According to Anne Marie Knott’s article, The Trillion-Dollar R&D Fix, R&D Spending alone is not a good indicator of profitability, growth or innovation. R&D spending is merely one of inputs into an organization’s innovation growth engine. Instead she uses a new formula called the RQ, or Research Quotient to determine how much R&D spending improves an organization’s market value. (You can look up any public company’s RQ using this tool.)
The formula is straight-forward: Output = Capitalα * Laborβ * R&Dγ, with the exponents showing the percentage increase in a firm’s revenues resulting from a 1% increase in capital (alpha), labor (beta), or R&D (gamma).
But the article states that organizations need innovation (which is related to R&D) to be successful. But what is innovation? According to the article it is “generating a continuous supply of additional value and delivering it sooner so as to delight customers.”
So how do you create additional value? Build/improve your products, services, and processes
How do you know how to make these improvements? Listen to your customers
What is the best way to listen to your customers? Ask the employees who talk with them
How do you ask your employees? Get them to focus on your organization’s competitive differentiators and ask them how they’d make it better.