Worldwide R&D spending among the world’s 1000 largest corporate R&D spenders increased 0.04 percent in 2016 to $680 billion.

According to PwC research, most of the world’s major innovators are in the midst of the same transformational journey.

They are moving into a new world in which R&D is shifting more and more to developing the software that enables and enhances the performance of their products, and on developing services they can sell along with the products, which provide customers with additional features and improved usability.

An overwhelming 94 percent of the world’s largest innovators now conduct elements of their R&D programs abroad, according to the 2015 Global Innovation 1000 study.

Companies should consider the specific needs of each phase of the innovation life cycle.

For example, in the idea-generation phase, companies may benefit from setting up smaller, more agile teams where the top talent is located.

For product development, larger centers can take advantage of scale and lean principles.

Companies need to define the geographic markets and the customers within those markets that are central to the company’s growth strategy, and then determine where R&D resources need to reside so the company can best understand and serve those markets.

Different types of companies may have different approaches:

  • For Need Seekers, for example, the key consideration may be locating R&D facilities as close to customers as possible. Need Seekers, whose strategy is to ascertain the needs and desires of consumers by engaging them directly, strive to be the first to market with breakthrough products and services.
  • Market Readers, who tend to watch their customers and competitors closely, create value by incremental change and capitalizing on market trends, using a second-mover strategy to keep risks low.
  • Technology Drivers, who leverage their R&D to propel both breakthrough innovation and incremental change, develop original products and services via new technology.

Strategy& Senior Partner and Global Innovation 1000 study author Barry Jaruzelski discusses the 3 innovation models in terms of proven innovation success.

The authors, Barry Jaruzelski, Kevin Schwartz and Volker Staack advise that to ensure operational excellence, leaders must:

  •  Create clear missions, roles, and lines of authority to align the dispersed R&D sites with the company’s innovation strategy. Here, leadership needs to invest in the digital tools and related processes that have enabled the best companies to manage such areas as resource deployment, project collaboration, project green-lighting, portfolio ownership, strategic and operating metrics, and transparency mechanisms across the network.
  • Develop common standards for talent development and retention. They should also rotate their top talent, to give future R&D leaders a better perspective of the company’s innovation capabilities.
  • Foster a corporate culture that supports the company’s innovation strategy and encourages collaboration. Specifically, aligning the intangibles of culture — such as risk, creativity, and openness — is critical to success.

As companies further develop and optimise their innovation networks, they will continue to make bigger-bet portfolio choices than they have in the past.