The United States is now
forced to compete on a global scale where new products and services will make a
significant determination of long-term sustainable growth. Some business
leaders have raised concerns that the United States is losing its competitive
edge due to declining research and development investments when compared to
other nations (Hall, 1993). Market leadership is seen as requiring higher
levels of innovative engagement in order to continue to create strong
international market presence.
Customers can raise the
market value of an organization based upon a perception of organizations value.
Innovative orientated firms are often seen as having superior quality products
and this drives up demand for newer innovative products (John et. Al, 1999).
The public good will from providing new customer solutions cannot be
underestimated in the perception of customer value and is often rewarded with
additional sales.
In addition, having an
innovative reputation also improves innovation alliances with other
organizations. Such reputation of organizations for regularly streams of new
products and services increases the amount of cost saving alliances (Dollinger
et al. 1997). It is through the sharing of knowledge and competencies that
organizations can hedge their weaknesses and build upon their strengths through
multi-firm collaboration.
Prior mistakes in
evaluating the value of innovation have caused frequent undervaluation of
financial benefits. Researchers have made computing errors by focusing on
isolated events in an innovation project versus the entire project (Hall,
2009). Through evaluating the longitudinal and total benefit of an entire
innovative project can leaders find higher levels of value to take on new
projects.
Ashiah Sood from Emery
University and Gerard Tellis from the University of Southern California studied
the stock returns on innovative products and the creation of organizational
wealth. The study helps highlight how evaluating the total innovative project
shows higher levels of market returns 13 times that of individual innovative
events. The study comes to a number of conclusions about innovative projects,
innovation announcements, and total stock value returns.
The researchers looked at 5,481 announcements from 69 firms in five markets and 19 technologies
between 1977 and 2006. Each company was listed on the stock exchange
and had significant available data. The purpose of the research was an attempt
to determine if new innovations in technology were rewarded in stock price on
the market (Sood & Tellis,2009).
Results:
-Markets responded quickly
and sufficiently to announcements about innovation through all stages of the
project (initiation, development, and commercialization). When firms announced
the new products, investments in those products, and expansion of facilities
they made more than the costs associated with the innovations.
-Additional and multiple
announcements on the same innovative finding didn’t necessarily impact the
increase or decrease of market returns. Markets were considered efficient in
terms of announcements and didn’t reward additional announcements on the same
innovation.
-Innovation announcements
should be accurate and appropriate. There was a positive market response from
positive market announcements but a significantly negative reaction to over
sensational or exaggerated announcements.
-Returns were highest for
developmental projects versus start-up projects. The reason is most likely
associated with the significant investments required for new projects.
-Small firms gained much
more from innovation announcements due to their relative novelty in the market.
Larger firms are much more researched and investors are often aware and less
surprised by new announcements.
Dollinger, M., Golden, P.
& Saxton, T.(1997). The effect of reputation on the decision to joint
venture. Strategic Management J. 18(2)
127–140.
Hall, B. H. 2009. The
financing of innovation. S. Shane, ed. The
Blackwell Handbook of Technology and Innovation Management. Blackwell
Publishers, Oxford, UK. Forthcoming.
Hall, B. (1993). The stock
market’s valuation of R&D investment during the 1980’s. Amer. Econom. Rev. 83(2), 259–264.
John, G., Weiss, A. &
Dutta. S. (1999). Marketing in technology intensive markets: Toward a
conceptual framework. J. Marketing
63(Special Issue), 78–91.
Sood, A. & Tellis, G.
(2009). Do Innovations Really Pay Off? Total Stock Market Returns to Innovation.
Marketing Science, 28
(3).
