estudio relacion innovacion competitividad

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I S S U E 6 1 WINTER 2010

strategy+business

R E P R I N T 10408

THE GLOBAL INNOVATION 1000

How the Top InnovatorsKeep WinningBooz & Companys annual study of the worlds biggestR&D spenders shows why highly innovative companies areable to consistently outperform. Their secret? Theyre goodat the right things, not at everything.

BY BARRY JARUZELSKI AND KEVIN DEHOFF


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1000, our sixth, analyzes the capabilities systems that the

most successful innovators have assembled to execute

their distinct innovation strategies, and the ways they

have aligned those capabilities with their overall business

strategies. Innovators that have achieved this state of

coherence, we have found, consistently and significantlyoutperform their rivals on several financial measures.

We believe that this assessment of key innovation

capabilities comes at a particularly opportune time. This

year, for the first time in the more than a decade we have

been tracking global R&D spending, total corporate

R&D spending among the Global Innovation 1000 de-

clined, from US$521 billion in 2008 to $503 billion in

2009, or 3.5 percent. (See Profiling the 2009 Global

Innovation 1000, page 7.) Clearly, the global recession,

which had not yet taken its toll on the world of Illustration

by

Otto

Steininger

Why are some companies able to consistently

conceive of, create, and bring to market innovative and

profitable new products and services while so many oth-

ers struggle? It isnt the amount of money they spend on

research and development. After all, our annual Global

Innovation 1000 study has shown time and again thatthere is no statistically significant relationship between

financial performance and innovation spending, in

terms of either total R&D dollars or R&D as a percent-

age of revenues.

What matters instead is the particular combination

of talent, knowledge, team structures, tools, and process-

es the capabilities that successful companies put

together to enable their innovation efforts, and thus cre-

ate products and services they can successfully take to

market. This years edition of the Global Innovation

THE GLOBAL INNOVATION 1000

HOW THE TOPINNOVATORSKEEP WINNINGby Barry Jaruzelski and Kevin DehoffBooz & Companys annual study of the worldsbiggest R&D spenders shows why highly

innovative companies are able to consistentlyoutperform. Their secret? Theyre good atthe right things, not at everything.


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innovation in 2008, finally came home to roost last year.

Yet that decline makes it even more imperative that

companies spend their available R&D dollars wisely.Our goal this year is to examine the capabilities needed

to maximize the impact of a companys innovation

efforts in good times and bad, and to highlight the ben-

efits both of focusing on the short list of capabilities that

generate differential advantage, and of clearly linking the

specific decisions within innovation to the companys

overall capabilities system and strategy.

Strategies and Capabilities

Three years ago, in 2007, we focused our annual inno-

vation study on how companies use distinct innovation

strategies to create their products and take them to mar-

ket. Nearly every company, we found, followed one of

three fundamental innovation strategies:

Need Seekers actively and directly engage current

and potential customers to shape new products and

services based on superior end-user understanding, and

strive to be the first to market with those new offerings.

Market Readers watch their customers and com-

petitors carefully, focusing largely on creating value

through incremental change and by capitalizing onproven market trends.

Technology Drivers follow the direction suggested

by their technological capabilities, leveraging their in-

vestment in research and development to drive both

breakthrough innovation and incremental change, often

seeking to solve the unarticulated needs of their cus-

tomers via new technology.

It is important to note that we found that none of

these three strategies were any better than the others at

producing sustained superior financial results, although

Barry Jaruzelski

[email protected]

is a partner with Booz &

Company in Florham Park,

N.J., and is the global leader

of the firms innovation prac-

tice. He has spent more than

20 years working with high-

tech and industrial clients on

corporate and product strat-

egy, product development effi-

ciency and effectiveness, and

the transformation of core

innovation processes.

Kevin Dehoff

[email protected]

is a partner with Booz &

Company in Florham Park,

N.J., and is the global leader

of the firms engineered prod-

ucts and services business. He

has spent nearly 20 years

helping clients drive growth

and improve innovation perfor-

mance in areas including

research and development,

technology management,

product planning, and new

product development.

Also contributing to this article

were s+b contributing editor

Edward H. Baker and Booz &

Company Principal Lisa

Mitchell.

of course individual companies outperform others with-

in each strategic group. The success of each of the strate-

gies depends on how closely companies, in pursuinginnovation, align their innovation strategy with their

business strategy and how much effort they devote to

directly understanding the needs of end-users.

This year we set out to answer two new questions:

Which sets of capabilities are the most critical for the

success of each of the three strategies? And do companies

that focus on those critical capabilities see improved

overall financial results? Our hypothesis: Companies

that can craft a tightly focused set of innovation capa-

bilities in line with their particular innovation strategy

and then align them with other enterprise-wide capa-

bilities and their overall business strategy will get a

better return on the resources they invest in innovation.

Innovation capabilities enable companies to per-

form specific functions at all the stages of the R&D

value chain ideation, project selection, product de-

velopment, and commercialization. We asked respon-

dents to this years Global Innovation 1000 survey to

identify which capabilities were most important in

achieving success at innovation. (See Exhibit 1.) Then,

in hopes of getting further insight into which capabili-ties companies ought to work toward, we looked at the

capabilities focused on by the top 25 percent of per-

formers within the group using each of the three inno-

vation strategies. (See Exhibit 2.)

No matter which of the three innovation strategies

they pursued, all the successful companies depended on

a common set of critical innovation capabilities. These

include the ability to gain insights into customer needs

and to understand the potential relevance of emerging

technologies at the ideation stage, to engage actively


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4with customers to prove the validity of concepts during

product development, and to work with pilot users to

roll out products carefully during commercialization.

In addition to these common capabilities, compa-

nies among the top 25 percent in performance within

each strategic group depend on a set of distinct capabil-

ities they feel are critical to achieve success, some of

which overlap with those of other strategies. The mostsuccessful companies, we found, are those that focus

on a particular, narrow set of common and distinct

capabilities that enable them to better execute their cho-

sen strategy.

