Global Innovation 2010: Total R&D
spending among the world’s top spenders on innovation fell in 2009
for the first time in the 13 years studied, according to the 2010
Global Innovation 1000, the sixth annual study of corporate
innovation spending, released this month by global management
consulting firm Booz & Company. The study revealed that the 1,000
companies that spent the most on research and development decreased
their total R&D spending by 3.5% to $503bn in 2009. This followed a
relatively strong 2008 during which R&D spending continued to grow
despite the recession. Apple showed again that it gets a bigger bang
for its spending on research, which is far outpaced by Microsoft and
In 2009, revenues for the Innovation 1000 plunged 11% from $15.1trn in 2008 to $13.4trn - - nearly three times the rate
of decline in R&D spending. As a result, R&D intensity, or R&D
spending as a percentage of revenue, actually increased --
from 3.46% in 2008 to 3.75% in 2009. Compared to the 3.5% reduction
in R&D spending, the 1,000 top R&D spenders cut much more deeply
into both sales, general and administrative expenses (a 5.4%
reduction), and capital expenditures (a 17.5% drop).
“It’s no surprise that the worldwide recession finally caught up
with the world’s top innovation spenders in 2009, causing them to
trim their innovation budgets. However, the relatively modest cuts
in R&D spending compared to much larger declines in revenues
demonstrates the continued importance of innovation as a critical
component of corporate strategy to companies in every industry,”
said Barry Jaruzelski, partner at Booz & Company. “As the
recession draws to a close and corporate earnings rebound, 2010 will
be an important test of their commitment to innovation. Indeed, the
most forward looking companies will likely move quickly to restore
the R&D cuts they made in 2009.”
Booz & Company analysed the world’s top 1,000 public corporations’
research and development spending for 2009 in what it claims 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. This year’s study also examined the capabilities needed
to maximize the impact of a company’s innovation efforts, in good
times and bad, and highlighted the benefits of focusing on the short
list of capabilities that generate differential advantage.
Download the Booz Company 2010 report: How Top Innovators Keep Winning (pdf)
Among the 2010 Global Innovation 1000
study’s key findings:
More than half of all companies Booz & Company tracked cut
their R&D spending in 2009 and nearly all the cuts came in just
three industries: Auto, computing and electronics, and
industrials. The other seven industries examined – health, software
and Internet, telecom, chemicals and energy, aerospace and defense,
consumer, and industrials – all increased spending to some degree.
Despite a decline in R&D
spending, computing and electronics retained its top spot as the
industry that spent the most on innovation, while auto remained at
number three. Healthcare took the number two spot,
increasing R&D by 1.5%, much slower than the industry’s revenue
growth rate of 6.0%.
- The car industry alone
accounted for fully two-thirds of the $18bn contraction in R&D
industry’s 14.3% decrease in R&D spend slightly outpaced its
12.7% decrease in revenue.
- The computing and
electronics industry reported similar, but less drastic, R&D
spending reductions with no change in the industry’s R&D
revenues were down by 6.7% from 2008 to 2009 as a result of the
recession and accompanying drop in sales. The 6.7% decline in
R&D for computers and electronics tracked the decline in
Japan saw the largest percentage drop in spending by region
in which a company was headquartered. Given the recession’s
overall effect on innovation spending, companies headquartered in
regions hit hardest cut R&D spending the most, on average.
Changes in the world’s top 20
spenders on innovation mark further signs of the times:
- R&D spending by companies
headquartered in Japan dropped by 10.8%, North American spending
declined by 2.8%, while Europe’s declined by just 0.2%.
- In contrast, companies
headquartered in China and India boosted R&D spending by 41.8%,
although from a small base, as they account for only 1% of total
Global Innovation 1000 corporate R&D spending.
Study looks at capabilities
needed to successfully Innovate; Spending doesn’t correlate with
- Pharmaceutical giant Roche
Holding took the top position for innovation spending, having
boosted its R&D spend 11.6% to $9.1bn, replacing Toyota Motor,
which cut spending nearly 20% and fell to fourth place
- In fact, healthcare companies
took 5 of the top 10 spots on the list and 7 of the top 20.
- Microsoft (No.2), Nokia (3) and
Pfizer (5) rounded out the top five.
For the first time, this year’s Global Innovation 1000 provided a
deeper look at the capabilities required for companies to innovate
successfully. To do so, Booz & Company conducted a Web-based survey
of more than 450 innovation executives from 400 leading companies
representing more than $150bn in annual R&D spending - - 40%
of total Innovation 1000 company R&D spend for 2009. Respondents
represented all nine industry sectors, and were asked to evaluate
the innovation capabilities they believed were the most important in
the value chain as well as their performance in each of these
In 2007, the Global Innovation 1000 study identified three distinct
innovation strategies that companies deploy to create and take
products to market - - Need Seekers, Market Readers, and Tech
Drivers. This year’s survey and corresponding analysis outlined a
set of distinct innovation capabilities that are essential for
success in each of the three strategies.
The survey found that companies that focus on a set of innovation
capabilities most consistent with their innovation strategy and
tightly aligned with their overall corporate strategy outperform
their rivals. Companies in the Global Innovation 1000 that take
such a coherent approach to capabilities reported higher profit
margins than their competitors, by up to 22%.
“There is no statistically significant relationship between
financial performance and the amount spent on innovation. What
really matters are the particular combinations of talent, knowledge,
team structures, tools and processes that successful companies put
together to enable their innovation efforts,” said Kevin Dehoff,
Booz & Company partner. “Our study found that innovators who
achieve this state of ‘corporate coherence’ consistently outperform
their rivals on several financial measures.”
The survey further asked innovation leaders to name three companies
they consider to be most innovative in the world. Apple far and
away led the Top 10, named by 79 percent of those surveyed, followed
by Google with 49 percent. 3M followed next with 20 percent.
Only three of the companies on the “ten most innovative”
list also appear on this year’s top spenders list: Toyota, Microsoft
and Samsung, reiterating the lack of correlation between the
magnitude of R&D spending an innovation results.
In 2009, Microsoft spent 15.4% of sales on
research; Nokia spent 14.4% and Apple spent 3.1%.
This year, Nokia fired its CEO as the
company struggled to compete with Apple's iPhone.
Finfacts article, May 2010: Apple overtakes Microsoft as the world's most valuable technology
Finfacts reported last June that the pharmaceutical industry
continues to rely heavily on sales from an ageing portfolio of
drugs, whilst the proportion of total sales from newer drugs has
dropped, despite spending as much as $65bn on R&D in the US in 2009.
Finfacts article, June 2010:
Pharmaceutical Industry: Proportion of sales from newer drugs drops;
$65bn spent in US on R&D in 2009; 200,000 jobs to go in 2009-2015
Booz & Company 2010 Global Innovation 1000: Methodology
Booz & Company identified the 1,000 public companies around the
world that spent the most on research and development in 2009
(companies for which public data on R&D spending was available).
This is the same approached used in the previous five years of the
Booz & Company analysed key financial metrics for each of the top
1,000 companies from 2002 through 2009 - - including sales,
gross profit, operating profit, net profit, R&D expenditure, and
market capitalization. All foreign currency sales and R&D
expenditure figures through 2009 were translated into US dollars at
2009 daily average exchange rates. In addition, total shareholder
return was gathered and adjusted for each company’s corresponding
Each company was coded into one of nine (9) industry sectors (or
“other”) and into one of five regional designations as determined by
each company’s reported headquarters location. To enable meaningful
comparisons across industries, Booz & Company indexed the R&D
spending levels and financial performance metrics for each company
against the industry group’s median values.