You Cannot Buy Innovation

Horace Dediu, Dirk Schmidt:

Finally, we should look at the payoff from R&D spending over the last five years. R&D growth should result in margin improvement, but does it?

Of our sample, only three companies have achieved sales growth AND simultaneous margin improvement over the last five years. But while Microsoft and Dell have achieved sales growth and margin improvement slightly above zero, Apple has improved its bottom line by 13 percentage points and its top line by an average rate of 45%.

The types of innovation are different. Apple’s focus is on developing an efficient supply chain for the long term, and manufacturing processes that allow continued refinements toward design simplicity, like the sleep indicator on the MacBook Pro.