The 2012 Global Innovation 1000 Key Findings - Strategy& · The 2012 Global Innovation 1000 Key...

Perspective Barry JaruzelskiJohn LoehrRichard Holman

The 2012 Global Innovation 1000 Key Findings

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Booz & Company2

The 2012 Global Innovation 1000: Introduction and Key Findings

Every year since 2005, Booz & Company has conducted the Global Innovation 1000 study, which investigates the relationship between how much companies spend on R&D and their overall financial performance and long-term financial success—and every year, the study reinforces the conclusion that there is no correlation between the two. Instead, it is how companies leverage their R&D investments in conjunction with other resources and internal structures—such as personnel, capabilities, and decision-making processes —that determines their ability to execute their innovation agendas.

In our eighth annual study of the world’s 1,000 largest corporate R&D spenders, we focus on the “fuzzy front end” of the innovation process—the tools, mechanisms, and networks companies use to generate ideas and effectively convert them to commercial-ized products. We surveyed nearly 700 companies and interviewed 12 senior innovation executives and chief technology officers at leading companies to gain insights into the early stages of innovation, as well as to understand which companies they viewed as the most innovative in the world.

This year, we’ve identified five key themes from the Global Innovation 1000 study:

• The World’s Top 10 Most Innovative Companies Are Changing—Samsung continues its steady rise as Facebook falls.

• R&D Spending is in Recovery—After the recession, R&D is back on a solid growth trend.

• Spending ≠ Innovation—More dollars spent doesn’t guarantee innovation success.• We’ve Got No Idea—Nearly half of the organizations surveyed believe they are only

marginally effective at both idea generation and conversion. • Tried and True Rules—The most successful innovators employ traditional methods for

innovation success.

INTRODUCTION AND KEY FINDINGS

Booz & Company3

The World’s Top 10 Most Innovative Companies Are Changing

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Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

How do we create value?

What capabilities

do we need?

What will we sell?

Capabilities System

Way to Play

Products& Services

Rightto Win

CHANGE IN THE TOP 10 MOST INNOVATIVE COMPANIES2010–2012

2010 2011 2012

1st

2nd

3rd

4th

5th

6th

7th

8th

9th

10th

Apple Apple Apple

Google Google Google

3M 3M 3M

GE GE

GEToyota

Toyota

Toyota

Microsoft

Microsoft

Microsoft

P&G

P&G P&G

Samsung

Samsung

Samsung

IBM

IBM

IBM

Intel Facebook Amazon

Tie

• This year Amazon joined the Top 10 Most Innovative Companies ranking (#10), bumping Facebook from the list.

• For the second straight year, Samsung rose in rank (now ranked #4).

• Apple, Google, and 3M kept their 1st, 2nd, and 3rd positions, respectively.

Booz & Company4

Barry Jaruzelski, senior partner at Booz & Company:

“Facebook’s drop from the Top 10 Most Innovative Companies list may suggest that social media companies have lost some of their initial luster. In contrast,

Amazon’s first-time appearance on the list suggests that both the R&D community and consumers recognize companies as

providing superior value when they offer products and services in creative new ways that meet customer needs

through technical innovation.”

Booz & Company5

R&D Spending Is In Recovery


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Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

How do we create value?

What capabilities

do we need?

What will we sell?

Capabilities System

Way to Play

Products& Services

Rightto Win

THE GLOBAL INNOVATION 1000 R&D SPEND2001–2011; $BILLION

2010 2011 2012

1st

2nd

3rd

4th

5th

6th

7th

8th

8th

10th

Tie

Apple Apple Apple

Google Google Google

3M 3M 3M

GE GE

GEToyota

Toyota

Toyota

Microsoft

Microsoft

Microsoft

P&G

P&G P&G

Samsung

Samsung

Samsung

IBM

IBM

IBM

Intel Facebook Amazon

Sources: Bloomberg data; Booz & Company Innovation 1000 articles in strategy + business; Booz & Company analysis

Innovation 1000 R&D Spend

$603

$550

$503$521$495

$450$417

$391$369$355$353

20112010200920082007200620052004200320022001

AnnualGrowth 0.6% 6.5% 7.9% 10.0%3.7% 6.2% 5.4% -3.5% 9.3% 9.6%

11-year CAGR = 6%

3-year CAGR = 3.5%

3-year CAGR =9.5%

• In 2011, corporate spending among the Global Innovation 1000 reached an all-time high of $603 billion, an increase of 9.6 percent from the previous year. R&D spend increased in 2011 across most industry sectors and geographies.

• This is the second strong increase of R&D spending in a row (there was a 9.3 percent increase in 2010), following a brief decline (–3.5 percent) in 2009.

