The 10 Most Innovative Companies
This year’s list of the most innovative companies, as identified by our survey respondents, reflects the increasing importance of digitally oriented companies whose innovation efforts are transforming our working and personal lives.
Apple continues to lead the list, for the fourth year running (see Exhibit F). The company boosted its R&D spending by almost US$1 billion this year, to $3.4 billion, raising its rank among the Global Innovation 1000 from 53rd to 43rd. But its innovation intensity remained at just 2.2 percent, thanks largely to the impressive $157 billion it took in this year. However, Apple has also seen its share price fluctuate significantly, due in part to the fact that its iPhone market share has come under increasing pressure from Android phones, and that it has not developed a new killer product in quite a while. Perhaps as a result, just 62 percent of respondents named Apple as the top innovator this year, down considerably from the 80 percent who did so last year. But the company remains strong, and time will tell how it responds to rising pressures.
Google held steady at number two; half of respondents mentioned it, up 7 percentage points from last year. 3M fell to number five, overtaken by Samsung for the number three spot. Samsung’s steady climb up the list makes clear that it is not a mere copier of innovations pioneered by other companies. With its Galaxy smartphone, Smart TV, and other inventive products, the company is proving capable of designing devices and equipment almost as crowd-pleasing as Apple’s. Amazon, meanwhile, leaped from number 10 last year to number four. The company’s skill as an innovator no longer rests solely on the new ideas it brings to online retailing; its cloud service offerings are, by some accounts, more successful than those of the company’s many rivals.
The same companies as last year round out the next few spots, with some shifts in the order. But surprise entrant Tesla Motors shows up at number nine, having spent fully two-thirds of its $413 million in revenue on R&D, typical for a company that’s essentially still in startup mode. Facebook rejoined the list at number 10, probably attributable to its quickly evolving mobile strategy. Continuing a now four-year trend, no healthcare company made the list.
The 10 companies deemed most innovative again had a much better year financially than the top 10 spenders on R&D, surpassing them in terms of both five-year revenue and market cap growth averages (see Exhibit G). The top 10 spenders managed only to keep up with the 10 most innovative companies in the five-year average of the earnings margin, and failed even to match their industry peers in terms of growth in both revenue and market cap. The list of top spenders is still dominated by auto and healthcare companies. From these sectors, only one company, tiny Tesla, appears on the list of top innovators—demonstrating once again that innovation success isn’t about how much money companies spend, but how they spend it.
As it has in each of the past eight editions of the Global Innovation 1000 study, this year Booz & Company identified the 1,000 public companies around the world that spent the most on R&D during the last fiscal year, as of June 30, 2013. To be included, companies had to make their R&D spending numbers public. Subsidiaries that were more than 50 percent owned by a single corporate parent during the period were excluded if their financial results were included in the parent company’s financials.
In order to gain a more accurate and complete picture of innovation spending, we made some adjustments to our data collection process. In past years, both capitalized and amortized R&D expenditures were excluded.
This year, for companies with capitalized R&D expenditures, we included the most recent fiscal year’s amortization of those costs in calculating the total R&D investment, while continuing to exclude any non-amortized capitalized costs.
For each of the top 1,000 companies, we obtained the key financial metrics for 2008 through 2013, including sales, gross profit, operating profit, net profit, historical R&D expenditures, and market capitalization. All sales and R&D expenditure figures in foreign currencies were translated into U.S. dollars according to an average of the exchange rate over the relevant period; for data on share prices, we used the exchange rate on the last day of the period. In addition, figures for total shareholder return were gathered and adjusted to reflect each company’s total shareholder return in its local market.
All companies were coded into one of nine industry sectors (or “other”) according to Bloomberg’s industry designations, and into one of five regional designations, as determined by their reported headquarters locations. To enable meaningful comparisons across industries, we indexed the R&D spending levels and financial performance metrics of each company against the average values in its own industry.
To understand how companies apply digital enablers across the innovation chain, we conducted an online survey of nearly 400 senior managers and R&D professionals from more than 350 different companies around the globe. The companies participating represented more than US$162 billion in R&D spending, or 25 percent of this year’s total Global Innovation 1000 R&D spending, all nine of the industry sectors, and all five geographic regions.
We asked respondents to describe their company’s use of digital tools at each stage of the innovation process, the tools’ effectiveness, how much they spent on them, and the factors that enable them to succeed, as well as their perception of their company’s financial performance. Using a variety of statistical methods, we also identified the digital enablers most prevalent among companies following each of the three innovation strategy models (Need Seeker, Technology Driver, or Market Reader). Company names and responses were kept confidential unless permission to use them was explicitly granted. Finally, to gain further insight, we interviewed executives who work with digital tools as part of their role in their company’s innovation practice.