Need Seekers

The distinct strategy of Need Seekers is to ascertain the

needs and desires of consumers and then to develop

products that address those needs and get them to mar-

ket before the competition does. The capabilities re-

quired for success begin at the ideation stage, where

Need Seekers pursue open innovation and directly gen-

erated, deep consumer and customer insights and ana-

lytics, as well as a detailed understanding of emerging

technologies and trends, in order to identify both their

customers needs and the technology trends that can

help them meet those needs.

An example is Stanley Black & Decker Inc.sDeWalt division, a maker of power tools for profession-

al contractors. In its efforts to connect directly with cus-

tomers even before it starts selecting which projects to

develop, DeWalt regularly sends people out to construc-

tion sites to research builders needs and observe con-

struction crews in action. One notable result of such

efforts was the development of a 12-inch miter saw,

which became one of the companys bestsellers, after

researchers watched carpenters struggle to cut large

pieces of molding on the industry-standard 10-inch saw.

Exhibit 1: The Most Important Innovation Capabilities

Innovation executives surveyed this year were asked to rank the capabilities they considered most important for innovation success on a scale of 1 to 5(least to most important). At each of the four stages of the innovation process, a few critical capabilities emerged from the ability to gain customerinsight and analytics at the ideation stage to expertise in pilot-user selection and controlled rollouts at the commercialization stage.

IDEATION

Supplier and distributor engagement in ideation process

Independent competitive insights from the marketplace

Open innovation/capturing ideas at any point in the processDetailed understanding of emerging technologies and trends

Deep consumer and customer insights and analytics

PROJECT SELECTION

Strategic disruption decision making and transition plan

Technical risk assessment/management

Rigorous decision making around portfolio trade-offs

Project resource requirement forecasting and planning

Ongoing assessment of market potential

PRODUCT DEVELOPMENT

Reverse engineering

Supplierpartner engagement in product development

Design for specific goals

Product platform management

Engagement with customers to prove real-world feasibility

0Average ranking 0.5 1.0 1.5 2.0 2.5 3.0 3.5

COMMERCIALIZATION

Diverse user group management

Production ramp-up

Regulatory/government relationship management

Global, enterprise-wide product launch

Product life-cycle management

Pilot-user selection/controlled rollouts

Source: Booz & Company


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Need Seekers generally continue to remain con-

nected to customers both during the project selection

process, in which ongoing assessment of market poten-

tial is a key capability, and during product development,

when it is critical for Need Seekers to engage with cus-

tomers to prove the real-world feasibility of their prod-

ucts. At DeWalt, for instance, once prototypes of newproducts have been completed, engineers and marketers

take them back to the same job sites where the research

was originally done. They leave the new tools with the

customers, and come back a week or so later to collect

information on how the tools performed. That informa-

tion feeds directly into the companys iterative develop-

ment process.

Given that Need Seekers frequently depend for

their success on developing technically innovative prod-

ucts, a further key capability at the project selection

stage involves technology risk assessment and manage-

ment. At the Xerox Corporation, for example, Steve

Hoover, vice president of R&D in charge of software

development for the companys products, notes the

importance of risk management in assessing the poten-

tial business value of any project under development.

How big an opportunity are you going after here? heasks. What will drive its value? Where are the biggest

technical risks? What might cause the project to fail?

Youre looking for correlations. Where theres risk, you

have to put in the extra work to ensure you capture the

potential value.

At the commercialization stage, Need Seekers value

pilot-user programs and global product launches as cru-

cial for keeping in touch with customers even as they

scale up their sales efforts to capture the maximum value

of being first to market. Both DeWalt and dental equip-

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Exhibit 2: Critical and Specific Capabilities by Strategy

The top-performing companies in each of the innovation strategies, whether they were classified as Need Seekers, Market Readers, or TechnologyDrivers, all agreed on a shared set of critical innovation capabilities, but for each of the three strategies, a distinct set of capabilities such asresource-requirement management and supplierpartner engagement for Market Readers ranked among the most critical.


MARKET READERS

All Three

NEED SEEKERS

TECHNOLOGY DRIVERS

Open innovation

Market potentialassessment

Resource-requirementmanagement

Rigorousdecision making

Technical riskassessment


Engagement with customers

Broad consumer and customer insights

General understanding of emergingtechnologies


Product life-cyclemanagement

Detailed understanding ofemerging technologiesand trends

Enterprise-widelaunch

Directly generated deepconsumer/customerinsights

Supplierpartnerengagement

COMMERCIALIZATION

IDEATION

PROJECT SELECTION

PRODUCT DEVELOPMENT

CATEGORY OF

CRITICAL CAPABILITY


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ment maker Dentsply rigorously assess the percentage of

sales coming from new products. For Xerox, which sells

its products around the world, managing the launch

phase is a critical and highly complex endeavor, designed

to accommodate the long lead times, logistics, and train-

ing needs involved in selling large and sophisticated

machines in very diverse markets.

Market Readers

Market Readers, on the other hand, pursue their cus-

tomers more cautiously, preferring to innovate incre-

mentally and keeping a close eye on the innovations of

competitors. Like Need Seekers, they must pay careful

attention at the ideation stage to what customers are

looking for in the products they choose but in their

case, the goal is to make sure they are delivering success-

fully differentiated alternatives. Market Readers also

seek to track the technology trends that can help themcreate that differentiation.

Tim Yerdon is director of innovation and design at

Visteon, a global auto parts manufacturer. But his real

focus, he says, is to look at market trends and translate

those trends and needs into new products and services.

Thats why taking accurate readings of the marketplace

at both the ideation and the project selection stages is

a key capability for Visteon. A case in point is the com-

panys development of reconfigurable digital displays for

cars. Until recently, not many in the auto industry antic-

ipated that drivers would favor digital displays over tra-

ditional instrument clusters. Yet consumers were clearly

happy with the flat-screen TVs they were buying for

their homes. Says Yerdon: We did the market research,

we put all these data points together, and we could see

where the trends were going. In late 2009, Visteon suc-

cessfully launched its first reconfigurable displays.

