CAIRO: In its fifth annual “Innovation 1000 study, global management consulting firm Booz & Company has revealed positive news for innovators: despite economic insecurity and falling profits, the world’s 1,000 largest publicly traded companies increased spending on R&D in 2008.
The study demonstrates the primacy of innovation to corporate strategy, because although sales for these companies rose only 6.5 percent, total R&D-allocated funds rose 5.7 percent to $532 billion.
Some companies, about 25 percent, decreased R&D budgets. But those able to do so maintained or increased funds.
“Reducing efforts on innovation would be similar to unilateral disarmament in wartime, said Hatem Samman, the director of the Ideation Center, Booz & Company’s leading think tank in the Middle East. “Now is an opportune time to build advantage over competitors, especially weaker ones that may have to skimp on R&D for financial reasons.
This year’s study included a new innovation itself by conducting in-depth surveys of nearly 300 senior managers and R&D professionals from 250 companies, producing a more complete picture of the specific nature of R&D within top companies.
For example, more than 90 percent of those surveyed emphasized the necessity of innovation as a preparation for the expected economic upturn. The top 100 companies in the Innovation 1000 demonstrate most clearly their confidence in R&D to maintain their companies’ dominance, increasing R&D spending by 3.2 percent while reducing overall capital expenditures by 1 percent.
“One result of the recession is that it has forced companies to think more carefully about their innovation processes and portfolios – for both good times as well as bad, observed Samman. “This held true through the most turbulent quarters these companies have navigated, indicating they’re ready to make smart bets that will pay dividends in the coming upturn.
Cutting overheads while boosting funds for innovation requires more careful screening of proposed R&D projects, a trend cited by more than 40 percent of those surveyed. Seven out of 10 companies surveyed said they trimmed costs by “adjusting strategies to better capture changing customer requirements, a cross-sector tendency that sees a more customer-friendly future in everything from telecom to automobiles.
The survey showed marked difference in R&D spending – and the success of R&D projects – between sectors. Last year’s survey revealed three industries accounted for two thirds of R&D spending: computing and electronics (28 percent), health (23 percent) and automotive (16 percent).
This year proved particularly difficult for automotive companies, 60 percent of whom were forced to decrease R&D spending this year, as opposed to only 25 percent last year. However, of those companies able to afford it, the amount spent was significant enough to increase the net amount spent by 0.6 percent. With automotive innovation high on the global priority list for as a method for reducing climate change, innovation is crucial, even in this hard-hit sector.
Some industries took advantage of the global recession to justify the need for innovation: eight out of the top 10 software and internet companies increased R&D, raising the net spending to 14 percent sector-wide. The healthcare sector saw the highest increase in spending – 12 percent of sales – while the aerospace and defense industry was the only area that saw investment in innovation fall, to 2.3 percent.
Quick Facts. The top 10 global R&D spenders in 2008 were, in descending order: Toyota, Nokia, Roche Holding, Microsoft, General Motors, Pfizer, Johnson & Johnson, Ford, Novartis and Sanofi-Aventis. . Booz & Company estimates that the Global Innovation 1000 accounts for 81 percent of 2008 total global corporate R&D spending of $660 billion.. North American, European, and Japan-based companies retained their 94 percent share of the total amount spent on R&D by those companies surveyed. Every region, including China and India, increased its R&D expenditures, though they did so at slower rates than in previous years.
