In the newspaper Expansión on Saturday, December 27, an interesting article by Mr. Jordi Canals, general director of IESE, was published, referring to the fact that the success of Spanish companies that have become international references such as BBVA, Inditex, Indra, Mango, Santander or Telefónica, among others, has not been due to greater investment in technology or the allocation of additional resources to research. Mr. Canals goes on to explain that the basis for the success of these companies has its origin in an innovative business model. Although Mr. Canals's article does not go into the origins of his statement, as it goes along the same lines as an article written by me on this same blog a few weeks ago (see “I+D vs. Innovation”), I wanted to delve into the data that prove this hypothesis in a broader context than the Spanish one. To refute the hypothesis that the companies that invest the most in “R&D” are the most successful and innovative, I have resorted to an article published very recently in the magazine “strategy+business” (No. 53). This article lists the 20 global companies that invested the most in R&D during 2007. Interestingly, the first thing I noticed is that only 7 of these companies are also among the top 30 on the list of most innovative companies drawn up by Business Week among Senior Managers from all over the world. But the most interesting thing is the analysis of the performance of the companies on both lists over the past few years. The average of the most innovative companies, according to Business Week, which were already listed on the stock exchange in 1987, performed 3.55 times better than the S&P500 index, compared to 3.13 times the average of the companies that invest the most in R&D. However, as we limit the study to the last 10 or 5 years, the data becomes more drastic. Between 1997 and 2007, the most innovative companies evolved 10.56 times above the S&P500 while those that invest the most in R&D did just 1.63 times better! And between 2002 and 2007, the most innovative ones evolved 3.13 times better than the S&P500, while those that invest the most in R&D barely managed to emulate the S&P500... This reveals three key issues that companies and government officials should analyze very deeply due to the profound implications it has for companies and countries' economies:
- The more investment in R&D, over long periods of time, companies perform clearly better than the market average.
- However, the mere fact of investing in R&D does not necessarily make companies more innovative. You can innovate without necessarily investing large sums in R&D.
- When the focus changes and investment is invested in Innovation, the results are much more powerful than those achieved from mere investment in R&D.