• The recovery in R&D spend after the worst recession in generations is much faster than it was after the dot-com bust at the beginning of this century.

• Although companies are still feeling the lingering effects of the global economic downturn, many seem to recognize the long-term value associated with R&D investment.

• This strong R&D recovery ($100 billion increase in the past two years alone) may signal a jobs recovery, especially in North America, where the largest portion of the absolute spending growth originates.

R&D spend grew 9.6% in 2011, continuing 2010's strong growth after the 2009 decline

Booz & Company6

R&D Spending Is In Recovery (continued)


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2012Rank

Company IndustryGeography

$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6

AutoHealthcareHealthcareHealthcare

Software and InternetComputing and Electronics

HealthcareComputing and Electronics

AutoComputing and Electronics

AutoHealthcareHealthcare

Computing and ElectronicsAuto

HealthcareComputing and ElectronicsComputing and Electronics

AutoHealthcare

TOTAL

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1011121314151617181920

ToyotaNovartis Roche HoldingPfizerMicrosoftSamsungMerckIntelGeneral MotorsNokiaVolkswagenJohnson & JohnsonSanofiPanasonicHondaGlaxoSmithKlineIBMCisco SystemsDaimlerAstraZeneca

JapanEuropeEurope

North AmericaNorth America

AsiaNorth AmericaNorth AmericaNorth America

EuropeEurope

North AmericaEuropeJapanJapanEurope


EuropeEurope

2011 R&DExp.; $Bn

THE 2012 TOP 20 R&D SPENDERS

• The top 20 R&D spenders collectively invested $154 billion on R&D in 2011— 26 percent of the Global Innovation 1000 spend.

• Auto companies increased their rank in the top spender list: - The auto companies among the top 20 spenders in 2010 either moved up in the

rankings or stayed the same in 2011.- R&D investment is becoming more critical as auto companies seek to meet ever

more stringent fuel economy standards, boost the electronics in their cars, develop common platforms around the globe, and attract younger buyers.

• Although the healthcare companies dominate the list, they have decreased their rank in the top spender list:- Of the eight healthcare companies in the top 20 spenders in 2010, all but Novartis

and Sanofi fell in the rankings in 2011. - Given the recent dearth of successful product introductions, many healthcare compa-

nies are hesitant to continue investing in innovation, choosing instead to steer profits to shareholders. Regulatory uncertainty has also taken its toll: large pharmaceutical companies appear reluctant to invest in R&D without a clear path to market.

Automotive Gains, Health Loses in the Top 20 R&D Spenders

Booz & Company7



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Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

Source: Bloomberg data, Booz & Company

Consumer 3%Telecom 2% Other 2%

Aerospace and Defense 4%

Healthcare 21%

Industrials10%

Auto16%

Software and Internet 7%

Chemicals and Energy 7%

Computing and Electronics

28%

2011 R&D SPEND BY INDUSTRY ($603 BILLION TOTAL)

• The top three industries with the greatest R&D investment continued to be: - Computing and Electronics (28 percent of total Global Innovation 1000 spend) - Healthcare (21 percent of total Global Innovation 1000 spend) - Auto (16 percent of total Global Innovation 1000 spend)

Computing and Electronics, Healthcare, and Auto Industries Top R&D Spending

Booz & Company8



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New

2012Rank Company IndustryGeography

$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn




Healthcare 21%

Industrials10%

Auto16%




28%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

TotalAerospace and Defense

$1,487

Telecom

$352

Consumer

$1,655

Other

$1,718

Chemicalsand Energy

$3,607

Change in R&D Spend (Million USD)

Healthcare

$6,037

Software and

Internet

$6,229

IndustrialsAuto

$13,214

Computing and

Electronics

$13,440

CHANGE IN 2010–2011 R&D SPEND BY INDUSTRY;$MILLION

Increases

Decreases

$52,632

Represents 66% of total R&D spend increase

While Health is the third largest spender, Industrials experienced the third largest absolute spend increase

While Healthcare is the third largest spender, Industrials experienced the third largest absolute spend increase


$7,867

• 65 percent of the overall $53 billion growth in R&D spend in 2011 came from the Computing and Electronics, Auto, and Industrials sectors.

• Though Healthcare was the second-largest spender on R&D in the Global Innovation 1000, it experienced only the fifth-largest increase in spend.

Two-thirds of the $53 billion spending increase came from the Computing and Electronics, Auto, and Industrials sectors

Booz & Company9



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India/China 2.7%

Rest ofWorld6.1%

Japan23.3%

Europe29.9%

North America37.9%

2011 R&D SPEND BY REGION $603 BILLION TOTAL

• Nearly 70 percent of the total Global Innovation 1000 spend is concentrated in North America and Europe.

