Innovation isn’t always tied to R&D dollars spent

Steve Jobs has said that “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least one hundred times more on R&D. It’s not about money. It’s about the people you have, how you’ve led, and how much you get it.”

I would add that it’s also about being sure you’re asking the right questions, solving the right problems.

Daniel Burrus illustrates this with a story about the pharmaceutical company Lilly.

A pharmaceutical company’s share price tends to be tied to promising new drugs in the pipeline. As a result, research is central to Lilly’s model and it retains thousands of PhD researchers to work on the molecular problems involved in bringing breakthrough pharmaceutical products to market.

The challenge: The company faced a dangerous deadline: a key patent would expire in August 2001, ending its exclusive patent protection on Prozac, a drug that was responsible for roughly one-third of annual sales.

A dramatic example of what might be at stake came in August 2000, when the company was stripped by a US court of almost three years of patent protection from generic competition. Lilly’s share price dropped by nearly one-third, erasing more than $36bn in its market capitalisation, in a single day.

In fact, it had already ramped up its research and development budget by 30 per cent in a quest to find the next blockbuster. But this was not enough to hire the additional 1,000 PhD researchers it estimated it would need to recapture the ground lost by declining Prozac revenues.

They came up with a great solution to this problem when they stopped asking themselves “How can we increase our R&D budget?” Lack of funding was not their real problem. Go see what they did.

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