The success of the Market Readers strategy depends

on managers making sure the right products hit the

market at the right time. So the initial process of select-

ing which projects to focus on is critical: Here, the keycapabilities include forecasting and planning for

project resource requirements, and rigorous decision

making involving portfolio trade-offs. At the Parker

Hannifin Corporation, a diversified manufacturer of in-

dustrial equipment, this understanding led to the imple-

mentation of a highly disciplined stage-gate process for

green-lighting projects, embedded in every division in

the company. Parker Hannifin treats its general man-

agers and their staff as venture capitalists who are being

asked to invest the companys money in certain projects.

The rigorous value screens that the company has devel-

oped as part of this process have enabled management to

filter out the good projects from the bad much more

successfully than before.

For companies like Visteon, an equally critical capa-

bility is engagement with customers to prove real-world

feasibility throughout the product development stage.

By working actively with automakers, says VisteonsYerdon, were taking a substantial amount of risk out of

the system. Rather than coming up with an idea, build-

ing it, and then bringing it to a customer, only to find

out they dont want it, were much better off working

together and more openly.

In the next year or so, Asia will become Visteons

largest market a remarkable achievement for a com-

pany that started out as a spin-off of the Ford Motor

Company. As Visteon continues to expand from its

longtime base in North America, its capabilities in read-ing different markets accurately and collaborating with

original equipment manufacturers in each market will

become even more essential, and thus having in-region

engineering capabilities will become increasingly critical.

Technology Drivers

Technology Drivers begin with a different approach to

ideation, using their technological prowess to develop

products their customers may not know they need.

Thats why the ideation stage is so critical for these com-

panies. They must pursue open innovation processes

that capture as many potential ideas as possible, all the

while avoiding being hobbled by a not invented here

attitude. They must also constantly scan markets for

new technologies that might further their pursuit of new

ideas. In addition, Technology Drivers must ensure that

their technical personnel have time to ideate: This is the

rationale for Googles well-known 70-20-10 rule,

which directs engineers to spend 70 percent of their

time on core business tasks and 20 percent on related

projects, but allows them to spend 10 percent of theirtime pursuing their own ideas.

Technology Drivers can take different approaches

to the ideation stage. The German technology giant

Siemens AG, for example, spends 5 percent of its over-

all R&D budget on planning for the long term, which

involves developing detailed technology road maps

within individual business units, as well as longer-range

scenarios of future technology trends at the corporate

level. This dual process has generated perspectives that

have enabled the company to expand its large health

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technologies business into new areas such as personal-

ized healthcare. And Siemens works hard to track the

payback from its centralized innovation office in the

form of actual new products launched.

The Masco Corporation, an $8 billion buildingproducts company, is more freewheeling in its ideation;

Masco seeks to be ready to leverage new technologies no

matter where they can be found. A few years back, com-

pany representatives noticed some interesting technol-

ogy at a trade show a wireless, battery-less switch,

which they were sure would have applications in the

home. We vetted the technology, brainstormed specif-

ic applications for the home, and developed a pilot,

recalls Thom Nealssohn, manager of innovation imple-

mentation services at Masco. Every time we showed it

to someone, we learned a little bit more, and that gave

us the fuel that we needed to go back and make it bet-

ter. Masco launched a new line of innovative program-

mable lighting products based on the technology

Verve Living Systems in 2009.Masco has had many similar successes. In many

cases, its just a matter of sitting down and saying, Heres

the problem we want to solve, Nealssohn says. What

really differentiates us is our willingness to partner with

customers, to try not only to understand what issues

theyre struggling with today, but to anticipate issues

that may arise as a result of what we see going on in the

world around us. That strategy, in turn, demands that

Technology Drivers like Masco also focus on rigorous

decision making in R&D portfolio trade-offs at the proj-

Profiling the 2009Global Innovation1000

most on research and development

decreased their total R&D spending in

2009 by 3.5 percent, to US$503 billion.

This decline in corporate R&D

spending is the first weve seen in the

more than 10 years we have tracked

the global innovators, and it is clear-

ly a result of the economic down-

turns impact on corporate R&D

budgets. Revenue for the Global

Innovation 1000 plunged at an 11

percent rate, from $15.1 trillion in

2008 to $13.4 trillion in 2009 near-

ly three times the rate of decline in

R&D spending. The result was that

R&D intensity (innovation spending

as a percentage of revenue) actually

increased, from 3.5 percent to 3.8

percent, indicating that companies

attempted to stay the course with

their overall innovation programs,

and that they continue to see innova-

tion as essential for future growth.

(See Exhibit 3.) Compared to the 3.5

percent reduction in R&D spending,

the 1,000 top R&D spenders cut

much more deeply into both sales,

general, and administrative expens-

es (a 5.4 percent reduction) and capi-

tal expenditures (a 17.5 percent

drop). (See Exhibit 4.)The reductions in R&D spending,

however, were neither as widespread

nor as evenly distributed among

industries as the overall numbers

might suggest. Just over half of all

the companies we tracked this year

cut their R&D spending in 2009.

Nearly all the cuts, however, came

in just three industries: auto, com-

puting and electronics, and industri-

als. The other industries increased

spending to a greater or lesser de-

gree. (See Exhibit 5.)

The auto industry alone accounted

he global recession finally

caught up with the worlds top

innovators in 2009. Following a rela-

tively strong 2008, during which total

R&D spending continued to grow

despite the recessionary headwinds,

the 1,000 companies that spent the

T


200097 0905

Exhibit 3: R&D and Sales

R&D spending fell in 2009, but sales fell moresharply, and as a result, R&D intensity the

dotted line rose by a fraction.

1997 base year = 1.0

1.0

1.5

0.5

2.0

2.5

3.0

Sales

R&D Spending

R&D Spendingas a % of Sales

Exhibit 4: Cost Reductions

Companies cut other discretionaryspending categories, such as sales,general, and administrative expenses(SG&A), more sharply than R&Dspending. This was especially true forcapital expenditures.


SG&A

5.4%

17.5%

CapitalExpendituresR&D

3.5%

2009 vs. 2008


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ect selection stage, if they are to funnel their wide-ranging

ideas into products that can succeed in the market.

