Why the Top 25% of Product Innovators Outperform the Bottom 25% by 12 Times

Why the Top 25% of Product Innovators Outperform the Bottom 25% by 12 Times

Why CEOs Should Focus on Innovation as a Discipline

Kevin Fallon / Thursday, May 5, 2016 / Strategy Management

According to the Product Development and Management Association[1] (PDMA), between the 1990s and 2010, the top 25% of product innovators outperformed the bottom 25% by 12 times. This trend continues today with revenue from new products down 15%.

For every $1.00 spent on R&D, on average, a top innovator delivers $39.00 in new revenue compared to $3.30 from the bottom 25%, and the overall return rate remains low.

Two drivers compound the trend of declining return. The nature of innovation is becoming more complex and the time allotted to accomplish results is diminishing.

Why is there a gap of 12 times? Top innovators have figured out the dynamic nature of innovation and have cracked the code on managing innovation performance. Is more idea generation the answer? No, the answer is a lot more complex than that and lies in being able to drive innovative value creation faster. To achieve this, one must understand the nature of the process of innovation.

A majority of companies continue to utilize project management methods to manage innovation, and this needs to change.

Can you imagine using project management methods to run your sales strategy? Of course not. You have a process model and system to support the flow of value creation from the sales function. How about operations? Unless you are a construction firm or some other type of project oriented firm, you would never use project management methods. Instead, you model the flow of value creation from operations and support it with a system.

Manufacturers figured out how to accelerate the flow of value when challenged with high inventory and waste in their value creation process. They developed lean practices to collapse manufacturing and supply chain cycles and eliminate waste.

Software companies faced the same challenge and conquered it by replacing the project type waterfall method for development with agile processes to accelerate the flow of value creation. Is it time for innovation to follow suit and transform to a non-project paradigm? I believe so. This brings us to the top 25%, 12 times gap and how to reduce it.

Model innovation like top innovators do, from a set of value creation principles:

  1. They think customer environment first. Their strategic thrusts focus on customer value creation.
  2. They make strategic planning innovative by creating massively transformative strategic thrusts.
  3. They manage innovation as a discipline. In other words, they run it just like sales or operations. They expect consistent innovation performance and they achieve it.

Implementing a strong innovation discipline in your company will increase your corporate value and solidify your organization as a top innovator.

Do you agree? Let us know what model you use to drive innovation in your organization.

Looking for a way to spark innovation in your business? Start today with Pivotal Innovation!

[1] Winning at New Products: Creating Value through Innovation by Robert G. Cooper

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