Is R&D spending a good indicator of Innovation?

To understand that we first need to define what Innovation means. Innovation is a defined as new way if doing something. There are interesting ways of measuring this and one can get more information from the Oslo Manual, Frascati Manual, Patent Manual, and so on.

So now let’s try answering the above question on whether measurement of R&D spending is a good indicator of Innovation.

No maybe not. Let’s look at some examples all research does not fructify to useful innovation as in the case of Pharmaceutical research. Similarly all development expenses do not lead to innovation either, this cannot be more true than looking at the auto industry...Interestingly the R&D spend for 2007 by 1000 top companies (in terms of revenues) is 3.6% of their sales decreasing moderately from last year. Interesting pattern to observe here is that Software/Internet/Computing & electronics, Pharmaceuticals and Auto are the top R&D spenders. Software and Internet industry has been spending 13.7% of their sales on R&D and are on top of the table even before healthcare...isn’t it surprising....how much of their innovations are we seeing that is making difference to the lives of millions of ppl out there...contrast this with pharmaceuticals....interesting parody!

I'm dying to get the "Grabbing Lightning" book about innovation where the authors’ state: “We found no relationship between R&D expenditures as a percentage of sales and innovativeness,” . They reached this conclusion after reading the same article that I read :-)....( “Beyond Borders: The Global Innovation 1000,” by Barry Jaruzelski and Kevin Dehoff, s+b, Winter 2008.)


It is altogether interesting topic to discuss whether innovation has contributed to profitability and sustenance of a firm in industry more than anything else? I'm not too sure if I'd look at Auto companies in the US....