Finally, because of the nature of their products,

Technology Drivers must pay strict attention to two key

capabilities in the commercialization stage: pilot-userselection/controlled rollouts, and product life-cycle

management. In essence, Masco serves three different

sets of customers: large home builders, home improve-

ment chains, and ultimately, end-users. Says Nealssohn:

We believe that everyone in the distribution chain

has to win. A shift of margin from one partner in the

chain to another does not necessarily equate to a win-

ning product. So it doesnt matter how much the cus-

tomer wants the product if the distributor or the

home builder doesnt see the opportunity to make

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for fully two-thirds of the $18 billion

contraction in R&D spending not

surprising, given the crunch the

industry went through in 2009. A large

number of auto parts suppliers fell

into bankruptcy protection last year,

and virtually every company in the

industry cut spending in all areas of

operations. Still, the industrys 14

percent decrease in R&D spending

was roughly in line with its 12.7 per-

cent decrease in revenue; as a result,

the auto industrys R&D intensity was

essentially unchanged, at 3.9 percent.

The computing and electronics

industry reported similar but less

drastic R&D spending reductions.

The industrys revenues were down

by 7 percent from 2008 as a result of

the recession and the accompanying

drop in sales. Yet as with autos, the

decline in R&D spending for comput-

ing and electronics 7 percent

tracked the decline in revenue, so

there was virtually no change in the

industrys R&D intensity.

Despite the $9.7 billion decline in

its R&D spending, computing and

electronics kept its top spot as the

biggest spender on innovation, while

autos remained at number three.

(See Exhibit 6.) The industry in the

Exhibit 6: 2009 Spending by Industry

Auto, computing and electronics, and healthcare remained the three biggest industries forR&D spending.


Other $8,287

Telecom $10,487

Consumer $19,533

Aerospace/Defense

Software/Internet

$21,704

$33,510

Chemicals/Energy $36,558

Industrials $50,704

Auto $73,082

Computing/Electronics

$136,921

Healthcare$112,790

$US millions

Exhibit 5: Change in R&DSpending by Industry, 200809

NETCHANGE

INSPENDING

$17,963

Healthcare $1,626

Software/Internet $1,560

Other $635

Telecom $508

Chemicals/ $431Energy

Aerospace/ $389Defense

Consumer $111

Industrials $1,308

Computing/ $9,771Electronics

Auto $12,144

INCREASEDSPENDING

DECREASEDSPENDING


$US millions

R&D cutbacks were concentrated in threesectors: auto, computing and electronics, andindustrials. Spending was up, on average, inall other sectors.

money, chances are that product is going to struggle

or even fail.

Focus Matters

The capabilities required to pursue each strategy forma systematic set of skills, processes, and tools that com-

panies must focus on to succeed at each stage of the

innovation process. In contrast to top-performing inno-

vators such as Apple, Google, Xerox, Visteon, and

Siemens, the poorest-performing companies within each

strategic group those among the bottom 25 percent

take a less-focused approach to the most critical

innovation capabilities.

These lower-performing companies, regardless of

which of the three strategies they are pursuing, cite only


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three common capabilities as important: early customer

insight, assessment of market potential during projectselection, and engaging with customers at the develop-

ment stage. Although all three of these capabilities

involve critical customer- and market-driven elements,

they are not sufficient; they need to be integrated with

more distinctive capabilities, such as awareness of new

technology developments and close attention to product

platform management. Notably, there is significantly

less overlap among the capabilities that low-performing

companies depend on. This suggests that these compa-

nies take more of a scattershot approach to building

the innovation capabilities systems they need. This lack

of focus, we believe, is a primary cause of their inferiorperformance.

Focusing on a systematic set of capabilities means

that companies must first choose the capabilities that

matter most to their particular innovation strategy, and

then execute them well. Our analysis suggests, however,

that although most companies are relatively strong at

executing critical capabilities within the areas of ide-

ation, project selection, and product development, they

underperform at the commercialization stage. (See

Exhibit 10.) Executives agree consistently that there

regions, Japan registered the largest

percentage drop in spending, at 10.8

percent, while North Americas

spending declined by 3.8 percent and

Europes by just 0.2 percent. (See

Exhibit 7.)

The innovation programs of com-

panies based in China and India, on

the other hand, seemed unaffected

by the recession: They boosted R&D

spending by 41.8 percent (albeit from

a small base; they account for only

1 percent of total Global Innovation

1000 corporate R&D spending). (See

Exhibit 8.)

Changes in the list of the top 20

spenders provided further signs ofthe times. The Toyota Motor Corpo-

ration fell from the top spending spot

among the Global Innovation 1000 for

the first time since our 2006 study.

(See Exhibit 9.) Toyota cut spending

almost 20 percent, while its R&D

intensity fell to 3.8 percent from 4.4

percent in 2008 no doubt a direct

result of its first-ever loss (more than

$4.3 billion that year). Other auto-

makers also fell on the Top 20 list,

while most companies in computing

and electronics rose a notch or two.

Taking over the number one posi-

tion was pharmaceutical giant Roche

Holding Ltd., which boosted its R&D

spending 11.6 percent, to $9.1 billion.

Indeed, healthcare companies took six

of the top 10 spots on the list, and

seven of the top 20. Coming in at num-

ber 1,000 was the medical manufac-

turer Seikagaku Corporation, which

spent $59.5 million in 2009, down 7.5

percent from the previous year.

In hindsight, given the severity

of the recession and the economic

uncertainty that gripped the world, it

seems inevitable that companies

would cut their innovation budgets in

2009. Still, their overall unwilling-

ness to reduce spending in line with

their decline in revenues is a tribute

to the importance companies in every

industry now place on innovation asa key source of growth. Thus, with the

recession drawing to a close and

(Profiling the2009 Global Innovation1000,

continued)

number two spot, healthcare,

increased its R&D spending by 1.5

percent much slower than the

industrys recession-defying revenue

growth rate of 6 percent.

Given the recessions overall effect

on innovation spending, its not sur-

prising that companies headquar-

tered in the regions that were hit

hardest cut their R&D spending the

most, on average. Of the top three

Exhibit 8: Spending by Region

The vast bulk of R&D spending remainsconcentrated among companies headquarteredin North America, Europe, and Japan.

