Top Innovators reap rewards

10 November 2010

NEW YORK: Brand owners with the most efficient innovation programme typically enjoy a "coherence premium" that delivers a range of financial benefits, according to a study by Booz & Co.

In a report, the consultancy estimated innovation spending by the 1,000 public companies across the globe which invested the greatest amount in R&D last year fell 3.5% in 2009 to $503bn.

This is the first decline for a decade, indicating the recession's impact on corporate priorities.

The data was supplemented by a survey of 450 senior executives and new product development specialists, representing more than 400 organisations.

Overall, innovation suffered less heavily than sales, general and administrative expenses, which was down 5.4%, and capital expenditure, down 17.5%.

More positively, healthcare giant Roche raised its outlay by 11.6% to $9.1bn (or 20.1% of sales), with Microsoft up 10.4% to $9.0bn (or 15.4% of revenue).

GlaxoSmithKline boosted funding by 12.7% to $6.2bn, while Merck was up 16.8% to $5.6bn.

Third-placed Nokia trimmed budgets by 1% to $8.2bn and Toyota cut by 19.8% to $7.8bn.

This is part of a wider 14% reduction among automakers, including drops of 25% and 32% for GM and Ford respectively.

Successful enterprises commonly focused on consumer insights, gaining an early comprehension of evolving technologies, soliciting customer feedback during NPD and working with pilot users at the roll out stage.

Such capabilities were afforded a leading role in Booz's poll of professionals, who named Apple as the most innovative company even though it allotted just $1.3bn, or 3.1% of sales, to R&D in 2009.

Google claimed second spot, spending 12% of its $23bn revenue, and 3M took third having directed 5.6% of its $23.1bn returns to the same activity.

These figures stood at 2.1% and $156bn for GE in fourth, 3.8% and $205bn for Toyota in fifth, ahead of Microsoft, where totals hit 15.4% and $58bn.

Procter & Gamble, IBM, Samsung and Intel completed the top ten.

The compound annual growth rate for the ten organisations lauded by industry experts came in at 56 index points, measured against 42 points among those carrying the largest budgets.

This gap reached 23 points concerning EBITA as a percentage of revenue, and 19% regarding the growth in market capitalisation over the same period.

Elite operators generally benefited from a "coherence premium", having tightly aligned their innovation and corporate objectives, as demonstrated by Apple following the reappointment of Steve Jobs as ceo in 1997.

"[Apple] has since concentrated very selectively on what it does well, and what really differentiates it from its peers: deep understanding of end-users, a high-touch consumer experience, intuitive user interfaces, sleek product design, and iconic branding," Booz & Co argued.

"The real winners, financially speaking, are those companies, like Apple, Google, and 3M, that can innovate successfully without breaking the bank."

Steve Hoover, Xerox's vp, R&D in charge of software, suggested a number of questions must be answered to generate similarly impressive results.

"How big an opportunity are you going after here? What will drive its value? Where are the biggest technical risks? What might cause the project to fail?" he asked. "You're looking for correlations."

Data sourced from Booz & Co; additional content by Warc staff