• India and China, with 3 percent of the total R&D spend, play a minor but growing role.

India and China Outpace Other Regions in R&D Spend Growth, Though from a Small Base

Booz & Company10



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Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn




Healthcare 21%

Industrials10%

Auto16%




28%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440

CHANGE IN 2010–2011 R&D SPEND BY INDUSTRY

Increases

Decreases

52,632





India/China 2.70%

Rest of World6.12%

Japan23.33%

Europe29.91%

North America37.94%

2011 R&D SPEND BY REGION ($603 BILLION)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000

Change in R&D (Million USD)

TotalRest of World

$3,434

India/China

$3,912

Japan

$12,424

Europe

$14,736

North America

$18,126

CHANGE IN 2010–2011 R&D SPEND BY REGION;$MILLION

Sources: Bloomberg data; Booz & Company Innovation 1000 articles strategy+business; Booz & Company analysis

$52,632


While India/China experienced the greatest % in R&D spend, North America experienced the largest

absolute spend increase

0%

4%

8%

12%

16%

20%

24%

28%

Average9.6%

Japan

2.4%

Europe

5.4%

9.7%12.2%

India/China

27.2%

CHANGE (%) IN R&D SPEND BY REGION 2010–2011

Rest of World

North America

Increases

Decreases

While India/China experienced the greatest percentage increase in R&D spend, North America experienced the largest absolute spend increase

• North America and Europe were the largest contributors to the overall R&D spend growth in 2011; more than 60 percent of the increase came from these regions.

• India and China contributed 7 percent to the overall R&D spend increase.

• India and China had the strongest relative growth in R&D spending. North America was above average, while Europe and Japan lagged behind. - India- and China-based firms increased R&D spend by a phenomenal 27 percent over the previous year, albeit from a small spend base. It is also worth noting that their combined rate of growth was down from 38.5 percent in 2010, which may reflect the cooling down of the Chinese economy. - Companies headquartered in North America grew their R&D spending at a slightly above-average rate of 9.7 percent. - Europe and Japan grew at below-average rates of 5.4 percent and 2.4 percent, respectively.

Booz & Company11



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Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn




Healthcare 21%

Industrials10%

Auto16%




28%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440


Increases

Decreases

52,632





India/China 2.70%

Rest of World6.12%

Japan23.33%

Europe29.91%

North America37.94%

2011 R&D SPEND BY REGION ($603 BILLION)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


TotalRest of World

3,434

India/China

3,912

Japan

12,424

Europe

14,736

North America

18,126

CHANGE IN 2010–2011 R&D SPEND BY REGION


52,632


While India/China experienced the greatest % in R&D spend, North America experienced the largest

absolute spend increase

02468

10121416182022242628

Average9.6%

Japan

2.4%

Europe

5.4%

9.7%12.2%

India/China

27.2%


Rest of World

North America

Increases

Decreases


31.1%35.0%

32.1%

34.5%30.1%

32.4%

29.9%

33.6%

9.5%5.3%

9.6%6.1%

11.7%

6.1%

10.5%

4.9% 2.7%2.3%1.5%1.0%

21.7%

30.0%

7.3%

21.1%

23.3%

4.2%

38.5%

22.6%

27.3%

20.1%

8.5%

37.9%

23.3%

27.4%38.3%

29.9%

21.3%

4.3%

38.6%

24.4%

Japan

Europe

North America

Rest of World

India/China

GLOBAL INNOVATION 1000 COMPANY R&D SPEND AND REVENUE BY REGION 2008–2011

China HQ 15 23 40 47

India HQ 4 6 10 9

# Companies in Innovation 1000


RevenueR&D Spend

2008

RevenueR&D Spend

2009

RevenueR&D Spend

2010

RevenueR&D Spend

2011

• India and China are steadily gaining share in R&D spending, at a faster year-on-year rate than their proportionate gain in revenue. In 2008, India- and China-based firms accounted for 4.3 percent of the revenue generated by the Global Innovation 1000 companies; today that number has risen to 8.5 percent.

• Because China’s economy is much larger than India’s, and far more of its companies appear in the Global Innovation 1000 (47 companies from China, compared with just nine from India), China accounted for more than 90 percent of the two countries’ spending.

• More than half of all the Global Innovation 1000 companies that are headquartered in India and China are from the Chemicals, Energy, Construction, and Mining sectors – all historically low spenders on R&D.

• The high growth rates of R&D spending in India and China may well continue (or even accelerate) as these countries continue to develop more R&D-intensive sectors such as Computing and Electronics or Auto.

