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 / Winter 2009 / Issue 57(originally published by Booz & Company)


Profits Down, Spending Steady: The Global Innovation 1000

Recessionary Effects
The downturn has taken a major toll on the worldwide economy, and the companies that make up the Global Innovation 1000 have certainly not been immune to its impact. Overall, they spent $532 billion on R&D in 2008, a healthy 5.7 percent increase over 2007, but well below the 10 percent increase from 2006 to 2007. Total sales were up 6.5 percent, to $15 trillion — but again, it was a significantly smaller increase than the 10 percent gain this same group registered between 2006 and 2007. Thus the group’s R&D intensity — innovation spending as a percentage of sales — remained the same at 3.6 percent. And our analysis shows, as it has every year over the last five years, that the amount of money companies spend on R&D bears no relationship to overall corporate performance.

The effect of the downturn varied significantly by industry, and no industry has felt the pain more than autos. Nine out of the top 10 R&D spenders in the automotive sector cut their innovation outlays in 2008; the Toyota Motor Corporation, for instance, which suffered the first loss in its history, reduced its R&D spending by nearly 6 percent, though it still maintains its position as the #1 global spender on innovation. The software and Internet sector, on the other hand, clearly sees the recession as an opportunity. Fully eight out of the industry’s top 10 innovation spenders increased their R&D spending in 2008. And innovation spending in the computing and electronics industry was up more than 4 percent, though the proportion of companies that increased R&D spending was essentially un­changed from last year.

Even companies that are losing money are not necessarily cutting back on their R&D spending. Almost a third of the companies in the Global Innovation 1000 reported losses in 2008, yet those companies were slightly less likely to decrease R&D spending than they were to increase it. (See Exhibit 8.) No matter what the impact of the recession, a large percentage of the 1,000 companies we analyzed continue to view their efforts to innovate as a critical element of their overall corporate strategy.

The Strategic Imperative
The results of this year’s additional survey of 290 senior executives and R&D leaders confirm the vital role that innovation plays in corporate strategy, and suggest that in­novation spending is likely to hold up through 2009 as well. Fully 70 percent of respondents said their companies were planning to either maintain or increase their spending on research and development during 2009, and nearly three-quarters reported that they had maintained or expanded their innovation portfolios during the recession.

In several cases, the looming specter of recession became an inducement to greater innovation efforts. The $6.3 billion mail services company Pitney Bowes Inc., for example, made a decision to invest more in innovation in the months leading up to the downturn. Managers concluded that the company’s financial strength would allow it to increase R&D spending, and they knew that doing so would put Pitney Bowes in an even better competitive position once the recovery began. (See “Integrated Innovation at Pitney Bowes,” by David Dobson.)

Even companies facing business challenges feel they cannot back off on their innovation efforts. Hans Stork, who oversees innovation at Applied Materials Inc.’s silicon unit, which makes equipment used to manufacture semiconductors, says his revenues are down significantly this year. Yet his customers continue to demand innovative new products to maintain their own competitive positions. “Our customers don’t seem to slow down,” he says. “One would think that if there is less demand and less money available, that somewhere things would have to slow down. But their competitive nature plays tricks with that. The stronger companies want to stay on the same innovation page so that at the end of the cycle, they have a stronger competitive position.”

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  1. Barry Jaruzelski and Richard Holman, “Innovating through the Downturn: A Memo to the Chief Innovation Officer,” (PDF) Booz & Company white paper, March 2009: How companies can tailor their product and technology initiatives to new market realities and refocus their investments on their core R&D and innovation capabilities.
  2. Barry Jaruzelski and Kevin Dehoff, “Beyond Borders: The Global Innovation 1000,” s+b, Winter 2008: Last year’s study revealed, for the first time, how R&D money is benefiting most parts of the world.
  3. Barry Jaruzelski and Kevin Dehoff, “The Customer Connection: The Global Innovation 1000,” s+b, Winter 2007: This study, identifying two primary success factors in innovation strategy: aligning the innovation model to corporate strategy and listening to customers every step of the way.
  4. Barry Jaruzelski, Kevin Dehoff, and Rakesh Bordia, “Smart Spenders: The Global Innovation 1000,” s+b, Winter 2006: This study, uncovering a small group of high-leverage innovators who outperform their industries.
  5. Zia Kahn and Jon Katzenbach, “Are You Killing Enough Ideas?s+b, Autumn 2009: How companies can improve their innovation performance by getting their formal and informal organizations in sync.
  6. Alex Kandybin, “Which Innovation Efforts Will Pay,” MIT Sloan Management Review, September 25, 2009: How companies can use an incisive analytic tool to gauge their overall R&D effectiveness.
  7. Paolo Pigorini, Vinay Couto, Ariel Fleichman, and Carlos Gondim, “Reshaping Your Company Business Model: Building for the Future During the Downturn,” (PDF) Booz & Company white paper, June 2009: How to best implement long-lasting and effective initiatives aimed at fundamentally improving the way companies operate.
  8. C.K. Prahalad, “The Innovation Sandbox,” s+b, Autumn 2006: To create an impossibly low-cost, high-quality new business model, start by cultivating constraints.
  9. For more thought leadership on this topic, see the s+b website at:
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