Corporate R&D Spending Declined During 2009
Downturn, Finds Booz & Company Global
Innovation 1000 Study
l First global drop reported since before 1997, the first year studied
l R&D intensity increased as corporate revenues declined by nearly three times the rate of
reductions in corporate R&D spend
l Auto industry accounted for two-thirds of the overall spending decline
l Computing and electronics industry keeps top spot as biggest total spender on R&D
l Japan saw largest percentage drop in R&D spending among regions studied
l Survey identifies the capabilities needed to innovate successfully
l Apple named most innovative company in survey of innovation executives
November 03, 2010 08:05 AM Eastern Daylight Time
NEW YORK--(EON: Enhanced Online News)--Total R&D spending among the world’s top spenders on
innovation dropped 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 today 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 $503 billion in 2009. This followed a relatively strong 2008 during
which R&D spending continued to grow despite the recession.
At the same time, revenues for the Innovation 1000 plunged 11% from $15.1 trillion in 2008 to $13.4 trillion in 2009
– 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
Booz & Company analyzed the world’s top 1,000 public corporations’ research and development spending for
2009 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. 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.
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.
l The auto industry alone accounted for fully two-thirds of the $18 billion contraction in R&D
spending: The industry’s 14.3% decrease in R&D spend slightly outpaced its 12.7% decrease in revenue.
l The computing and electronics industry reported similar, but less drastic, R&D spending reductions
with no change in the industry’s R&D intensity: Industry 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 revenue.
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%.
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.
l 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%.
l 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.
Changes in the world’s top 20 spenders on innovation mark further signs of the times:
l Pharmaceutical giant Roche Holding took the top position for innovation spending, having boosted its R&D
spend 11.6% to $9.1 billion, replacing Toyota Motor, which cut spending nearly 20% and fell to fourth place
l In fact, healthcare companies took 5 of the top 10 spots on the list and 7 of the top 20.
l Microsoft (#2), Nokia (#3) and Pfizer (#5) rounded out the top five.
Study Analyzes Capabilities Needed to Successfully Innovate; Spending Doesn’t Correlate with Success
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 $150 billion 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 capabilities.
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
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.
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 study.
Booz & Company analyzed 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 U.S. 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.
To download a full copy of the Booz & Company 2010 Global Innovation 1000 study, “How Top Innovators Keep
Winning,” visit: http://www.booz.com/innovation-1000-2010. Companies can assess their own innovation strategy
and the capabilities needed to succeed by using Booz & Company's Innovation Strategy Profiler.
About Booz & Company
Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments
and organizations. 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 61 offices around the world, we bring foresight and knowledge, deep
functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely
with our clients to create and deliver essential advantage. The independent White Space report ranked Booz &
Company #1 among consulting firms for “the best thought leadership” in 2010.
For our management magazine strategy+business visit www.strategy-business.com.
Visit www.booz.com to learn more about Booz & Company.
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