India and China have been steadily gaining share in R&D spending – but are gaining revenue share at an even faster rate

Booz & Company12

Spending ≠ Innovation


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Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

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1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn




Healthcare 21%

Industrials10%

Auto16%




28%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440


Increases

Decreases

52,632





India/China 2.70%

Rest of World6.12%

Japan23.33%

Europe29.91%

North America37.94%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


TotalRest of World

3,434

India/China

3,912

Japan

12,424

Europe

14,736

North America

18,126



52,632

02468

10121416182022242628

Average9.6%

Japan

2.4%

Europe

9.7%12.2%

India/China

27.2%

PERFORMANCE OF THE TOP 10 MOST INNOVATIVE COMPANIES VS. TOP R&D SPENDERS

Rest of World

North America


31.1%35.0%

32.1%

34.5%30.1%

32.4%

29.9%

33.6%

9.5%5.3%

9.6%6.1%

11.7%

6.1%

10.5%

4.9% 2.7%2.3%1.5%1.0%

21.7%

30.0%

7.3%

21.1%

23.3%

4.2%

38.5%

22.6%

27.3%

20.1%

8.5%

37.9%

23.3%

27.4%38.3%

Revenue2008

29.9%

21.3%

4.3%

R&D2008

38.6%

24.4%

Japan

Europe

North America

Rest of World

India/China


China HQ 15 23 40 47

India HQ 4 6 10 9



Revenue2009

R&D2009

Revenue2010

R&D2010

Revenue2011

R&D2011

Revenue Growth5-yr. CAGR

EBITDA as % of Revenue5-yr. Avg.

Market Cap Growth5-yr. CAGR

68% 65%62%

45%

54%

Top 10 Most Innovative

40%

Top 10 R&D Spenders

Normalized Performance of Industry Peers: 50%

Highest Possible Score: 100%

Lowest Possible Score: 0%

Source: Bloomberg data, Booz & Company• Once again, there are significant differences in performance between the Top 10 Most Innovative Companies and the top 10 R&D spenders. The 10 Most Innovative Companies outpace the top 10 R&D spenders on three key financial metrics: revenue growth, market cap growth, and EBITDA as a percent of revenue.

• The top 10 R&D spenders also lag their industry peers in the Global Innovation 1000 on revenue growth and market cap growth.

• Interesting to note is the limited overlap between the top 10 R&D spenders and the 10 Most Innovative Companies list: - Only Toyota, Microsoft, and Samsung are among both the Top10 Most Innovative Companies and the top 10 R&D spenders. - Although there are four healthcare companies among the top 10 spenders (Novartis, Roche, Pfizer, and Merck), no healthcare organization made it into the 10 Most Innovative Companies.

This reinforces our long-standing finding that a company’s financial performance and innovativeness do not correlate with how much it spends on R&D, but rather with how well it executes its innovation strategy.

Booz & Company13

We’ve Got No Idea


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Highly EffectiveMarginally Effective

Highly Effective

Marginally Effective

Idea Generation

Idea Conversion

11%

46%

25%

18%

Perhaps the most surprising result of this year’s study of the front-end of the innovation process is just how many companies say they simply aren’t very good at it.

• A full 46 percent of respondents say their companies are just marginally effective or average at generating ideas and converting them to commercial projects.

• A similar proportion (40 percent) told us last year that their company’s culture did not support efforts to come up with new ideas.

• It is clear that many companies have yet to master the right mix of factors to foster sustained innovation.

Performance at Idea Generation and Idea Conversion

Booz & Company14

Matthew Ganz, vice president and general manager of research and technology at the Boeing Company: “If you have a creative idea and it doesn’t create value, it’s not

technology. It’s art. If you’re all about value creation with no creativity, the accountants are going to take over. You need to prime

the pump with creative ideas, and then you need to have rigorous processes in place to

turn those ideas into dollars.”

Booz & Company15

We’ve Got No Idea (continued)


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8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn




Healthcare 21%

Industrials10%

Auto16%




28%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440


Increases

Decreases

52,632





India/China 2.70%

Rest of World6.12%

Japan23.33%

Europe29.91%

North America37.94%

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


TotalRest of World

3,434

India/China

3,912

Japan

12,424

Europe

14,736

North America

18,126



52,632

02468

10121416182022242628

Average9.6%

Japan

2.4%

Europe

9.7%12.2%

India/China

27.2%


Rest of World

North America


31.1%35.0%

32.1%

34.5%30.1%

32.4%

29.9%

33.6%

9.5%5.3%

9.6%6.1%

11.7%

6.1%

10.5%

4.9% 2.7%2.3%1.5%1.0%

21.7%

30.0%

7.3%

21.1%

23.3%

4.2%

38.5%

22.6%

27.3%

20.1%

8.5%

37.9%

23.3%

27.4%38.3%

Revenue2008

29.9%

21.3%

4.3%

R&D2008

38.6%

24.4%

Japan

Europe

North America

Rest of World

India/China


China HQ 15 23 40 47

India HQ 4 6 10 9



Revenue2009

R&D2009

Revenue2010

R&D2010

Revenue2011

R&D2011

Revenue Growth

5-yr. CAGR

EBITDA as % of Revenue

5-yr. Avg.


