Despite Recession, World’s Leading Corporate Innovators Increased R&D Spending in 2008, Finds New Booz & Company Study by EON


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									Despite Recession, World’s Leading Corporate Innovator
Increased R&D Spending in 2008, Finds New Booz &
Nine in 10 Companies Cite Innovation as “Critical” to Preparing for Upturn

Corporations Are Getting Better at Killing Bad Projects

October 27, 2009 08:02 AM Eastern Daylight Time  

NEW YORK--(EON: Enhanced Online News)--In the face of a severe global recession, the world’s 1,000 largest publicly traded
research and development spenders increased spending on R&D in 2008, affirming the critical importance of innovation to their cor
according to global management consulting firm Booz & Company’s fifth annual analysis of global innovation spending, released tod
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&
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 (

Overall, more than two thirds of companies maintained or increased their R&D spending in 2008, despite more than a third (34 per
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 G
1000 – in what continues to be the most comprehensive effort to assess the link between R&D and corporate performance. The stu
R&D spending and its link to corporate performance, uncovering insights into how organizations can get the greatest return on their i
investment. New to the study this year is an in-depth survey of nearly 300 senior managers and R&D professionals from 250 comp
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 i
companies prepare for the upturn, and fully 70 percent of respondents state their companies are either maintaining or increasing their
R&D in 2009, according to Booz & Company. Furthermore, the top 100 companies in the Innovation 1000 clearly signaled their in
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 & Co
an opportune time to build advantage over competitors, especially weaker ones that may have to skimp on R&D for financial reaso
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 caref
innovation processes and portfolios – for both good times as well as bad,” observed Kevin Dehoff, a Booz & Company Partner. “
through the most turbulent quarters these companies have navigated, indicating they’re ready to make smart bets that will pay divide
upturn.” Accordingly, the survey of senior managers and R&D directors reveals that seven in 10 companies are now adjusting their
capture changing customer requirements. Nearly half of the respondents report becoming more risk averse in their approach to inno
the filters they apply when green lighting new R&D projects. More than 40 percent said their companies are focusing on process im
change R&D spend during the downturn, and a similar number say they’re getting better at killing bad projects, as well as focusing
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
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
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
computing and electronics (28 percent), health (23 percent), and automotive (16 percent).

    l   No industry felt the pain more than auto with nine out of the top 10 R&D spenders in the category cutting their innovation out
        Overall, 60 percent of auto companies in the Global Innovation 1000 decreased R&D spending, compared with 25 percent
        R&D last year. Yet the remaining 40 percent of auto companies on the list increased spending enough that the auto sector on
        increased R&D spending overall by 0.6 percent.
    l   The Software and Internet sector, on the other hand, clearly has seen the recession as an opportunity. Eight out of the industr
        spenders increased their R&D spending last year.
    l   R&D spending in the computing and electronics industry was up more than 4 percent, though the proportion of companies th
        spending was essentially unchanged from last year.
    l   Healthcare companies spent the most on R&D as a percentage of sales –- 12 percent –- followed by Software and Internet
        contrast Telecom, and Chemicals and Energy, spent the least, 1.4 percent and 0.9 percent, respectively.
    l   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
1000 innovation spend. Every region, including China and India, increased its expenditures, though they did so at slower rates. Japa
allocations by just 0.5 percent, Europe by 6.3 percent and North America, 6.5 percent. These levels were below the global five-ye

Additional study findings include:

    l   The top 10 global R&D spenders in 2008 were, in descending order: Toyota, Nokia, Roche Holding, Microsoft, General M
        Johnson & Johnson, Ford, Novartis and sanofi-Aventis.
    l   R&D spending among the Global Innovation 1000 ranged from just under $9 billion spent by #1 Toyota to the $58 million sp
        Laird PLC, a London-based maker of electronics equipment, a wide range that explains why the top 100 companies account
        percent of the total R&D spend of the Innovation 1000.
    l   Sales of the Global Innovation 1000 grew 6.5 percent to $15 trillion in 2008, a significantly smaller increase than the 10 perc
        group registered in 2007, and R&D spending as a percentage of sales remained the same as the previous year, 3.6 percent.
    l   North American-headquartered companies on this year’s list spent 4.6 percent of sales on R&D, a slight decrease compared
        Japanese-headquartered companies spent 3.7 percent of sales, significantly up from last year, and European-headquartered
        3.2 percent, a decrease from the prior year.
    l   Booz & Company estimates that the Global Innovation 1000 accounts for 81 percent of 2008 total global corporate R&D s

Booz & Company Global Innovation 1000:Study Methodology

Booz & Company identified the 1,000 public companies around the world that spent the most on research and development in 200
which public data on R&D spending was available).

Booz & Company analyzed key financial metrics for each of the top 1,000 companies for 2001 through 2008 — sales, gross profit,
net profit, R&D expenditures, and market capitalization. All expenditure figures were translated into U.S. dollars according to the a
rate for the year. In addition, total shareholder return was gathered and adjusted for each company’s corresponding local market to

Each company was coded into one of 10 industry sectors (or “other”) according to Bloomberg’s industry designations, and into one
designations according to reported headquarters locations for each company. To enable meaningful comparisons across industries o
levels, Booz & Company indexed the R&D spending level and financial performance metrics for each company against the median
level for that industry.

Booz & Company also conducted a web-based survey of over 300 senior managers and R&D professionals from 250 different co
the globe in order to better understand the recession’s impact on R&D spending and strategy. The companies participating represen
$230 billion in R&D spending, or 44 percent of the total Innovation 1000 R&D spending for 2008. Respondents came from all 10 i
geographically, 49 percent came from North America, 38 percent from Europe, 13 percent from Asia, and less than 1 percent from

The Global Innovation 1000 study is available online at
About Booz & Company

Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizatio

Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.

Today, with more than 3,300 people in 58 offices around the world, we bring foresight and knowledge, deep functional expertise, a
approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advanta

For our management magazine strategy+business, visit

Visit to learn more about Booz & Company.

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 and delivering real impact. We work closely with our clients to create and deliver essential advantage. For our management magazine strategy+business, visit Visit to learn more about Booz & Company. Photos/Multimedia Gallery Available:

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