R&D investments bring improvements in business productivity, but to achieve dramatic improvements in financial performance also requires a culture with an appetite for risk: concludes a report Chasing Apple’s Shadow co-authored by Bob Wasson, Senior Consultant at nu-Angle.
Dr Wasson
Wasson says: “Firms must constantly upgrade their technology to maintain their competitiveness, making effective R&D activity a crucial key success factor.
“However, investing in evolutionary technology R&D will not necessarily lead to significantly improved financial performance. Managers should be careful not to create investor expectations that R&D investment can provide quick benefits to financial results.
He explains that disruptive technologies have potential for dramatic improvements in profitability, but these come with higher risks.
The report “Chasing Apple’s shadow – the risk-taking culture required for innovation” describes how although tech company CEOs regularly tout innovation as a critical factor in improved financial performance and competitive position, with reference to industry leaders like Apple, Facebook, Intel, Qualcomm, Google, and Microsoft, most companies, will fail to make significant improvements in performance because of confusion between evolutionary improvements and disruptive behavior.
The study from Strategic Competitor Intelligence service (SCI) at Strategy Analytics in conjunction with nu-Angle explored the relationships between R&D, innovation, and financial performance in the high tech, digital products and services sector.
Co-author Harvey Cohen, President of Strategy Analytics comments: “Most high tech companies rely on their R&D efforts to yield evolutionary, incremental improvements in value propositions.
“While important to maintaining current profitability, with Net Margins in the 5% to 9% for typical high tech manufacturers, attempting to improve performance through R&D alone against the performance of Intellectual Property-rich firms like Apple with a Net Margin of 23%, without examining the risk-taking culture of these firms leads to erroneous conclusions and misaligned strategies”.
Richard Guppy, Director of SCI adds: “SCI focuses on the impact of disruption as a factor potentially leading to extraordinary returns in high tech as a result of innovation in business models, technology, distribution, or ecosystems.”