How do we differentiate Innovation and R&D?

Innovation and R&D have always gone hand in hand. However, it seems like only a few people actually know how these two are related. Companies often talk about innovation as a consequence of R&D, but it is possible for the two to exist as mutually exclusive entities. Before we look at these in more detail we must first understand exactly what they are.

Let’s use the Cambridge dictionary as a start point:

• R&D: The part of a business that tries to find ways to improve existing products, and to develop new ones.
• Innovation: (The use of) a new idea or method.

These definitions suggest that innovation is a broader concept, applicable to a variety of fields whereas R&D has a more specific focus on a single area of the business. Although this seems obvious, it is important to be on the same page when defining these words as it will help our understanding of how the concepts work together.

The word “innovation” was first used in the 16th century, yet the act of innovating goes back some 3 million years to the invention of stone tools in the paleolithic. Fast forward to the present and we find ourselves surrounded by the products of countless years of innovation. From the buildings that we live in to the shoes on our feet, innovation is the sculptor of the world that we live in.

On the other hand R&D was defined in the 1950s by the National Science Foundation of the United states, and was quickly picked up by intergovernmental bodies such as the Organisation for Economic Cooperation and Development (OECD) in the 1960s. Historically it seems as though R&D is a mechanism by which companies undergo innovative activities. In other words, R&D has been the enabler for enterprises to drive innovation. This implies all activities within the R&D department are focussed on generating new ideas or methods that create new products or improve elements of existing ones. Assuming this is true, companies should be able to become more innovative by increasing expenditure on R&D.

According to Strategyzer this proportional relationship might not always be the case. The figure shows a lack of strong correlation between innovation rank and expenditure on R&D on some well known global enterprises. This agrees with what had already been suggested by Steve Jobs in 1998 — “innovation has nothing to do with how many R&D dollars you have”.

Stefan Lindegaard sheds some light on this topic in his article “What is the Difference Between R&D and Innovation?”. To understand how companies really define R&D and innovation, Stefan uses DSM’s approach -“R&D turns money into knowledge and innovation is the process of creating money out of this knowledge.” Like DSM, most companies follow the same approach, looking at R&D as an early-stage component of innovation.

“R&D turns money into knowledge and innovation is the process of creating money out this knowledge.”

DSM’s approach could be the key to understanding the lack of correlation between R&D expenditure and innovation. Despite it being widely known and used in business, it is clear that enterprises do not share the same view. This may explain why the R&D activities of some firms do not help position them as top innovative companies.

Like most things in life, there is no right or wrong answer. Other factors may influence a company’s results when it comes to R&D and innovation. In a rapidly evolving world where disruption can happen overnight, innovation should become a priority for all companies. Being able to innovate is key for staying ahead of the competition and tolerating disruption. For this reason, companies must define what their innovation strategy is and focus their R&D efforts on realising the value of new ideas.

As mentioned, every company has a different view on how these two should be managed together. Along the “Unlocking the Trapped Value of Supplier Innovation” research project, I want to understand this topics in more detail. This is why I hope to discuss this topic with experts and leaders in the space. Please feel free to comment and share any of your thoughts.