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Published: October 22, 2013
 / Winter 2013 / Issue 73

 
 

The Global Innovation 1000: Navigating the Digital Future

Companies need to be willing to spread the money around: Some of these tools, such as customer immersion labs and big data, will require significant investment. But the transformative benefits that insight tools can bring to your innovation process can far outweigh their costs. In our Global Innovation 1000 studies over the years, we’ve consistently found that a major innovation success factor is listening to what your customers have to say. And in fact, our 2007 survey revealed that companies that engaged directly with their customers had twice the return on assets and triple the growth in operating income of other responding companies. If customer insight is the next frontier of innovation, these digital tools will be game changers. They won’t replace productivity tools—efficiency at the development stage is crucial to sustained competitive advantage. But they will make a powerful addition to your digital tool kit.

Remember that even if you aren’t experimenting with these tools, chances are your competitors are, or they will be soon—and they will be the ones reaping the benefits. As Bill Blau of Salesforce.com told us, “The pace of business today does not allow for years to go by. If you’re not innovating now, you’re going to die quickly.” A better understanding of what customers and markets need will undoubtedly lead to the launch of more successful products. And yours could be the company developing them. 

Profiling the Global Innovation 1000

After two years of close to 10 percent growth following the worldwide economic downturn, R&D spending among the Global Innovation 1000 increased by just 5.8 percent this year. This is in line with the average annual growth rate since 2002 of 5.5 percent, marking a return to business as usual. Still, two-thirds of the companies in our 2013 study increased their R&D spending, contributing to a total amount spent of US$638 billion—a $35 billion increase over 2012. (Data for the 2013 reporting period was gathered between July 2012 and June 2013. For more details, see “Methodology”.) Because the group’s total revenues increased by a mere 0.9 percent, to $17.7 trillion, R&D intensity—innovation spending as a percentage of revenues—rose two-tenths of a percent, reaching the highest R&D intensity level since 2010 (see Exhibit A).

The top 100 companies on the list accounted for 45 percent of the R&D spending growth and more than 60 percent of the total spent on innovation, and the top 20 companies alone made up almost a quarter of both total spending and spending growth. The list of the 20 largest spenders changed somewhat from last year (see Exhibit B). Volkswagen took the top spot, Samsung jumped from sixth to second, and Google made its first entrance in the top 20, at number 12. (Some of these shifts were a result of changes in how we accounted for R&D spending; see “Methodology.”) Outside the top 20, 89 new companies entered the Global Innovation 1000. They contributed more than $16 billion in R&D spending, a healthy addition given that the 89 companies leaving the list spent less than $9 billion in 2012.

Together, three sectors—computing and electronics, healthcare, and auto—accounted for 65 percent of overall R&D spending, about the same proportion as last year (see Exhibit C). But this year the software and Internet sector overtook computing and electronics as the largest contributor to the growth in R&D spending. The software and Internet sector added 10 companies to the Global Innovation 1000 and boosted its innovation spending by $9.3 billion—more than any other sector, by both measures.

Despite the fact that its spending makes up just 8 percent of total R&D spending, the software and Internet sector’s growth in spending appears to indicate that the tide is turning in favor of technologies that run our increasingly digitized world (see Exhibit D). In contrast, spending in the computing and electronics sector increased by just $3.4 billion—almost $10 billion less than last year’s growth total. Twelve of the 28 computing and electronics companies in the top 100 spent less than last year; even IBM just maintained the same level of spending. Still, the computing and electronics industry remains the highest-spending sector by a wide margin—27 percent of the total, compared with 22 percent for healthcare, the second-highest spender.

Meanwhile, spending growth in the auto sector slowed to just $7.4 billion in 2013 from $13.2 billion last year; the flurry of R&D surrounding the launch of new models in the past several years is clearly abating. The healthcare sector, however, increased spending by $9.2 billion in 2013, up from an increase of $6 billion the year before. The industry received a boost from several healthcare companies that increased their spending significantly, including Roche in Europe, Gilead in the United States, and Takeda in Japan. The chemicals and energy sector was the only one to see a decline in spending this year, falling by $2 billion. The decline was mostly on the chemicals side; energy companies increased their spending overall.

With a few notable exceptions, the geographic picture looks similar to last year’s (see Exhibit E). Innovation spending in companies headquartered in North America outpaced that of companies based in Europe and Japan (as well as the Global Innovation 1000 average), growing by 8.6 percent, although the number of companies in the Global Innovation 1000 from North America keeps decreasing—by nine this year, and there has been a decrease of 100 since 2008. In a promising turn of events, European companies increased spending by 4.5 percent despite the region’s continuing economic struggles. Spending in Japan, however, fell this year by 3.6 percent. The rest of the world, which includes India (but not China, which was counted separately this year), grew by an impressive 17.5 percent, although the group continues to make up a relatively small portion of the total Global Innovation 1000.

China saw a net gain of 15 companies on the list this year. In fact, since 2008, the number of Chinese companies in the Global Innovation 1000 has risen from 10 to 75, and the total amount spent on R&D by Chinese companies on the list rose from $1.7 billion in 2008 to $20.5 billion in 2013. Yet China’s increase in innovation spending slowed considerably in 2013, to 35.8 percent—a little more than half of its five-year compound annualized growth rate of 63.9 percent. That’s a reflection of the country’s rate of economic expansion, which is down considerably from recent years. Indeed, no region can be expected to sustain such high growth rates over the long term.

Although we’ve returned to the status quo in terms of overall R&D spending growth, certain companies, industries, and regions are clearly making waves this year.

 
 
 
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Resources

  1. Barry Jaruzelski and Kevin Dehoff, “The Customer Connection: The Global Innovation 1000,” s+b, Winter 2007: Companies need to align their innovation model to their corporate strategy and listen to their customers.
  2. Barry Jaruzelski and Kevin Dehoff, “The Global Innovation 1000: How the Top Innovators Keep Winning,” s+b, Winter 2010: Highly innovative companies consistently outperform because they are good at the right things, not at everything.
  3. Barry Jaruzelski, John Loehr, and Richard Holman, “The Global Innovation 1000: Making Ideas Work,” s+b, Winter 2012: How successful innovators bring clarity to the early stages of innovation.
  4. Barry Jaruzelski and Matthew Le Merle, “The Culture of Innovation: What Makes San Francisco Bay Area Companies Different?” Booz & Company white paper, Mar. 23, 2012: Booz & Company and the Bay Area Council Economic Institute identify the strategic, cultural, and organizational attributes that have led to the sustained success of the San Francisco region.
  5. Alice Rawsthorn, “Catching Up to 3D Printing,” New York Times, July 21, 2013: The current state of digital manufacturing.
  6. Jeff Schumacher, Simon MacGibbon, and Sean Collins, “Don’t Reengineer. Reimagine.s+b, Summer 2013: How your business can realize its digital potential, from the team at Booz Digital (booz.com/digital/).
  7. Booz & Company’s Global Innovation 1000 study microsite.
  8. Booz & Company’s online innovation strategy profiler: Evaluate your company’s R&D strategy and the capabilities it requires.
  9. For more thought leadership on this topic, see the s+b website at: strategy-business.com/innovation.
 
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