The United States Needs More Innovation

by Jeffrey Phillips

The United States Needs More InnovationI’ve just come across the National Science Foundation’s (NSF) survey from 2008 on Business R&D and Innovation. This was a study conducted by the NSF across a wide swath of US firms of all sizes and industries. The results should scare you. I’m surprised they haven’t been front page news.

The results suggest that about 1 in 5 manufacturers indicate they produced a significant new product innovation in the period 2006-2008 and about the same percentage produced a significant new process innovation in the same period. One manufacturer in five thinks they created a significantly new product or process over a two year period. Wow. But it gets worse.

The results suggest that 1 in 12 non-manufacturing firms indicate they produced a significant new product innovation in 2006-2008, and the same number suggest they created a new process innovation in the same period. We’ve suspected for a while that service firms weren’t keeping up with manufacturing firms in terms of their investment in innovation. Now we have some reasonably detailed evidence.

The reason this is even more alarming is that manufacturing firms make up only 8% of the firms in the survey. That means that the vast majority of firms (the 78% of manufacturing firms and the 92% of non-manufacturing firms) weren’t innovating during 2006-2008. The lack of innovation during that period should be especially evident now, as ideas generated in that period should be coming on the market as new products and service. Given that close to 80% of the firms (92% of the firms are non-manufacturers and 92% of them aren’t innovating) are not claiming to innovate at all, we have a significant hole in our innovation efforts in the US.

And these statistics come from a period before the financial meltdown, during the final years of the Bush administration. We can’t claim that the financial meltdown caused this lack of innovation, because these numbers reflect a time prior to that economic slowdown.

The survey also finds that firms with R&D investments claim to generate more innovation. This is like the newspaper reporting that weather in Hawaii is nice or that Canadian winters can be quite cold. Any firm with a significant investment in Research and Development had better be able to demonstrate a return – which is usually new products or services. That firms with deep R&D investments generate more product innovation isn’t a surprise. What was slightly surprising was that the focus on product innovation seems to translate to process innovation. Firms with investments in R&D also claimed to be significantly better at process innovation as well, yet most R&D probably isn’t directed at process innovation tasks. Interestingly, the more invested in R&D, the more likely the firm was to claim it was “innovative”. With R&D investments at less than $10M, (which accounted for 90% of those reporting an R&D expenditure) the number claiming new innovative products was 66%. For those very few firms with R&D spending over $100M, those claiming new innovative products was 81%. What on earth were the 19% of firms spending more than $100M in R&D and NOT delivering new products and services doing?

There are a couple of problems with this survey, which the authors recognize and will correct in the future. The first is that there is no clear definition of a significantly new product or service. In the future they will ask if the product is new to the company or new to the market. I’d like them to ask: new to the company, new to the market, new to the world, but perhaps we can add that later. This would begin to distinguish between incremental innovation and radical or disruptive innovation. Second, the authors plan to ask about the amount of revenue generated from newer products over the core or legacy products. This kind of measurement is the same as 3M uses – what’s the percentage of revenue driven by products introduced in the last X years?

I can’t wrap my brain around this – a scientific study conducted by the Federal Government that suggest that over 80% of the firms in the US didn’t create a significantly new product or process innovation in 2006 through 2008, and there’s almost no outrage or astonishment? During a period BEFORE the economic meltdown and recession, which is likely to make these numbers worse? These numbers are very serious, and indicate a real reduction in investment in innovation – regardless of the R&D investments. If our economy is to compete, in the US and globally, we need much more focus on innovation.

During the 2006-2008 period, according to the survey, only 8% of health care firms released new innovative products or services. This in a period when it was evident that the Democrats were going to take office and radically change health care. Rather than taking a proactive stance and working up ideas, the industry sat back and dug in its heels. Now it is in a purely reactive mode and will be for quite some time.

The missed opportunities are almost too numerous to mention. The lack of innovation is glaring, and the need for innovation at all levels and in all regions is stark. Where is the attention? Where is the outrage? Where are the investors, demanding their executive teams do more to generate new products and services?

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Jeffrey PhillipsJeffrey Phillips is a senior leader at OVO Innovation. OVO works with large distributed organizations to build innovation teams, processes and capabilities. Jeffrey is the author of “Make us more Innovative”, and innovateonpurpose.blogspot.com.

No comments

  1. Well, the public hasn’t missed much.

    For starters, this survey raises more questions than it answers. The number of respondents is impressive, but without clarity about what the respondents consider a significant innovation, the results are vague. Furthermore there is no data on the added value of the innovations, or the reasons the company considers it an innovation.

    Secondly there is the composition of respondents. All sort of firms are included, starting from firms with at least 5 employees. That immediately raised three obvious questions.

    First: Where are the small high tech start up firms? It is very odd that entrepreneurial activity from university spin-offs is excluded in a survey that attempts to measure the innovativeness of a nation. This is just silly.

    What is the influence of the size and type of firm on the perspective of the definition of significant innovation? The survey includes grocery stores as well as high tech manufacturing companies. Large companies like to describe themselves as innovative. With no questions going into detail about the significance of the innovation, and no questions to cross-check the answers to those questions, they are free to interpret significant innovation as they want. And of course they are innovative! Grocery stores on the other hand are less likely to think their improvements as innovation, simply because they do not (care to) recognize it as such.

    The third question is about whether you would want every company to be innovative. You’ll want most multinationals to be, but do you really want every firm in the locally competing market to be innovative? Just an example: What is the competitive benefit of change if everyone is constantly changing?

    btw. The companies spending over 100M on R&D and who are ‘not innovating’ would be firms in the pharmacy sector.

    I’m sorry, but statistics are rather worthless, dangerous even, without a proper interpretation and you’re trying to make strong statements based on preliminary results of a rather incomplete survey.

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