68% 65%62%

45%

54%

Top 10 Most Innovative

40%

Top 10 R&D Spenders





49%

58%56%60%

42%

50%

Marginally EffectiveStrongly Effective

FINANCIAL COMPARISON OF IDEA CONVERSION PERFORMANCE

54%52%50%

65%

45%46%


FINANCIAL COMPARISON OF IDEA GENERATION PERFORMANCE

Revenue Growth

5-yr. CAGR


5-yr. Avg.


• Most of the 25 percent of survey respondents who said their companies were highly effective at both ideation and conversion also reported that they outperformed their peers on three important financial measures—revenue growth, market cap growth, and EBITDA as a percentage of revenue.

• This correlation between effectiveness at the early stages of innovation and superior financial performance is a worrisome finding for the many companies that struggle at the front end.

Financial Success vs. Idea-Generation Performance

Booz & Company16

Conversion Isn’t Easy—Majority of Ideas Don’t Take Off


Guidelines:




TABLE HEADINGS






Line Weights:

0,5 pt

0,75 pt

1 pt

Arrows:

Line Textures:

solid

dashed

dotted

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440


Increases

Decreases

52,632





0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


TotalRest of World

3,434

India/China

3,912

Japan

12,424

Europe

14,736

North America

18,126



52,632

02468

10121416182022242628

Average9.6%

Japan

2.4%

Europe

9.7%12.2%

India/China

27.2%

PERCENTAGE OF IDEAS THAT MOVE TO DEVELOPMENT AND FULL COMMERCIALIZATION

Rest of World

North America


31.1%35.0%

32.1%

34.5%30.1%

32.4%

29.9%

33.6%

9.5%5.3%

9.6%6.1%

11.7%

6.1%

10.5%

4.9% 2.7%2.3%1.5%1.0%

21.7%

30.0%

7.3%

21.1%

23.3%

4.2%

38.5%

22.6%

27.3%

20.1%

8.5%

37.9%

23.3%

27.4%38.3%

Revenue2008

29.9%

21.3%

4.3%

R&D2008

38.6%

24.4%

Japan

Europe

North America

70%–100% of ideas

India/China


China HQ 15 23 40 47

India HQ 4 6 10 9



Revenue2009

R&D2009

Revenue2010

R&D2010

Revenue2011

R&D2011

Revenue Growth

5-yr. CAGR


5-yr. Avg.


68% 65%62%

45%

54%

Approximately what percentage of your organization’s ideas become product

or service concepts that move to full development projects?





49%

58%56%60%

42%

50%



N = 47 N = 66

54%52%50%

65%

45%46%



N = 60 N = 53

Revenue Growth

5-yr. CAGR


5-yr. Avg.


12%23%

38%

33%

49%43%

Approximately what percentage of your organization’s product or service

development projects are launched into the market?

30%–60% of ideas

1%–20% of ideas

70%–100% of ideas

30%–60% of ideas

1%–20% of ideas

The process of choosing which ideas to convert to full-scale product development is perhaps even more critical to a company’s innovation success than the actual generation of ideas. The conversion stage is the point at which companies use all the processes and tools at their command to decide whether a given idea in the pipeline is a “go” or a “no-go” for a full-scale commercialization project. In the view of many innovation experts, this is where the most value is added.

• Nearly half of respondents reported that fewer than 20 percent of their projects were converted to full development projects.

• Of the projects that do move to full development, fewer than 20 percent are converted into commercialized projects, according to 43 percent of survey respondents.

• Survey results show that the smaller companies in the Global Innovation 1000 (those ranked 101-1000) rank themselves twice as effective at the twice as effective at the conversion stage as the top 100 spenders—likely due to these organizations’ having an easier time converting ideas since they are smaller, more focused organizations.

Booz & Company17

Darlene Solomon, chief technology officer of the measurement company

Agilent Technologies: “In managing the conversion funnel, we’re constantly asking

ourselves, ‘What have we learned about the technology that makes it more or

less attractive than a year ago? What have we learned about the market and the competition that might help us decide whether the technology is even

more valuable or more of a me-too technology now? What’s changed within

Agilent in terms of our business priorities, and how might this influence whether

this is something that we want to continue investing in?’”

