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Global Innovation 1000 : Companies are working hard to spend smarter

1 November 2009

Taken from www.booz.com

This week, the consulting firm Booz&Company issued a preprint of its Global Innovation 1000 report (download here), which analyses the R&D-spending structure and behaviour of 1000 public companies across the world. These companies represent USD 532 billion (532,000,000,000 !) of research and development spending, “just over half the money invested worldwide in 2008“. Analysing R&D data of 1000 companies indeed takes a lot of time, even if they must more than two (the authors of the report : Barry Jaruzelski and Kevin Dehoff) in their team.

So these thousand companies, on top of which the Toyota Motor Corporation, represent half of the R&D spendings in the world, which basically can be splitted into company and government spendings. Within companies, the stated companies represent roughly 81% of the money. See the first twenty :

Booz&Co. Ranking

The report is called “Profits Down, Spending Steady”, and it appears that R&D indeed is “a competitive necessity“. In times of recession, companies keep investing, even though the global increase of 5,7% is less important than last year’s 10,7% R&D expansion. What appears clearly is that these companies are (still) headquartered in the three main regions : USA, Europe and Japan. In the whole ranking, companies coming from these countries represent stunning 94% of total spending !

The economic downturn doesn’t discourage companies to invest, a lot of them even see the crisis as “an opportunity to build their advantage over their competitors“. Some corporations also say that “the recession has catalysed innovation, by forcing them to think more carefully about their new product portofolios […] and costs“. Efficiency is the word ! Another reason is that development cycles are longer than the recession. while the current crisis lasts since december ’07 (23 months), most industry’s product development cycles are longer : about 35 months to launch a new car, and up to 90 months in the pharmaceutical industry. As IBM’s general manager of the Server X server business, M. Adalio Sanchez, says : “if you miss a cycle, you’re out of the market“.

An example : Innovation at Pitney Bowes

Pitney Bowes logo

The 90-year-old mail and document management company wanted to coordinate innovation across its research labs and development shops. Having the financial capacity to invest quite heavilly (USD 900 million of free cash-flow in 2008), they aggregated  various products into a new business division called Pitney Bowes Business Insight (PBBI). The management also launched a program called New Business Opportunity (NBO) intended to fund idea development within the business units of the company. A last example the launch of “an electronic meeting place for PB’s 35 000 employees“, called IdeaNet, which enables employees to suggest “any idea that they think will help create new sources of revenue“.

By the way : the #1000 is Laird Group PLC, a London based maker of electronics equipment, which spent USD 58 million on R&D in 2008. Their slogan : Value through Innovation. Page 8 of the report states that “the amount of money companies spend on R&D bears no relationship to overall corporate performance“. I guess this is a quite extensive debate…

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