Return on Innovation
An assessment of the economic benefits of investing in innovation
Government & NGO | Development processes
Situation
Effective Innovation process for products, processes and business models is essential for companies to compete in a global economy. While many resources are being allocated to innovation initiatives, there are at this point no reliable, generally recognized model for planning innovation investment, or measuring the Return On Innovation. As a result, innovation spending cannot be integrated into the company’s accounts in a way that reflects that it is in fact an investment, rather than simply an R&D cost. FORA, the Division for Research and Analysis under the Danish Ministry of Economic and Business Affairs, asked ReD Associates to develop a model that could measure the value of innovation.
Approach
ReD Associates conducted a series of economic innovation case studies of 40 innovation projects across 5 large and mid sized companies. The projects varied between radical innovations and line extensions, within product, finance, processes and delivery. Each project was measured in terms of how much was invested in different phases and activity types compared to the economic outcome of the project. One of the major challenges was to define the different types of investments and make a precise assessment of the total economic benefit from the project.
Outcome
From this pioneer study, our analysis revealed some two key trends of what leads to innovation return on investment. Firstly there was a clear economic benefit to investing more in the early stages of innovation. Secondly, there is a tendency to over-invest in technology and under-invest in customer/user insights. This has strategic implications both for private companies and the political/administrative system working to create conditions for high value innovation.
Effective Innovation process for products, processes and business models is essential for companies to compete in a global economy. While many resources are being allocated to innovation initiatives, there are at this point no reliable, generally recognized model for planning innovation investment, or measuring the Return On Innovation. As a result, innovation spending cannot be integrated into the company’s accounts in a way that reflects that it is in fact an investment, rather than simply an R&D cost. FORA, the Division for Research and Analysis under the Danish Ministry of Economic and Business Affairs, asked ReD Associates to develop a model that could measure the value of innovation.
Approach
ReD Associates conducted a series of economic innovation case studies of 40 innovation projects across 5 large and mid sized companies. The projects varied between radical innovations and line extensions, within product, finance, processes and delivery. Each project was measured in terms of how much was invested in different phases and activity types compared to the economic outcome of the project. One of the major challenges was to define the different types of investments and make a precise assessment of the total economic benefit from the project.
Outcome
From this pioneer study, our analysis revealed some two key trends of what leads to innovation return on investment. Firstly there was a clear economic benefit to investing more in the early stages of innovation. Secondly, there is a tendency to over-invest in technology and under-invest in customer/user insights. This has strategic implications both for private companies and the political/administrative system working to create conditions for high value innovation.
