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ANALYSIS

Rasheed Eltayeb

Big R&D spend ‘doesn’t mean bigger payoffs’

Dubai, October 28, 2013

Yearly R&D spending among the world’s 1,000 largest public corporate R&D spenders has hit a record high of $638 billion, according to global management consulting firm Booz & Company in its ninth annual Global Innovation 1000 study.

However, despite the sustained overall increase in R&D budgets over the last decade, this year’s findings show once again that higher spending doesn’t guarantee bigger payoffs.

Indeed, the 10 most innovative companies our study identified this year financially outperformed the world’s top 10 spenders, despite actually spending significantly less on R&D. Additionally, the study shows that companies are spending 8.1 per cent of their R&D budgets on digital tools to enable their innovation process—either to boost productivity or to improve their ability to gain better insight into customer needs.

Saudi Basic Industries Corp (Sabic) is the only publicly listed company in the Middle East to make it into the Global Innovation 1000 list this year. Sabic ranked 304th out of the 1,000-strong list of innovative companies.

The company’s ranking this year is an improvement over last year’s 416 position. Total R&D spend by SABIC in 2012 was $371 million, a 69 per cent increase from $219 million in 2011. Although chemical and energy companies in the Global Innovation 1000 list maintained their average R&D intensity at 0.9 per cent for the second consecutive year, SABIC’s average R&D intensity increased from 0.43 per cent in 2011 to 0.7 per cent in 2012.

10 Most Innovative Companies

Apple and Google took top honors for the fourth consecutive year, but there were some noticeable shake-ups on the latest Global Innovation 1000 study’s survey ranking of the 10 most innovative companies. Samsung displaced 3M from the number three spot for the first time, capping its steady rise in the rankings, and Amazon also made a significant move up, jumping six spots into fourth place. New to the list this year was Tesla, making its debut in the number nine slot, and Facebook returned at number 10 after a hiatus last year.

10 Most Innovative Companies Outperform Top R&D Spenders

Google and Sony joined the top 20 R&D spenders list this year, at number 12 and number 20, respectively. The vast majority of the companies on the list—18 in total—were from the software & Internet, healthcare, and automotive industries, industries that, combined, accounted for nearly three-quarters of worldwide R&D spending growth in 2013.

“The 22 per cent increase in R&D spending among software and internet companies is likely driven by an increasing demand for digital products and services,  creating  more opportunities for cutting edge innovation,” said Richard Holman, a partner at Booz & Company and coauthor of the study.

Higher R&D spending is no guarantee of better financial performance. This year’s 10 most innovative companies outperformed the top 10 spenders on both five-year revenue and market-cap growth averages.

“For the ninth straight year, our research has demonstrated that there is no correlation between how much you spend and how well you perform over the long term,” said Barry Jaruzelski, senior partner at Booz & Company and global leader of the Engineered Products & Services practice. “It has been proven time and time again that you can’t buy your way to the top. When it comes to innovation, how you spend is much more important than how much you spend.”

The study also found that respondents whose companies made significant use of these digital enablers were much more likely to report that they outperformed competitors financially than were those who employed enablers more moderately.

“There are a whole slew of digital tools available today. Productivity enablers like computer aided design and project management are must-haves for any competitive innovator and their use among our survey respondents has reached maturity,” said Rasheed Eltayeb, Principal with Booz & Company.

“More recent tools, such as big data, social voting and usage sensors are focused on generating deep customer insights to help create more compelling products. While these are still pretty new, they are beginning to prove their value in multiple industries. It’s still a risk to invest in them, but one everyone will have to take to stay at the forefront of innovation,” he added. – TradeArabia News Service




Tags: Google | Apple | Sony | productivity | Booz |

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