Finding the sweet spot for allocating innovation resources

A survey finds that when it comes to reallocating R&D expenditures, more isn’t necessarily better.

Mounting evidence finds that the habit of allocating the same levels of resources to the same business units year after year undermines corporate performance—and even lowers the odds of a lengthy tenure for CEOs. Put another way, in a fast-changing competitive environment, companies that succumb to resource inertia will probably struggle to meet their strategic goals.

New McKinsey research paints a complementary, though more nuanced, picture for reallocating innovation and R&D resources. Our survey of senior executives at companies with revenues of more than $1 billion showed that the average level of annual R&D reallocation is relatively consistent—12.7 to 13.7 percent—regardless of a company’s innovation performance (see sidebar, “About the survey”). Parsing the data in a finer way to highlight the distribution of reallocation behavior further emphasizes the fact that when it comes to reallocating R&D expenditures, the message is subtler than “more is better.”

Further reading: https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-insights/finding-the-sweet-spot-for-allocating-innovation-resources