Source: Bloomberg data (2009), Booz & Companyanalysis

Rest of World$26,708

India/China $7,528

$US millions, 2009

NorthAmerica$193,807

Europe$161,862

Japan$113,670

Exhibit 7: R&D SpendingGrowth Rates by Region

Source: Bloomberg data (2009), Booz&Company

analysis

20%

10%

0

10%

20%

30%

40%

50%

0 10% 20% 30% 40% 50%

Japan

Europe

North America

Rest of World

India/China

5-yr.CAGR

1-yr.CAGR

Areaof circle represents2009 spending

DECELERATEDGROWTH RATE

ACCELERATEDGROWTH RATE

= $100,000

$US millions

R&D decreased in North Americaand Japan and flatlined in Europe; the rateof spending growth decelerated in the rest ofthe world. China and India were the outlierswhere spending growth accelerated.


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are three customer- and market-oriented capabilities

that matter most: Gathering customer insights duringthe ideation stage, assessing market potential during the

selection stage, and engaging with customers during the

development stage. Yet when it comes to the capabilities

needed to introduce their products into the market,

there is no single one consistently named as a strength.

Clearly, there is a substantial gap between most compa-

nies ability to create innovative new products and their

ability to successfully take them to market.

In commercialization, the top performers stand out

by executing well in two critical areas: global product

launches and pilot-user selection and rollout. This

should come as no surprise, given that commercializa-tion capabilities are by nature the most cross-functional,

and are tied tightly to several other capabilities compa-

nies need to succeed in the marketplace, including man-

ufacturing, logistics, sales, and marketing. Xeroxs

Hoover acknowledges just how important the company-

wide process of launching products in the marketplace is

in the ability to capture the business value of innovation.

What do we have to get done, and when, so that we

can feed the new product into the global operating com-

panies pipeline, and what do they have to have ready so


Exhibit 9: The Innovation Top 20

The recession shook up the ranking of the Top 20 spenders. Toyota dropped from its number one spot to number four, and General Motors fell fromfive to 11. Pharmaceutical giant Roche Holding rose from number three to the top spot.

Rank2009 2008

Company Industry

2009, $USMillions

Changefrom 2008

A s a %of Sales

HeadquartersLocation

R&D Spending

3.7% 8.3%

$9,120

$9,010

$8,240

$7,822

$7,739

$7,469

$6,986

$6,391

$6,187

$6,002

$6,000

$5,820

$5,653

$5,613

$5,359

$5,285

$5,208

$5,143

$4,996

$4,900

Healthcare

Software and Internet

Computing and Electronics

Auto

Healthcare

Healthcare

Healthcare

Healthcare

Healthcare


Auto



Healthcare

Auto

Industrials



Auto

Auto

11.6%

10.4%

1.0%

19.8%

2.6%

3.5%

7.8%

0.2%

12.7%

7.9%

25.0%

8.2%

1.2%

16.8%

3.6%

3.1%

1.1%

7.9%

17.7%

32.9%

20.1%

15.4%

14.4%

3.8%

15.5%

16.9%

11.3%

15.6%

13.9%

5.5%

5.7%

6.1%

16.1%

20.5%

3.7%

5.1%

14.4%

6.4%

5.4%

4.1%

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

3

4

2

1

6

9

7

10

11

12

5

13

14

23

17

15

19

20

16

8

Roche Holding

Microsoft

Nokia

Toyota

Pfizer

Novartis

Johnson & Johnson

Sanofi-Aventis

GlaxoSmithKline

Samsung

General Motors

IBM

Intel

Merck

Volkswagen

Siemens

Cisco Systems

Panasonic

Honda

Ford

Europe

North America

Europe

Japan

North America

Europe

North America

Europe

Europe

South Korea

North America

North America

North America

North America

Europe

Europe

North America

Japan

Japan

North America

TOP 20 TOTAL: $128,943

most forward-looking companies will

move quickly to restore or even

increase the R&D spending they cut

in 2009 and to deploy it still more

effectively.

B.J. and K.D.

companies continuing to post strong

earnings, 2010 will be an important

test of their innovation mettle: The


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they can push it out? Its really basic project manage-

ment, but it has to be executed really well.

Aligning with Corporate Strategy

Companies that focus on a consistent set of innovation

capabilities clearly outperform their rivals. But as the

issue of commercialization demonstrates, a consistentset of innovation capabilities cant by itself explain why

they outperform. Innovation and the particular

strategies companies employ to pursue innovation is

just one aspect of every companys efforts to succeed in

the marketplace. They must also excel in areas outside

R&D, including manufacturing, logistics, sales, market-

ing, and human resources. And their innovation efforts

must be in sync with their overall corporate strategy:

They must integrate the right innovation capabilities

with the right set of firm-wide capabilities, as deter-

mined by their overall strategy.

Why is strategic alignment so critical? As part of

corporate strategy, every company needs to ask itself

what business it is really in, and how it intends to win

and then ask the individual business units the same

question. This must be both a bottom-up and a top-

down process. On the one hand, the business units,which are so much closer to the customer, must first see

an opportunity, and begin to innovate. On the other

hand, corporate strategists must manage the company-

wide R&D and sales agenda necessary to compete suc-

cessfully, even as they work to minimize spending and

make the process as efficient as possible. As we demon-

strated in 2007, companies that achieve a tight align-

ment of their firm-wide and innovation strategies on

average generate 40 percent higher operating income

growth and 100 percent greater total shareholder return.

Exhibit 10: Innovators Performance on Critical Capabilities

Respondents were asked to rate their companies performance on critical capabilities on a scale of 1 to 5. At the ideation, project selection, and productdevelopment stages of the innovation process, companies gave themselves generally good marks. The survey, however, revealed a general shortcomingat the commercialization stage, where companies agreed that their efforts were falling short.

