Buying Innovation

How much money does it take to be truly innovative?  It depends on who you ask.

If you were to ask pharmaceutical companies, most of whom spend at least 10% of their total revenue on R&D, the figures would be huge.  In fact, Pfizer, the largest pharmaceutical company in the world say that $8 billion dollars per year isn't unreasonable.  Then again, perhaps it is.  In a recent survey of 600 different top executives, Booz & Co. discovered none of the pharmaceutical companies even made it into the top ten most innovative firms, despite their gargantuan R&D budgets.  In fact, the top five companies that were ranked most innovative only included one with a research budget which broke into the top ten. That firm was Microsoft, which ranked number five on the list.  The other top-rated firms were General Electric at the fourth position, 3M at number three, Google coming in second, and Apple leading the pack at number one.  Strangely enough, the top four all had R&D budgets which were lower than the 30th position.

What does this mean for big pharma then?  A staunch possibility is that perhaps money is not always the path to innovation.  Companies like Apple, Google, 3M, and GE foster world changing initiatives while spending budgets which may seem insignificant to pharmaceutical conglomerations which can afford 8 billion dollar expenditures on product development.  The top ranked innovators do more than spend money, they encourage creativity.  They innovate not just in scientific advancement, although that still is a factor, but in their management structure and the whole of their company.  They try new things, take risks, and allow for freedoms that pharmaceutical companies have trouble dreaming of.  The same strategies taken by highly innovative technological institutions cannot always be taken by pharmaceutical companies, however.

Pharmaceutical companies have one responsibility that the top ranked innovators in the Booze & Co. survey don't often need to consider - safety.  The products that companies like Pfizer create cannot be experimented upon by employees who want to create side projects and then tested with minimal risk.  In fact, minimal risk is almost entirely impossible in the pharmaceutical market without large expenditure.  So maybe it isn't so bad for drug manufacturing entities to spend more than other organizations to keep their employees and consumers safe.  Why should it matter to us as consumers if corporate executives rank big pharmaceutical firms, whose leaps in creativity may be small chemical compounds or any other scientific reach which doesn't truly reach the pubic, as less innovative than companies like Apple and Google which have a public persona and whose products touch the lives of everyone they come into contact with.  Just because the innovations in the pharmaceutical industry aren't always publicized as much as the new iPad does not mean that Apple is more innovative as a corporation, no matter what a list of CEOs says.

So how much money does it take to be truly innovative?  Maybe it doesn't depend on who you ask.  Maybe it depends on how public your innovations are.  Maybe it simply depends on who you're responsible for.

-Spencer Swan

Information for the article was gathered from:

http://online.wsj.com/article/SB10001424052970203752604576645401657833270.html?KEYWORDS=innovation

http://www.actupny.org/reports/drugcosts.html#chart_one