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 / Winter 2005 / Issue 41(originally published by Booz & Company)


Money Isn’t Everything

Top 20 R&D Spenders, 2004

Representing $111 billion, or 28 percent of total Global Innovation 1000 R&D spend, the Top 20 companies are largely North American and European. Four are Japanese, and one, Samsung, is Korean.

The Top 20 have an average R&D-to-sales ratio (7 percent) nearly twice that of the next 980 companies (3.6 percent). This difference is driven primarily by the prevalence of computing and health firms in the Top 20.


Booz Allen Hamilton Global Innovation 1000: Study Methodology

Booz Allen Hamilton identified the 1,000 public companies around the world for which data on R&D spending was publicly available that spent the most on R&D in 2004. Companies with noncalendar fiscal years were coded as 2004 when (1) their fiscal years ended before June 2005, and (2) their FY2005 results were available; otherwise, their 2004 fiscal year results were used.

We then obtained a variety of financial metrics for the Global Innovation 1000 going back six years: revenue, gross profit, SG&A (selling, general, and administrative) expenses, operating profit, net profit, capital expenditures, and historical R&D spending. We also added six years of shareholder value measures to the data set, including total shareholder return (TSR) and market value.

Each company was coded into one of 10 industry sectors (or “other”) according to Bloomberg’s industry designations, and into six country or regional designations according to reported headquarters locations for each company. This approach means that, for example, Chrysler’s R&D, though largely conducted in the United States, is reported to be in Europe given that DaimlerChrysler (#4) is headquartered in Germany and our practice is not to include consolidated subsidiaries in our rankings. This was the best possible approach, since R&D spending is only rarely broken out by subsidiary or region in corporate financial statements.

To enable meaningful comparisons across industries on R&D spending levels, we indexed the R&D spending level for each industry against the median R&D spending level for that industry. Similarly, to avoid having the shareholder returns analysis be skewed by differences in performance across regional stock markets, we adjusted shareholder returns data to show each corporation’s performance relative to that of a leading index of its regional market. (All data on R&D spending and financial metrics came from Bloomberg’s data bank of publicly filed financial statements; shareholder-related measures came from Datastream.)

Reprint No. 05406

Author Profiles:

Barry Jaruzelski ([email protected]) is a vice president with Booz Allen Hamilton in New York. He concentrates on corporate strategy, organizational transformation, and time-to-market improvement for companies in high-technology industries and manufacturers of highly engineered products.

Kevin Dehoff ([email protected]), a vice president with Booz Allen Hamilton in New York, is the global leader of the firm’s innovation service offering. He has spent more than 13 years helping clients improve efficiency and effectiveness in product development.

Rakesh Bordia ([email protected]) is a senior associate with Booz Allen Hamilton in New York. He specializes in improving innovation effectiveness and efficiency for clients in engineered products industries.

The authors thank Matthew Clark and Alexander Kandybin for their contributions to this article.
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  1. Joris Beerens, Thomas Goldbrunner, Richard Hauser, and Georg List, “Mastering the Innovation Challenge: Results of the Booz Allen Hamilton European Innovation Survey,” a Booz Allen Hamilton white paper, This 2005 study pinpoints both the ambitious innovation targets that European innovators have set — and their concerns that their organizations may not be up to the challenge.
  2. Henry William Chesbrough, Open Innovation: The New Imperative for Creating and Profiting from Technology (Harvard Business School Press, 2003): Harvard’s Professor Chesbrough proposes collaborative, transparent innovation practices that deliver improved performance by opening the corporation to outside thinking from vendors, academics, and investors.
  3. Peter Coy with Ben Elgin, Amy Barrett, and Gail Edmondson, “The Search for Tomorrow,” Business Week, October 11, 2004: A new index that examines corporate R&D and capital spending and ranks all U.S. companies in the S&P 500 plus 700 non-U.S. companies on the basis of their R&D and capital investment spending. Click here.
  4. Alexander Kandybin and Martin Kihn, “Raising Your Return on Innovation Investment,” s+b, Summer 2004: Introduces the concept of the innovation effectiveness curve. Click here.
  5. Robert W. Lane, speech given at Northwestern University’s Kellogg School of Management, April 23, 2003: Describes how Deere aligned its innovation strategy with customer priorities. A transcript is available. Transcript available here.
  6. Erick Schonfeld, “Outsourcing Innovation,” Business 2.0 Web site, May 30, 2003: Contains the Larry Huston quote and a description of P&G’s approach. Click here.
  7. Special Report: R&D ’04, MIT Technology Review, December 1, 2004: Ranks the top 150 R&D spenders in 2003 based on an innovation index that takes into account total spend, spending growth, and R&D-to-sales ratio. Click here.
  8. The 2004 R&D Scoreboard: The Top 700 U.K. and 700 International Companies by R&D Investment, Parts I and II, U.K. Department of Trade and Industry: This study provides detailed demographics and claims a link between R&D and sales performance that our study did not detect. Click here.
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