Which Dimensions of Innovation Management “Maturity” Lead to Superior ROA?

By Michelle Grainger

If a company invests in innovation, will they—the financial returns, that is—come?

That’s the question on every CEO’s mind. It was also on the mind of Michael Stanko and Jonathan Bohlmann, professors at the N.C. State University Poole College of Management who often collaborate with CIMS. The two spent the last year analyzing comparative performance data collected by the Product Development and Management Association which was linked to secondary financial data.

The two researchers used the unique, CIMS-developed Innovation Management Maturity Assessment—know in CIMS circles as the “cube”—to help them determine why some companies saw good returns while others did not. The cube was designed around current understanding of the specific skills and disciplines that need to be mastered in order to generate breakthrough results in business performance.

It measures a company’s innovation maturity at the firm, industry and macro-environment levels, assessing five competencies—idea management, market management, portfolio management, platform management and project management—over five dimensions. These dimensions are strategy, organization and culture, process, techniques and tools and metrics.

Drs. Stanko and Bohlmann had two research goals: To establish associations between innovation practices and financial returns over time, and to identify differences in performance implications between the various dimensions of the IMMA. In doing their research, they used financial data for each company as reported by the Compustat database from 2003-2008. Return on assets (ROA) was used as the measure of financial payoff, while the level of R&D expenditures reflected the investment in innovation.

Here’s what Drs. Stanko and Bohlmann shared with those attending CIMS’ recent fall meeting.

Being mature (that is, having a structured, repeatable approach) on these dimensions leads to superior ROA:

Processes: A structured process for R&D is the strongest driver of five-year ROA.

Idea Management: Formal mechanisms for managing the generation and assessment of ideas will pay off financially.

Metrics: The use of key performance indicators gauging outcomes from innovation projects improves company performance.

Platform Management: Product architecture and platforms that allow for modularity and reuse of components across multiple products contributes to future ROA.

While being mature on these dimensions tends to be associated with lowered R&D costs in the next five years:

Tools and Techniques: Technology tools that support communication, collaboration and decision making lead to future cost reductions.

Strategy: Having a well-defined product strategy that dictates resource allocation, diversification and prioritization allows companies to be more efficient.

Check back soon for more updates on news and research presented at the CIMS Fall 2013 meeting.

 

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