Executive Briefings

Does Pumping Up R&D Lead to Growth and Profits? Not Necessarily.

Manufacturers say they need to innovate to grow. But in the past 10 years, manufacturing growth, by innovation or other means, has been more wish than reality. This isn't a generalization. Deloitte studied more than 400 chemical and industrial product manufacturers. Subsequent data analysis returned surprising insights, especially about research and development.

The traditional path to innovation-internal R&D efforts-is not likely to turn things around. Studies show that increasing R&D spending rarely boosts revenue growth, profitability or shareholder return in chemical and industrial products companies. For instance, the Cooper and Kleinschmidt benchmarking study, which included 161 businesses representing a broad range of industrial products, showed no correlation between R&D spending and profitability.

Also, the traditional R&D model often results in lengthy time-to-profitability, high development costs, and too few commercially viable ideas generated.

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Manufacturers say they need to innovate to grow. But in the past 10 years, manufacturing growth, by innovation or other means, has been more wish than reality. This isn't a generalization. Deloitte studied more than 400 chemical and industrial product manufacturers. Subsequent data analysis returned surprising insights, especially about research and development.

The traditional path to innovation-internal R&D efforts-is not likely to turn things around. Studies show that increasing R&D spending rarely boosts revenue growth, profitability or shareholder return in chemical and industrial products companies. For instance, the Cooper and Kleinschmidt benchmarking study, which included 161 businesses representing a broad range of industrial products, showed no correlation between R&D spending and profitability.

Also, the traditional R&D model often results in lengthy time-to-profitability, high development costs, and too few commercially viable ideas generated.

Read Full Article