Why Bloated R&D Budgets Don’t Guarantee Innovation

Innovation is the name of the game. In today's rapidly-evolving marketplace, businesses must always be developing products and services to stay competitive. And relevant.

An obvious solution may seem to dedicate substantial funding into your research and development division; after all, some of the top innovators in the world—Apple, Amazon, Tesla—boast staggering R&D budgets.

This, however, is a common misconception. High budgets do not necessarily guarantee higher innovation.

Crowdsourcing Success Stories Across the Globe

After a decade plus of reporting on the top 1000 most innovative companies around the world, global consulting firm Strategy& found no significant correlation between R&D budget size and financial success. In fact, 85% or more of R&D budgets are often wasted on innovation initiatives with poor or outdated methods that rarely yield profitable, actionable ideas.

How then, can organizations such as engineering firms properly tap into practical, lucrative innovation?

Crowdsourcing (i.e., drawing ideas from the global community) has gained considerable traction in the past ten years and has delivered promising results, often more so than large R&D budgets.

In science, crowdsourcing site InnoCentive has provided thousands of medical, technological, and engineering solutions where traditional in-house R&D budgets have failed. The acclaimed Human Genome Project also uses crowdsourcing for biomedical innovation, pulling a greater volume of ideas from the crowd than from traditional research methods.

Brands in the automotive, consumer goods, and even mining industries have already tapped into the innovative potential of crowdsourcing—Canadian mining company Goldcorp Inc. is a prime example. Via crowdsourcing, the company was able to locate 6 million ounces of gold at one of its Ontario mines while only spending $575,000 to do so.

Of course, not all crowdsourcing initiatives succeed. While some budgeting is necessary for product development, blindly funding a project without an open source of ideation can be disastrous.

Nokia, once a tech behemoth, famously lost their standing to Apple despite sporting a colossal R&D budget. The company failed to accurately gauge consumer want, instead devoting its financial resources towards more sophisticated technology, which stunted customer-focused innovation.

Today, Apple and Samsung control nearly 40% of the global cell phone market share. Meanwhile, Nokia is struggling to relive their glory days by recapturing the US market.

What to do if Budget Does Not Predict Success?

More often than not, innovation initiatives fail due to misguided investment. Most R&D budgets focus on building what is called “innovation capacity”—an organization’s potential for innovation in the form of tangible assets, such as resources, technology, or people.

Innovation projects need a platform to stimulate (and circulate) fresh ideas, but this element alone will fall short of providing any lasting value. Instead, companies should focus on the oft-neglected “innovation ability”—the ability of a new concept to create value via a new service system, enhanced customer experiences, or improved business models.

Crowdsourcing with a specific mission and clear goals often provides far more value-driven ideas than big-budget initiatives and brings lasting, profitable innovation. Above all, a coherent strategy is the key to finding the most beneficial, actionable insights, not monetary investment.

Tesla consistently ranks high on innovation despite spending $700 million—far less than other top companies—on R&D due to the strategic use of its budget. Additionally, to best utilize crowdsourcing, organizations must be transparent on what types of innovation they want, whether it be cost reduction, improving old products, creating new products, or speeding up development.

In Conclusion...

Crowdsourcing holds countless possibilities for innovation that can change the world, having already facilitated the discovery of 7 new drugs that could fight childhood neuroblastoma. Procter & Gamble (P&G) was able to triple its innovation success rate via CEO A.G. Lafley’s use of crowdsourcing, whereas other CEOs before him failed by relying on increased R&D budgets.

Polaris Industries, an American ATV manufacturer, switched from traditional top-down methods of innovation to crowdsourcing to compete with industry titan Harley-Davidson. After utilizing the power of the crowd, Polaris discovered and executed ideas in 80% less time than when using traditional R&D and produced multiple bestselling vehicles.

Firms can now crowd engineer from a global community and find solutions faster than ever before, producing high-quality work with minimal R&D budgets. With concrete planning, strategic adherence to developmental goals, and a little open-mindedness, crowdsourcing can prove to be a powerful tool for any company, of any size, to attract fresh talent and drive innovation.

What are your thoughts on the potential of crowdsourcing as an alternative to R&D spending?

Have you participated in a unique challenge that you’d like to share with us?

Let us know in the comments below!

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