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Innovation doesn't always apply to product development. It can affect how process improvements occur throughout a firm's production of its goods and services. In the 2018 report from the Drucker Institute's Top 250 firm rankings, many of the top "innovative" firms are not tech-based. Companies such as Coca-Cola, Dow Chemical, and Walmart top the list because they are developing creative new business models to stimulate innovation processes.
A lot of these improvements result in firm adaptations to the digital age, but are not specifically product-based. For example, Capital One is experimenting with new adoptions of cloud technology and team collaboration processes, while Proctor and Gamble is doing more of the same with the cloud and process workflow enhancements. From bots and digital robots to new uses for artificial intelligence, our current era of process innovation is creating corporate environments where streamlined, hyper-productive workforces are cutting through terabytes worth of data faster than ever.
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A recent article in Business Insider provided a snapshot and brief analysis on Apple's R&D spending. According to the article, Apple's quarterly spending on R&D continues to trend upward and has been since 2Q11. Moreover, Apple's yearly R&D spending has been climbing, at least since 2013. This spending indicates Apple's unwavering commitment to innovation even during periods of relatively lackluster revenue gains, as seen in 2016. This article led me to consider two critical issues within the space of innovation economics. First, does Apple's spending further confirm the Schumpeterian notion that larger firms have an innovation advantage?
Since Schumpeter's 1942 classic treatise Capitalism, Socialism, and Democracy, there have been dozens of academic writings on the relationship between firm size and innovative capacity. While most scholars agree on the positive relationship, it is also clear that deep caveats exist. Whether or not a firm is innovative or inventive has a lot to do with size, but also the industry to which the firm belongs, the firm's degree of productivity, and overall R&D "intensity" (a measure of R&D as a percent of spending or sales). Moreover, the measurement used within these studies matters as well (fixed vs. random effects, etc.). One thing is evident though, tech companies these days are investing an increasingly higher amount of dollars into R&D irrespective of downturns in their overall revenues. The second critical issue I consider is whether or not R&D spending directly correlates with innovation. It may seem obvious that for a firm to ponder, produce, and perfect technological innovations, they must invest R&D dollars. However, to what degree does investment stimulate innovative thinking and what about the quality of that thinking? As reflected upon in the article, Steve Jobs pushed back against the consensus opinion that R&D dollars spent clearly leads to innovation. It is a matter of perspective. If a firm wishes to see R&D investment through to commercialization, the correlation will be very clear. But, can zero R&D dollars spent still result in creative, inventive, and innovative thinking? The answer is unequivocally yes. |
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