Corporate R&D spending declined during 2009 downturn says Booz & Company

London, November 3, 2010 – Total R&D spending among the world’s top spenders on innovation dropped in 2009 for the first time in 13 years, according to Booz & Company’s 2010 Global Innovation 1000 study released today. It has revealed that the 1,000 companies that spent the most on research and development decreased their total R&D spending by 3.5% to $503 billion in 2009. This followed a relatively strong 2008 during which R&D spending continued to grow despite the recession. $19 billion was spent by companies with HQs in the UK.

  • First global drop in R&D reported since before 1997
  • Auto industry accounted for two-thirds of the overall spending decline
  • Computing and electronics industry keeps top spot as biggest total spender on R&D

However, revenues for the Innovation 1000 plunged 11% from $15.1 trillion in 2008 to $13.4 trillion in 2009 – nearly three times the rate of decline in R&D spending. As a result, R&D intensity, or R&D spending as a percentage of revenue, actually increased – from 3.46% in 2008 to 3.75% in 2009.

“The relatively modest cuts in R&D spending compared to much larger declines in revenues demonstrates the continued importance of innovation as a critical component of corporate strategy to companies in every industry,” said Michael Knott, Partner at Booz & Company. “2010 will be an important test of the most forward looking companies’ commitment to innovation. We would expect them to move quickly to restore the R&D cuts they made in 2009.”

Booz & Company analysed the world’s top 1,000 public corporations’ research and development spending for 2009 in what continues to be the most comprehensive effort to assess the link between innovation and corporate performance. The study uncovers insights into how organisations can get the best return on their innovation investment. This year’s study also examined the capabilities needed to maximise the impact of a company’s innovation efforts, in good times and bad, and highlighted the benefits of focusing on the short list of capabilities that generate differential advantage.

Among the 2010 Global Innovation 1000 study’s key findings:

More than half of all companies Booz & Company tracked cut their R&D spending in 2009 and nearly all the cuts came in just three industries:
Auto, computing and electronics, and industrials. The other seven industries examined – health, software and Internet, telecom, chemicals and energy, aerospace and defence, consumer and industrials – all increased spending to some degree.

  • The computing and electronics industry retained its top spot as the industry that spent the most on innovation. However, its R&D spending showed a 6.7% decline in R&D which tracked the industry’s decline in revenue.
  • The auto industry alone accounted for two-thirds of the $18 billion contraction in R&D spending but still came third in overall R&D spending.

Changes in the world’s top 20 spenders on innovation mark further signs of the times:

  • Pharmaceutical giant Roche Holding took the top position for innovation spending, having boosted its R&D spend 11.6% to $9.1 billion, replacing Toyota Motor, which cut spending nearly 20% and fell to fourth place.
  • In fact, healthcare companies took 5 of the top 10 spots on the list and 7 of the top 20.
  • Microsoft (#2), Nokia (#3) and Pfizer (#5) rounded out the top five.

The survey further asked innovation leaders to name three companies they consider to be most innovative in the world. Apple far and away led the Top 10, named by 79% of those surveyed, followed by Google with 49%. 3M followed next with 20%. Only three of the companies on the “ten most innovative” list also appear on this year’s top ten spenders list: Toyota, Microsoft and Samsung, reiterating the lack of correlation between the magnitude of R&D spending an innovation results.

Spending Doesn’t Correlate with Success according to analysis:
For the first time, this year’s Global Innovation 1000 provided a deeper look at the capabilities required for companies to innovate successfully. The survey found that companies that focus on a set of innovation capabilities most consistent with their innovation strategy and which are tightly aligned with their overall corporate strategy are most likely to outperform their rivals. Companies in the Global Innovation 1000 that take such a coherent approach to capabilities reported higher profit margins than their competitors, by up to 22%.

Michael Knott, Booz & Company Partner. “Innovative companies that achieve a state of ‘corporate coherence’ where particular combinations of talent, knowledge and team structures are brought together consistently outperform their rivals on several financial measures.”

To see a full copy of the Booz & Company 2010 Global Innovation 1000 study, click here.


Study Methodology

Booz & Company identified the 1,000 public companies around the world that spent the most on research and development in 2009 (companies for which public data on R&D spending was available). This is the same approached used in the previous five years of the study.

Booz & Company analyzed key financial metrics for each of the top 1,000 companies from 2002 through 2009 – including sales, gross profit, operating profit, net profit, R&D expenditure, and market capitalization. All foreign currency sales and R&D expenditure figures through 2009 were translated into U.S. dollars at 2009 daily average exchange rates. In addition, total shareholder return was gathered and adjusted for each company’s corresponding local market.

Each company was coded into one of nine (9) industry sectors (or “other”) and into one of five regional designations as determined by each company’s reported headquarters location. To enable meaningful comparisons across industries, Booz & Company indexed the R&D spending levels and financial performance metrics for each company against the industry group’s median values.