Wednesday, October 28, 2009
In the face of a severe global recession, the world`s 1,000
largest publicly traded corporate research and development spenders increased
spending on R&D in 2008, affirming the critical importance of innovation to
their corporate strategies, according to global management consulting firm Booz
& Company`s fifth annual analysis of global innovation spending, released
today. R&D outlays for these companies rose by 5.7 percent to US$532
billion, even as sales were up only 6.5 percent. While the increase in 2008
R&D spend was less dramatic than 2007's gain of 10 percent, it was just
slightly less than the 7.1 percent global five-year compound annual growth rate
(CAGR) for R&D.
Overall, more than two thirds of companies maintained or
increased their R&D spending in 2008, despite more than a third (34
percent) reporting that net income plummeted last year, according to the study.
More than a quarter of companies decreased their R&D allocation in 2008.
Booz & Company analyzed the world`s top 1,000 public
corporate research and development spenders—the Booz & Company Global
Innovation 1000—in a study looked at R&D spending and its link to corporate
performance, uncovering insights into how organizations can get the greatest
return on their innovation investment. New to the study this year is an in-depth
survey of nearly 300 senior managers and R&D professionals from 250 companies
around the globe that probes the impact of the downturn on innovation spending
and strategy.
Key findings of the
report include:
Innovation is viewed as increasingly vital to corporate
strategy. More than 90 percent of those surveyed say that innovation is
critical as their companies prepare for the upturn, and fully 70 percent of
respondents state their companies are either maintaining or increasing their
spending on R&D in 2009, according to Booz & Company. Furthermore, the
top 100 companies in the Innovation 1000 clearly signaled their investment
priorities by increasing R&D spending by 3.2 percent while reducing overall
capital expenditures by one percent.
"Reducing efforts on innovation would be similar to
unilateral disarmament in wartime," said Barry Jaruzelski, Partner at Booz
& Company. "Now is an opportune time to build advantage over
competitors, especially weaker ones that may have to skimp on R&D for
financial reasons. Overall, the study demonstrates an optimistic outlook on the
part of the companies in the Innovation 1000."
Companies are spending more, but more wisely. "One
result of the recession is that it has forced companies to think more carefully
about their innovation processes and portfolios—for both good times as well as
bad," observed Kevin Dehoff, a Booz & Company Partner. "This held
true through the most turbulent quarters these companies have navigated, indicating
they`re ready to make smart bets that will pay dividends in the coming
upturn." Accordingly, the survey of senior managers and R&D directors
reveals that seven in 10 companies are now adjusting their strategies to better
capture changing customer requirements.
Nearly half of the respondents report becoming more risk
averse in their approach to innovation, changing the filters they apply when
green lighting new R&D projects. More than 40 percent said their companies
are focusing on process improvements to change R&D spend during the
downturn, and a similar number say they`re getting better at killing bad
projects, as well as focusing more on newer products that have the potential to
grow faster.
The top 20 innovation spenders increased their budgets by
just 3.2 percent. This gain is less than one-third the 10.7 percent rise in
2007 and was the result of a precipitous 35 percent drop in net income among
the 20 companies, which fell from $115 billion in 2007 to just $75 billion in
2008. Still, the top 20 spenders accounted for 26 percent of spending by the
entire Innovation 1000.
Recession`s impacts on R&D vary widely by industry. In
2008, as last year, two-thirds of R&D spending was concentrated in three
industries: computing and electronics (28 percent), health (23 percent), and
automotive (16 percent).
- No
industry felt the pain more than auto with nine out of the top 10 R&D spenders
in the category cutting their innovation outlays in 2008. Overall, 60 percent
of auto companies in the Global Innovation 1000 decreased R&D
spending, compared with 25 percent who decreased R&D last year. Yet
the remaining 40 percent of auto companies on the list increased spending
enough that the auto sector on a net basis slightly increased R&D spending
overall by 0.6 percent.
- The
Software and Internet sector, on the other hand, clearly has seen the recession
as an opportunity. Eight out of the industry`s top 10 R&D spenders increased
their R&D spending last year.
- R&D
spending in the computing and electronics industry was up more than 4 percent,
though the proportion of companies that increased R&D spending was essentially
unchanged from last year.
- Healthcare
companies spent the most on R&D as a percentage of sales—12 percent—followed
by Software and Internet (11.4 percent). In contrast Telecom, and
Chemicals and Energy, spent the least, 1.4 percent and 0.9 percent, respectively.
- Aerospace
and Defense was the only industry to see innovation spending sink, down
2.3 percent.
Every global region increased its spending. North American,
European, and Japan-based companies retained their 94 percent share of the
global 1000 innovation spend. Every region, including China and India, increased its expenditures,
though they did so at slower rates. Japan
upped its allocations by just 0.5 percent, Europe by 6.3 percent and North America, 6.5 percent. These levels were below the
global five-year CAGR of 7.2 percent.
Additional study findings include:
- The
top 10 global R&D spenders in 2008 were, in descending order: Toyota, Nokia, Roche
Holding, Microsoft, General Motors, Pfizer, Johnson & Johnson, Ford,
Novartis and sanofi-Aventis.
- R&D
spending among the Global Innovation 1000 ranged from just under $9 billion
spent by #1 Toyota to the $58 million spent by #1000 Laird PLC, a London-based
maker of electronics equipment, a wide range that explains why the top 100
companies account for fully 62 percent of the total R&D spend of the Innovation
1000.
- Sales
of the Global Innovation 1000 grew 6.5 percent to $15 trillion in 2008, a
significantly smaller increase than the 10 percent increase this group registered
in 2007, and R&D spending as a percentage of sales remained the same as
the previous year, 3.6 percent.
- North
American-headquartered companies on this year`s list spent 4.6 percent of
sales on R&D, a slight decrease compared with 2007, while Japanese-headquartered
companies spent 3.7 percent of sales, significantly up from last year, and
European-headquartered companies spent 3.2 percent, a decrease from the
prior year.
- Booz
& Company estimates that the Global Innovation 1000 accounts for 81 percent
of 2008 total global corporate R&D spending of $660 billion.
Original
article here
The Global
Innovation 1000 study and description of methodology is available here
Booz & Company
SOURCE: Reuters