Booz & Company18

Tried and True Rules


Guidelines:




TABLE HEADINGS






Line Weights:

0,5 pt

0,75 pt

1 pt

Arrows:

Line Textures:

solid

dashed

dotted

Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440


Increases

Decreases

52,632





0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


TotalRest of World

3,434

India/China

3,912

Japan

12,424

Europe

14,736

North America

18,126



52,632

02468

10121416182022242628

Average9.6%

Japan

2.4%

Europe

9.7%12.2%

India/China

27.2%

TOP 5 RANKING FOR “WHICH OF THE FOLLOWING TOOLS AND MECHANISMS, IF ANY, DOES YOUR ORGANIZATION USE TO GENERATE NEW IDEAS?”

ALL RESPONDENTS (N = 685)

Rest of World

North America


31.1%35.0%

32.1%

34.5%30.1%

32.4%

29.9%

33.6%

9.5%5.3%

9.6%6.1%

11.7%

6.1%

10.5%

4.9% 2.7%2.3%1.5%1.0%

21.7%

30.0%

7.3%

21.1%

23.3%

4.2%

38.5%

22.6%

27.3%

20.1%

8.5%

37.9%

23.3%

27.4%38.3%

Revenue2008

29.9%

21.3%

4.3%

R&D2008

38.6%

24.4%

Japan

Europe

North America

Rest of World

India/China


China HQ 15 23 40 47

India HQ 4 6 10 9


Note: “Please force-rank up to five of the following tools in order to influence by ranking the most influential mechanism 1st, the next most influential mechanism 2nd and so on. Responses above reflect the recoded means, that is, responses of 1 or 2 = 1, all others = 0

Revenue2009

R&D2009

Revenue2010

R&D2010

Revenue2011

R&D2011

15%18%

19%22%

31%

42%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

All other categories(<15% each)

Technology Road Mapping

Idea Work-Out Sessions

Feedback from Sales and Customer Support

Traditional Market Research

Direct Customer Observation

Recoded Mean

Includes "social media network mining", "seed funding for

exploratory research", "external idea scouting", and "cross business

unit communities/sharing

Few companies succeed at innovation without ensuring that adequate processes are in place to generate new ideas, and that those processes are followed in a disciplined fashion.

Despite recent high-profile coverage of companies seeking innovative ideas from social networks, “the wisdom of crowds,” and open innovation contests, in reality, the majority of new ideas still come from traditional sources.

• By far the most popular method for generating ideas is “direct customer observation” (ranked as one of the Top 5 most used methods by 42 percent of survey respondents).

• Other categories that were cited by less than 15% of respondents included tools such "social media network mining", "seed funding for exploratory research", "external idea scouting", and "cross business unit communities/sharing".

Booz & Company19

Tried and True Rules (continued)


Guidelines:




TABLE HEADINGS






Line Weights:

0,5 pt

0,75 pt

1 pt

Arrows:

Line Textures:

solid

dashed

dotted

Company Score

1

2

3

4

5

6

7

8

9

10

Microsoft

Oracle

IBM

Hewlett-Packard

Cisco Systems

Apple

SAP

Xerox

Accenture

CSC

2.88

2.85

2.82

2.59

2.53

2.42

2.40

2.39

2.38

2.20

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440


Increases

Decreases

52,632





0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


TotalRest of World

3,434

India/China

3,912

Japan

12,424

Europe

14,736

North America

18,126

INDUSTRY BREAKOUT OF RESPONDENTS RANKING “SOCIAL NETWORKS” WITHIN THE TWO MOST USED TOOLS FOR GENERATING IDEAS


52,632

02468

10121416182022242628

Average9.6%

Japan

2.4%

Europe

9.7%12.2%

India/China

27.2%

TOP 5 RANKING FOR “WHICH OF THE FOLLOWING TOOLS AND MECHANISMS, IF ANY, DOES YOUR ORGANIZATION USE TO GENERATE NEW IDEAS?”