IDEATION

Supplier and distributor engagement in ideation process

Independent competitive insights from the marketplace

Open innovation/capturing ideas at any point in the processDetailed understanding of emerging technologies and trends

Deep consumer and customer insights and analytics

PROJECT SELECTION

Strategic disruption decision making and transition plan

Technical risk assessment/management

Rigorous decision making around portfolio trade-offs

Project resource requirement forecasting and planning

Ongoing assessment of market potential

PRODUCT DEVELOPMENT

Reverse engineering

Supplierpartner engagement in product development

Design for specific goals


Engagement with customers to prove real-world feasibility

0 10% 20% 30% 40% 50% 60%

COMMERCIALIZATION

Diverse user group management

Production ramp-up

Regulatory/government relationship management

Global, enterprise-wide product launch

Product life-cycle management


ource: Booz & Company

Percentage of Respondents Rating Performance 4 or 5


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12

The 10 MostInnovativeCompanies

vote; it is followed by Google, with 49

percent; 3M is in third place, with 20

percent. Apple is an exceptional

example of our observation that suc-

cess in innovation is determined not

by how much money you spend, but

rather by how you spend it. The com-

pany has a long history of bringing

innovative and stylish products to

market, from the first Apple personal

computer in 1976 to the iPod, the

iPhone, and the iPad today. Yet it

invests just 3.1 percent of its rev-

enues in R&D, less than half the

average percentage of the computing

and electronics industry. Apples

financial performance has been stel-lar: a five-year total shareholder

return (TSR) of 63 percent. Second-

place Googles five-year TSR is even

more impressive, at 102 percent; its

R&D intensity (innovation spending

as a percentage of revenue), at 12

percent, is just 1.3 percentage points

lower than the average of the soft-

ware and Internet industry as a

whole. Third-place 3M has been seen

as a highly innovative company for

many years, and its five-year TSR of

almost 50 percent shows that it con-

tinues to spend its R&D money in the

right places. (See Exhibit 11.)

Only three of the companies on the

10 most innovative list Toyota,

Microsoft, and Samsung also

appear among this years top 10

spenders, reiterating the lack of cor-

relation between R&D spending and

innovation results. We also compared

the overall financial results of the

most innovative group with our listing

of the top R&D spenders. The results

are clear: The most innovative com-

panies outperformed their industry

peers on three different indicators of

financial success. (See Exhibit 12.)Companies that are perceived to be

highly innovative are clearly success-

ful in creating new products and

bringing them to market. Some

spend more than others to accom-

plish this goal, but the real winners,

financially speaking, are those com-

panies, like Apple, Google, and 3M,

that can innovate successfully with-

out breaking the bank.

B.J. and K.D.

very year, readers of the annu-

al Global Innovation 1000 study

which tracks the companies that

spend the most on innovation ask

us which companies are in fact the

most innovative. So this year, we

decided to query innovation execu-

tives for their perspective on this

question. As part of our survey

exploring the relationship betweeninnovation capabilities, corporate

strategy, and financial performance,

we asked more than 450 innovation

leaders in more than 400 companies

and 10 industries to name the three

companies they considered to be the

most innovative in the world.

Our survey participants collective

opinion suggests that their views are

very much in line with popular per-

ception. Apple far and away leads the

Top 10, capturing 79 percent of the

E

Exhibit 11: The 10 Most Innovative Companies

Innovation executives we surveyed voted overwhelmingly for Apple,Google, and 3M as the most innovative companies. Votes for the nextseven were much more modest.


R&D Spending2009$US mil.

Sales2009$US mil.

1

2

3

4

5

6

7

8

9

10

81

44

84

35

4

2

58

12

10

13

Apple

Google

3M

GE

Toyota

Microsoft

P&G

IBM

Samsung

Intel

$1,333

$2,843

$1,293

$3,300

$7,822

$9,010

$2,044

$5,820

$6,002

$5,653

$42,905

$23,651

$23,123

$155,777

$204,363

$58,437

$79,029

$95,759

$109,541

$35,127

3.1%

12.0%

5.6%

2.1%

3.8%

15.4%

2.6%

6.1%

5.5%

16.1%

Rank

Intensity(Spending as% of sales)

Exhibit 12: Top 10 Innovators vs. Top R&D Spenders

The Top 10 innovators significantly outperformed their peers on the

Global Innovation 1000 list on three key financial metrics.

Normalized

Performance ofIndustry Peers: 50

Highest PossibleScore: 100

Lowest PossibleScore: 0

RevenueGrowth5-yr. CAGR

EBITDA as% of Revenue5-yr. AVG.

Market CapGrowth5-yr. CAGR

56

42

80

67

54

35

TOP 10INNOVATORS

TOP 10SPENDERS

INNOVATORS

SPENDERS



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The Coherent Innovator

Companies that develop the relatively cohesive set of

innovation capabilities we have outlined, and then com-

bine them with similarly distinctive firm-wide capabili-

ties thus aligning their innovation strategy with the

overall corporate strategy can be said to be coherent.

They gain what we call a coherence premium, which

is manifested in their ability to outperform their rivals.By comparing the financial results of highly coherent

companies in the Global Innovation 1000 to their less-

coherent rivals, we found that, when normalized, the

profit margins of companies ranked in the top third in

terms of coherence were 22 percent higher, on average,

than those of companies in the bottom two-thirds, and

that the coherent companies achieved 18 percent greater

market capitalization growth as well. (See Exhibit 13.)

In general, the more coherent a company is, the more

competitive success it will have and the more it willbe able to generate the higher margins that result from

being truly differentiated.

Why are strong margins associated with higher

coherence? Optimizing the proper set of capabilities

allows companies to focus on what matters most, and

not spread effort and resources across a wide range of

capabilities that are less critical. More specifically, com-

panies that focus on critical capabilities aligned with

overall strategy tend to innovate more effectively and

bring their innovations to market more efficiently,

boosting top-line growth while reducing relative costs.

Regarding market cap growth, as companies gain the

differentiating capabilities that give them coherence,

their built-in advantage enables them to improve earn-

ings growth, a key metric that the stock market takes

into account when pricing a companys shares.

HIGHLYCOHERENT

53

LESS

COHERENT

45

52

74

Industry Peers

NormalizedPerformance: 50

Highest Possible

Score: 100

Lowest PossibleScore: 0

MarketCapitalization5-yr. CAGR

EBITDA as% of Revenue5-yr. AVG.

