There is a very interesting report from the consulting firm Booz Allen Hamilton analysing the figures and trends of innovation spending around the world. Basically they studied how R&D spending was evolving and how it was affecting sales, gross profit, operating profit, net profit, market capitalization and total shareholder return for the largest companies in the world.
Some preliminary facts: in 2005, the 1,000 companies from around the world with the biggest R&D budgets spent a combined total of $407 billion, a 7% increase over 2004. Which company had the biggest R&D spending you might ask? Ford Motor… and this is pretty much in line with the main message of the report.
I have always argued that R&D is not the driver of innovation. Sometimes it is necessary, but rarely sufficient (it basically comes down to the difference between invention and innovation, and you can read about that here). Guess what, the key finding of the report was that “ there are no significant statistical relationships between R&D spending and the primary measures of financial or corporate success: sales and earnings growth, gross and operating profitability, market capitalization growth, and total shareholder returns.”
Other identified trends include:
- patents generally do not drive profits
- absolute R&D is growing but R&D as percentage of sales is decreasing
- strong R&D growth in developing countries like China and India
- effective innovators excel in four elements: ideation, project selection, product development and commercialization
You can download the report here.