ALL RESPONDENTS (N = 685)

Rest of World

North America


31.1%35.0%

32.1%

34.5%30.1%

32.4%

29.9%

33.6%

9.5%5.3%

9.6%6.1%

11.7%

6.1%

10.5%

4.9% 2.7%2.3%1.5%1.0%

21.7%

30.0%

7.3%

21.1%

23.3%

4.2%

38.5%

22.6%

27.3%

20.1%

8.5%

37.9%

23.3%

27.4%38.3%

Revenue2008

29.9%

21.3%

4.3%

R&D2008

38.6%

24.4%

Japan

Europe

North America

Rest of World

India/China


China HQ 15 23 40 47

India HQ 4 6 10 9


Note: “Please force-rank up to five of the following tools in order to influence by ranking the most influential mechanism 1st, the next most influential mechanism 2nd and so on. Responses above reflect the recoded means, that is, responses of 1 or 2 = 1, all others = 0

Revenue2009

R&D2009

Revenue2010

R&D2010

Revenue2011

R&D2011

15%18%

19%22%

31%

42%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

All other categories(<15% each)

Technology Road Mapping

Idea Work-Out Sessions

Feedback from Sales and Customer Support

Traditional Market Research

Direct Customer Observation

Recoded Mean

0%

5%

10%

15%

Recoded Mean

Chemicals and Energy

ConsumerComputing and

Electronics

2%

0%

10%

Healthcare

11%

Software and Internet

15%

IndustrialsAuto Telecom Aerospace and Defense

3%3%

6%7%

Average Across Industries >10%

• “Social Networks” were ranked among the least commonly used "tools and mecha-nisms" for generating ideas; fewer than 10 percent of respondents ranked it among their top tools for idea generation.

• Highly engineered products industries like Auto, Industrials, and Aerospace and Defense were the least likely to use these mechanisms.

Social Networks are the least influential idea generation mechanisms for engineered products industries like Auto, Industrials, and Aerospace and Defense

Booz & Company20

Innovation Strategy Models


Guidelines:




TABLE HEADINGS






Line Weights:

0,5 pt

0,75 pt

1 pt

Arrows:

Line Textures:

solid

dashed

dotted

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440

INNOVATION STRATEGY MODELS

Increases

Decreases

52,632





Revenue Growth

5-yr. CAGR


5-yr. Avg.


68% 65%62%

45%

54%







49%

58%56%60%

42%

50%



N = 47 N = 66

54%52%50%

65%

45%46%



N = 60 N = 53

Revenue Growth

5-yr. CAGR


5-yr. Avg.


0%–20%

30%–60%

70%–100%12%23%

38%

33%

49%43%



0%–20%

30%–60%

70%–100%

Need Seekers, such as Apple and Procter & Gamble, make a point of engaging customers directly to generate new ideas and help shape new products and services based on superior end-user understanding. Their goal: to seek out both articulated and unarticulated needs, and then to try to get their new products to market first.

NEED SEEKERS

MARKET READERS

TECHNOLOGY DRIVERS

Market Readers, such as Hyundai and Caterpillar, use a variety of means to generate ideas by closely monitoring their markets, customers, and competitors, focusing largely on creating value through incremental innovations to their products. This implies a more cautious approach, one that depends on being “fast followers” in the marketplace.

Technology Drivers, such as Google and Bosch, depend more on their internal technological capabilities to develop new products and services, leveraging their R&D investments to drive both breakthrough innovation and incremental change, in hopes of meeting the known and unknown needs of their customers via new technology.�

• Respondents from companies identified as following a Need Seekers strategy reported to be the most effective among the strategy models at both the idea-generation and conversion stages. - A full 50 percent of Need Seekers reported being highly effective at both. - Just 12 percent of Market Readers and 20 percent of Technology Drivers reported being highly effective at both.

• It is important to remember that companies can significantly outperform their peers no matter which of the three strategies they follow. A far more critical factor is how well they follow their chosen innovation strategy. Companies that align their innovation strategy to their business strategy, capabilities, internal cultural support for innovation, and front-end processes have a distinct advantage in the race for new ideas, products, and services.


Guidelines:




TABLE HEADINGS






Line Weights:

0,5 pt

0,75 pt

1 pt

Arrows:

Line Textures:

solid

dashed

dotted

New


$9.9$9.6$9.4$9.1$9.0$9.0$8.5$8.4$8.1$7.8$7.7$7.5$6.7$6.6$6.6$6.3$6.3$5.8$5.8$5.5

$153.6








AutoHealthcare

TOTAL

123456789

1011121314151617181920


JapanEuropeEurope



EuropeEurope



EuropeEurope

2011 R&DExp. $Bn

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

55,000


1,487

Telecom

352

Consumer

1,655

Other

1,718

Chemicalsand Energy

3,607


Health

6,037

Software/Internet

6,229

Industrials

7,867

Automotive

13,214

Computing and

Electronics

13,440

FRONT-END TOOLS, MECHANISMS, AND STRUCTURES EMPLOYED BY COMPANIES

Increases

Decreases

52,632





Revenue Growth

5-yr. CAGR


5-yr. Avg.