HIGHLY COHERENT

COMPANIES

LOW TO MODERATELYCOHERENT COMPANIES

Exhibit 13: The Coherent Innovators Premium

Companies on the Global Innovation 1000 list that scored in the top third

in terms of overall coherence those that had focused on a narrow set

of innovation capabilities, and aligned them with their innovation and

corporate strategy outperformed their less-coherent industry peers.


Booz & Company identified the 1,000 pub-lic companies around the world that spentthe most on research and development in2009. To be included, a companys data onits R&D spending had to be public; alldata is based on each companys mostrecent fiscal year, as of June 30, 2010.Subsidiaries more than 50 percent ownedby a single corporate parent were exclud-ed because their financial results are

included in the parent companys report-ing. This is the same core approach wehave used in the previous five years ofthe study.

For each of the top 1,000 companies,we obtained key financial metrics for 2002through 2009, including sales, grossprofit, operating profit, net profit, R&Dexpenditures, and market capitalization.All foreign currency sales and R&Dexpenditure figures through 2009 weretranslated into U.S. dollars at 2009 dailyaverage exchange rates. In addition, totalshareholder return was gathered and

adjusted for each companys correspon-ding local market.

Each company was coded into one ofnine industry sectors (or other) accord-ing to Bloombergs standard industry des-ignations, and into one of five regionaldesignations as determined by each com-panys reported headquarters location. Toenable meaningful comparisons acrossindustries, we indexed the R&D spending

levels and financial performance metricsof each company against its industrygroups median values.

This year, to better understand therelationship between innovation strategyand capabilities, we also conducted aWeb-based survey of more than 450 sen-ior managers and R&D professionalsfrom more than 400 different companiesaround the globe. The companies partici-pating represented more than US$150 bil-lion in R&D spending, or 40 percent of thetotal Global Innovation 1000 R&D spend-ing for 2009. Respondents came from all

industry sectors; 52 percent came fromNorth America, 33 percent from Europe,and 15 percent from the rest of the world.

We asked respondents to evaluate theinnovation capabilities they believed weremost important across the value chain,as well as their performance in each ofthese capabilities. Responses were ana-lyzed with a variety of statistical methodsto allow us to distinguish the capabilities

most important in pursuing each of thethree innovation strategies we defined inour 2007 study. Although company namesand responses were kept confidential(unless permission to use them wasexplicitly given), a large number of therespondents identified themselves, en-abling us to associate their survey an-swers with their companys performance.Financial performance was normalized byindustry to compare the impact of capa-bility coherence on corporate financialperformance both within strategies andacross all companies.

Booz & Company Global Innovation 1000: Methodology


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17/54

Innovation 2010A Return to Prominenceand the Emergence

of a New World Order

R


18/54

The Boston Consulting Group (BCG) is a global manage-

ment consulting firm and the worlds leading advisor on

business strategy. We partner with clients in all sectors

and regions to identify their highest-value opportunities,

address their most critical challenges, and transform their

businesses. Our customized approach combines deep in-

sight into the dynamics of companies and markets with

close collaboration at all levels of the client organization.

This ensures that our clients achieve sustainable compet-

itive advantage, build more capable organizations, and

secure lasting results. Founded in 1963, BCG is a private

company with 69 offices in 40 countries. For more infor-

mation, please visit www.bcg.com.


19/54

Innovation 2010A Return to Prominenceand the Emergenceof a New World Order

bcg.com

James P. Andrew

Joe Manget

David C. Michael

Andrew Taylor

Hadi Zablit

April 2010


20/54

The Boston Consulting Group, Inc. 2010. All rights reserved.

For information or permission to reprint, please contact BCG at:E-mail: [email protected]: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions

The Boston Consulting Group, Inc.

One Beacon StreetBoston, MA 02108USA


21/54

I

ContentsExecutive Summary 4

Innovation in 2010 6

Innovation Regains Its Priority Status 6

Companies Spending Plans 7

Satisfaction with the Return on Innovation Spending 7

Measurement Practices 9Hurdles to Generating a Higher Return on Innovation Spending 10

Goals and Tactics 12

What Kind of Innovation? 12

Leveraging RDEs 12

The Most Innovative Companies 15

An Emerging New World Order in Innovation? 18

Driving the BICs 18

Implications for Leaders 20

Survey Methodology 22

For Further Reading 23

Note to the Reader 24


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The Boston Consulting Group, working in

partnership with BusinessWeek, recently

completed its seventh annual global survey

of senior executives on their innovation

practices. This report summarizes that sur-

veys results. It covers the full suite of interrelated activi-

ties involved in turning ideas into financial returns, going

well beyond ideation and new-product development to

include such issues as portfolio and life-cycle manage-

ment, organizational alignment, and demands on lead-

ers. It discusses what works and what doesnt and the ac-

tions companies are taking to make innovation happen.

Finally, the report offers pragmatic advice for individualswho want to make a difference in their organizations.

Our survey revealed that, aer a moderate retrenchment

in 2009, companies have recommitted to pursuing inno-

vation in 2010. They have pushed it back to the top of

their priority lists and plan to boost their innovation

spendingdespite the stagnant economy. Indeed, many

companies consider innovation a key weapon in their ef-

forts to seize the benefits of a tentatively emerging eco-

nomic recovery. The report also postulates that a new

world order in innovation is taking hold, one in which

rapidly developing economies (RDEs), led by China, In-dia, and Brazil, will increasingly assume more prominent

positions, while the United States and other mature econ-

omies continue to play major roles but gradually become

less dominant.

This report examines these and a host of other innova-

tion-related topics, including which types of innovation

companies consider most critical to their success, what

companies consider to be the biggest obstacles to raising

their return on innovation spending, and how innovation

is regarded within organizations. The report also suggests

actions that companies and their leaders can take to max-

imize the return on their innovation efforts in this still

very challenging economic and business environment.

Aer a pause in 2009 that reflected companies grow-

ing concerns about the economy, innovation is once

again a top priority for most companies.

A large majority of companies consider innovation a

top strategic priority for 2010. Seventy-two percent of

respondents said that their company considers it a top-

three priority, versus 64 percent in 2009. This percent-

age matches the highest reading seen in the sevenyears we have been conducting the survey.

