremental improvements or enhancements of existing products. While these may not be groundbreaking or game-changing, they are often necessary to stay competitive or meet evolving market demands. The success here is more about maintaining or improving market position rather than creating entirely new value.
- New and Novel Products This is the ideal outcome of R&D: the development of a genuinely innovative product that offers something new or significantly better than existing alternatives. Such products have the potential for market differentiation and can provide a competitive edge. However, their novelty may not last indefinitely, and over time, others may catch up or develop similar products.
- Sustainable New and Novel Products The pinnacle of R&D success is a new and novel product that not only makes an impact at launch but also has a lasting market presence. Achieving this requires ongoing innovation, the ability to adapt the product, or even new business models to maintain its relevance. These products can lead to sustained competitive advantages if managed well.
While the categorization helps structure R&D outcomes, assessing success can be challenging for a number of reasons:
- Time Lag R&D investments often require long periods to manifest their benefits, and the returns may not be fully realized for years or even decades. This delay makes it hard to measure short-term success based on immediate financial outcomes.
- Indirect and Intangible Benefits Many benefits from R&D, such as knowledge gains, improved brand value, enhanced capabilities, and strategic positioning, are difficult to quantify. They don’t always show up directly in revenue or profit numbers but are essential for the long-term growth of the company.
- Market Variability and Uncertainty The market landscape can change unpredictably. A product that seems promising today may not meet consumer expectations, and a competitor may develop a superior alternative. R&D's success is often subject to external factors such as economic shifts, regulatory changes, and technological advancements.
- Attribution Challenges R&D doesn’t operate in isolation. Many factors contribute to a company’s overall success, and separating the impact of R&D from other activities like marketing, sales strategies, or partnerships is not always straightforward. This makes it hard to directly correlate R&D investment to financial outcomes.
- Risk and Reward Balance R&D is inherently risky, and while some projects will fail, others will achieve outsized returns. This unpredictable nature means that calculating a "normal" return on R&D is difficult. What constitutes a "normal" return can vary widely by industry, company size, and the stage of technological development.
- Intellectual Property and Market Timing For products that are truly novel, the value often comes from the protection of intellectual property (IP). However, the economic benefit from patents or marketing authorization can be short-lived, depending on patent expirations and the arrival of generics or competitors. Therefore, capturing the full long-term value from R&D can be challenging.
While calculating an exact return on R&D might be elusive, companies can think about R&D success in broader terms. R&D is about managing a portfolio of innovation, recognizing that failure is part of the process, and focusing on the long-term value of innovation, not just short-term financial returns.
profound quote from Helen Keller, "Life is either a daring adventure or nothing at all," is quite fitting in the context of R&D. R&D is about taking calculated risks and embarking on bold endeavors. Some will succeed wildly, some will fail, but all will contribute to the knowledge and growth of the company and its industry.
In summary, while R&D's impact is difficult to quantify, it's important to consider both the tangible and intangible outcomes, the short-term and long-term effects, and the inherent risks that come with pushing boundaries in innovation.