68% 65%62%

45%

54%







49%

58%56%60%

42%

50%



N = 47 N = 66

54%52%50%

65%

45%46%



N = 60 N = 53

Revenue Growth

5-yr. CAGR


5-yr. Avg.


0%–20%

30%–60%

70%–100%12%23%

38%

33%

49%43%



0%–20%

30%–60%

70%–100%

Top Ranked Front-End Mechanisms- Idea Work-out Sessions- End-user focus groupsTop Ranked Internal Network Structure- Focused Technical Innovation Networks across the business

NEED SEEKERS

MARKET READERS

TECHNOLOGY DRIVERS

- Market Readers, such as Hyundai and Caterpillar, use a variety of means to generate ideas by closely monitoring their markets, customers, and competitors, focusing largely on creating value through incremental innovations to their products. This implies a more cautious approach, one that depends on being “fast followers” in the marketplace.

- Technology Drivers, such as Google and Bosch, depend more on their internal technological capabilities to develop new products and services, leveraging their R&D investments to drive both breakthrough innovation and incremental change, in hopes of meeting the known and unknown needs of their customers via new technology.�

Need Seekers

All Three

Market Readers

Tech Drivers

No distinct difference in External networks by strategy model

Top Ranked Front-End Mechanisms- Technology Road-mapping- Meetings w/ External Technical CommunityTop Ranked Internal Network Structures- IT Collaboration Tools- Facilities Layout

Top Ranked Front-End Mechanism- Direct Customer ObservationTop Ranked Internal Network Structures- Innovation Champions- Cross-unit Staffing (non-rotational)Top Ranked External Network Structures- Customers- Channel Partners & Suppliers

Top Ranked Front-End Mechanisms- Sales & Customer Support Feedback- Traditional Market Research

Top Ranked Internal Network Structures- Communities of Practice- Organized Conferences w/Technical staff

Five years ago, Booz & Company’s research showed that nearly every company follows one of three fundamental innovation strategy models—they are Need Seekers, Market Readers, and Technology Drivers—and each model has its own distinct approach to the innovation process and to the customers and markets the companies serve.

The types of techniques and tools companies employ to convert ideas depend in large part on each company’s innovation strategy.

Booz & Company21

Booz & Company identified the 1,000 public companies around the world that spent the most on research and development in 2011 (companies for which public data on R&D spending was available). To be included, companies had to make data on their R&D spending public; all analysis is based on the most recent annual financial data published as of June 30, 2012. Subsidiaries that were more than 50 percent owned by a single corporate parent were excluded if their financial results were included in the parent com-pany’s financials. This is the same approach used in the previous seven years in which the study was conducted.

Booz & Company analyzed key financial metrics for each of the top 1,000 companies over the past decade—including sales, gross profit, operating profit, net profit, R&D expenditure, and market capitalization. All foreign currency sales and R&D expenditure figures prior to 2011 were translated into U.S. dollars according to the average exchange rate in 2011.

Each company was coded into one of nine industry sectors (or “other”) according to Bloomberg’s industry designations and into one of five regions 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 perfor-mance metrics for each company against the industry group’s median values. Figures for total shareholder return were gathered and adjusted to reflect each company’s total share-holder return in its local market and to control for local market performance fluctuations. Booz & Company conducted a separate online survey of nearly 700 innovation leaders in companies around the world to explore how companies employ various tools, processes, mechanisms, and networks in the front-end phases of innovation as they relate to suc-cessful innovation and financial performance. Survey respondents were also asked a series of questions to help classify their companies into one of our three innovation strategy models: “Need Seekers,” “Market Readers,” or “Technology Drivers.” The classification of each company into one of these three models is based on an algorithm applied to their answers to our four profiling questions.

METHODOLOGY

Booz & Company is a leading global management consulting firm focused on serving and shaping the senior agenda of the world’s leading institutions. Our founder, Edwin Booz, launched the profession when he established the first management consulting firm in Chicago in 1914. Today, we operate globally with more than 3,000 people in 58 offices around the world.

We believe passionately that essential advantage lies within and that a few differentiating capabilities drive any organization’s identity and success. We work with our clients to discover and build those capabilities that give them the right to win their chosen markets.

We are a firm of practical strategists known for our functional expertise, industry foresight, and “sleeves rolled up” approach to working with our clients. To learn more about Booz & Company or to access its thought leadership, visit booz.com. Our award-winning management magazine, strategy+business, is available at strategy-business.com.

Booz & Company©2012 Booz & Company Inc.

The 2012 Global Innovation 1000 Key Findings - Strategy& · The 2012 Global Innovation 1000 Key...

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Transcript of The 2012 Global Innovation 1000 Key Findings - Strategy& · The 2012 Global Innovation 1000 Key...