Setting a budget for innovation is not always an easy task. This budget should be aligned with the income and growth of your company. Furthermore, not all sectors are equal, so their budgets for corporate innovation are not the same either. In today's article we talk about how much should be invested in innovation, and we make a comparison between different sectors.
Align innovation goals with company revenue
Each company and each sector has its own particularities. True — any innovation process requires a certain investment: whether it’s human, technological or financial resources, you will have to plant a small seed if you want to innovate. On the bright side, those innovation processes are always productive — whatever results they bear, they will always be of some use to your company. Even if you don't see a tree grow immediately, it is likely that the learning process will be useful for future projects or that you can apply it to other scenarios that you had not considered.
In addition, there are as many types of innovation as you can imagine. Therefore, you can adapt your innovation projects to your type of company, its size, its sector and also its budgets and objectives.
This is one of the most crucial matters: aligning your innovation projects with the objectives of your company. Obviously, founding an innovation department with the aim of changing the company culture is not the same as thinking about finding a new business because your industry is threatened. This is why it’s important to have a clear roadmap for innovation, including key performance indicators (KPIs).
How to measure innovation in order to align it with the company's objectives?
In order to correctly define the budget for your innovation projects, you must be able to make them tangible and measure them as much as possible. Establishing innovation key performance indicators (KPIs) is not that obvious, but preventing innovation from being an abstract entity is key when measuring the results of your projects and also establishing a budget.
These are some of the KPIs that you can use for your innovation projects:
- Income KPIs: for example, the percentage of income from new businesses compared to the primary ones, the return on investment of innovation projects, cost savings resulting from innovation projects, etc.
- Cultural KPIs: for example, the degree of employee satisfaction regarding innovation projects, the degree of staff involvement in innovation or the impact of employee training.
- Progress KPIs: for example, the number of prototypes or MVPs launched or the number of innovation projects executed.
How much is invested in innovation in different sectors?
Having a benchmark can be a good first step before establishing your investment in innovation. A recent study conducted by IBM shows the cost of investing in research and development projects as a percentage of revenue, broken down by industry.
This study gives us an idea of what companies in all sectors spend on innovation on average and which of them put more effort into innovation:
- All respondents: 1.9%
- Manufacturing - All: 3.0%
- Manufacturing - Aerospace: 5.2%
- Manufacturing - Automotive: 3.4%
- Manufacturing - Chemicals: 2.2%
- Manufacturing - Electronics: 3.5%
- Manufacturing - Food, Beverage, Tobacco: 1.3%
- Manufacturing - Medical devices: 5.0%
- Retail: 0.4%
- Telecommunications: 1.5%
- Transportation and warehousing: 1.4%
- Financial services, insurance, and investment: 0.5%
- Retail banking: 0.4%
As you can see, each sector shows different percentages and the same thing happens depending on the type of company, especially its size and income level.
If you don't know where to start and you also want to innovate and start launching new businesses, contact the Corporate Lab team. We are a venture studio specialized in helping large corporations find new business models.