New York: Corporate R&D spending rebounded in 2010, according to Booz & Company's Global Innovation 1000 Study
- Companies with corporate cultures that support innovation strategies have superior financial performance, survey data reveals
- For first time, Facebook is named in top 10 of world's most innovative companies
Total R&D investment among the world's top spenders on innovation surged upward in 2010 from its recession-induced decline in 2009, according to the 2011 Global Innovation 1000, the seventh annual study of corporate innovation spending by Booz & Company.
The study revealed that the 1,000 public companies that spent the most on research and development in 2010 increased total R&D outlay by 9.3 percent to $550 billion, rebounding from 2009's 3.5 percent decline -- marking a return to the long-term growth trajectory for innovation spending.
2010's increase in R&D did not keep pace with the 15 percent spike in revenue among Global Innovation 1000 companies, resulting in a slight decline in R&D intensity, or R&D spending as a percentage of revenue -- from 3.76 percent in 2009 to 3.52 percent in 2010. However, this was a natural balancing out of the long term trend given that in 2009 most companies did not cut innovation dollars nearly as deeply as their double digit decline in sales might have indicated.
"Clearly, 2010's R&D increases confirm a continued commitment to invest in new and improved products and services in ever-more competitive markets around the world. However, much of the R&D growth represents catch-up rather than higher levels of new investment," said Barry Jaruzelski, Partner at Booz & Company.
Booz & Company analyzed the 1,000 public companies that spent the most on research and development in 2010 in what continues to be the most comprehensive effort to assess the link between innovation and corporate performance. The study uncovers insights into how organizations can get the best return on their innovation investment. New to this year's study is an in-depth examination of the role of corporate culture on innovation effectiveness and financial performance, based on a separate survey of nearly 600 innovation leaders in companies around the world.
Among the 2010 Global Innovation 1000 study's key findings:
- Fully 68 percent of all companies Booz & Company tracked raised R&D spending in 2010, and three industries accounted for more than three-quarters (77%), or $36.1 billion, of the total $46.8 billion increase: Computing and electronics, health and automotive. Industries experiencing the greatest percentage increase in R&D spending were software and internet(11%), health (9.1%) and industrials (8.5%).
- Globally, every region increased innovation spending in 2010, a significant turnaround compared to the previous year when the three regions making up the lion's share -- North America, Europe and Japan -- all cut back. India- and China-based firms again increased their total R&D outlays at a far higher rate than those in the three largest regions:
The top 20 global spenders averaged 10 percent R&D growth, representing $142 billion in R&D on sales of $1.6 trillion. This exceeded the 9.3 percent increase for all Global Innovation 1000 companies. Roche Holding AG led the global pack for the second year in a row, with an R&D outlay of $9.6 billion of its $45.7 billion in revenues on innovation -- an R&D intensity rate of more than 21 percent. Toyota Motor, the top R&D spender for several years prior to the recession, fell from fourth to sixth place with a spending increase of under 1 percent.
When it comes to innovation, spending doesn't correlate with success. As part of its web-based survey of nearly 600 innovation executives from over 400 leading companies in every major industry sector, Booz & Company asked innovation leaders to name the companies they considered to be the most innovative in the world. For the second year in a row, Apple led the top 10, followed by Google and 3M. This year, Facebook was named one of the world's most innovative companies, entering the list at number 10. In a comparison of the firms voted the 10 most innovative versus the top 10 global R&D spenders, Booz & Company found that the most innovative firms outperformed the top 10 R&D spenders across three key financial metrics over a 5-year period -- revenue growth, EBITDA as a percentage of revenue and market cap growth -- consistent with last year's findings. Just three of this year's top 10 spenders also ranked among the top 10 innovators: Microsoft, Samsung and Toyota Motor.
Corporate Culture has Measurable Impact on Innovation Success
For the first time, this year's Global Innovation 1000 provided a deeper look into the impact on the intangible factor of corporate culture on companies' ability to innovate successfully through the survey of innovation leaders.
The key finding: culture is key to innovation success, and its impact on performance is measurable. Specifically, the 44 percent of companies who reported that their innovation strategies are clearly aligned with their business goals -- and that their cultures strongly support those innovation goals -- delivered 33 percent higher enterprise value growth and 17 percent higher profit growth on five-year measures than those lacking such tight alignment.
In analyzing the three distinct innovation strategies identified by Booz & Company for creating and taking products to market -- Need Seekers, Market Readers and Technology Drivers -- the study demonstrated that one strategy stood out -- Need Seekers -- for facilitating the strongest alignment of innovation and business strategies with culture, and achieving superior financial performance over time.
"You can succeed with any of the 3 strategies. For example, Google is a Tech Driver and Samsung is a Market Reader and both are winning in their markets. If you align your innovation strategy and culture to your business model, build the right capabilities, and execute, you can prevail no matter which strategy you follow," according to John Loehr, a Partner at Booz & Company.
A full copy of the Booz & Company 2010 Global Innovation 1000 study is avilable here.