Fully 84 percent of respondents said their company

considers innovation an important or extremely im-

portant lever in its ability to reap the benefits of an

economic recovery.

Companies willingness to spend on innovation, and

their satisfaction with the return on innovation

spending, are inching higher.

The majority of companies expect to raise innovationspending in 2010. Sixty-one percent of respondents

(versus 58 percent in 2009) said their company plans

to boost spending; 26 percent said their company

plans to raise it significantly (that is, by more than 10

percent). Only 8 percent of respondents said their com-

pany plans toreduce innovation spending, versus 14

percent who said so in 2009.

Companies satisfaction with their return on innova-

tion spending continues to edge higherbut remains

relatively low. Fiy-five percent of respondents said

Executive Summary


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I

their company is satisfied, versus 43 percent in 2008

and 52 percent in 2009.

The majority of senior executives (that is, C-level ex-

ecutives and vice presidents) and decision makers

(that is, directors and managers) are satisfied with the

return on innovation spending. In sharp contrast, little

more than a third of other employees36 percent of

respondentsare satisfied.

Caution remains in the air, however, and companies

are adjusting their strategies and tactics.

Reflecting lingering caution about the economy, com-

panies continue to ramp up their emphasis on innova-

tion geared toward minor improvements to existing

products and services (as opposed to, for example, in-

novation targeting the launch of new products). Eighty

percent of survey respondents said their company con-

siders this type of innovation important or extremely

important, versus 55 percent in 2008 and 65 percent in

2009.

Businesses are tempering their innovation investments

in RDEs. Forty-one percent of respondents said their

company plans to raise its R&D investment in RDEs in2010, down from 45 percent in 2009. Simultaneously,

companies are broadening the types of innovation

functions they are targeting with those investments. In

particular, they are aggressively expanding their em-

phasis on product development and idea generation.

Executives consider a risk-averse corporate culture,

lengthy product-development times, and inadequate

measurement practices to be key areas of weakness.

Executives identify a risk-averse corporate culture and

lengthy product-development times as the two biggestfactors holding down the return on their innovation

spending.

The majority of companies are dissatisfied with their

innovation-measurement practices. Only 41 percent of

respondents said that their company is measuring ef-

fectively. Customer satisfaction and overall revenue

growth are the two main gauges that companies use to

determine the success of their innovation efforts.

The organizations that top our list of the most inno-

vative companies remain unchallengedbut a lon-

ger-term change seems to be under way.

For the fourth straight year, respondents ranked Apple

and Google the two most innovative companies, with

Apple once again the hands-down winner. Apple has

held the top spot in our survey since 2005.

There is much to suggest that a new world order is

emerging, with RDEs, led by China, India, and Brazil,

gradually assuming more prominent positions, while

the United States and the other mature economies

continue to play major roles but gradually become less

dominant.

Less than half of survey respondents believe that U.S.

companies will remain the most innovative over the

next five years.

About the AuthorsJames P. Andrew is a senior partner and managing direc-

tor in the Chicago office of The Boston Consulting Group;

you may contact him by e-mail at [email protected] Manget is a senior partner and managing direc-

tor in the firms Toronto office; you may contact him by

e-mail at [email protected]. David C. Michael is a se-

nior partner and managing director in BCGs Beijing of-

fice; you may contact him by e-mail at michael.david@

bcg.com. Andrew Taylor is a partner and managing di-

rector in the firms Chicago office; you may contact him

by e-mail at [email protected]. Hadi Zablit is a

partner and managing director in BCGs Paris office; you

may contact him by e-mail at [email protected].


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T B CG

Innovation, aer a brief pause, is back. That was

the headline message conveyed by our latest an-

nual survey on the topic, which reflects the in-

sights of nearly 1,600 executives. Companies had

taken a relatively defensive stance on innovation

heading into 2009, easing back on spending plans and

keeping a closer eye on costs. While that caution has cer-

tainly not vanished, the general outlook is significantly

more positive. Companies believe in innovation, consider

it critical (especially in the current economic environ-

ment), and are increasingly willing to spend more to be-

come more innovative.

Simultaneously, there is much to suggest that a new world

order in innovation is emerging, one in which RDEs, led

by China, India, and Brazil, are in the ascendancy and

gradually assume the reins from established economies,

in particular the United States, which has long been (and

remains) the torchbearer for innovation. The implications

of this trend, especially for managers, are sizable.

Below we discuss the current state of play in innovation,

starting with the importance companies are attaching to

innovation and how that translates into spending plans.

Innovation Regains Its Priority Status

Aer falling for several years, innovations status as a

strategic priority bounced back strongly in 2010. (See Ex-

Innovation in 2010

Where does innovation rank amongyour companys strategic priorities?

Percentage of respondents who considerinnovation a top-three strategic priority

6

23

45

26

Top-threepriority

1Top-tenpriority

Nota priority

0

20

40

30

Percentage of respondents

Toppriority

1

72646666

72

0

20

40

60

80

100Percentage of respondents

2006 2007 2008 2009 2010

Exhibit 1. Innovation Returned to Prominence in 2010

Sources: BCG Senior Executive Innovation Surveys, 2010, 2009, 2008, 2007, 2006.1The total percentage of respondents who said that innovation is one of their companys top-three priorities rounds to 72 percent.


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I

hibit 1.) Seventy-two percent of respondents said it is one

of their companys top-three strategic priorities, up sig-

nificantly from the 64 percent who said so in 2009. Inno-vation is deemed particularly important by the travel and

tourism and retail industries; 79 percent and 77 percent

of respondents from those industries, respectively, said

that their company considers it important or extremely

important.

A strong majority of respondentsfully 84 percentalso

said they consider innovation important or extremely im-

portant for positioning their company to benefit from an

economic recovery. This view held across industries, with

automakers, in particular, deeming it essential (93 per-

cent of respondents from that industry said they consider

it vital).

As we have noted in previous reports, making innovation

a top priority pays off. There is a strong correlation be-

tween innovation prowess and overall business success,

as evidenced by the organizations that consistently top

our list of the most innovative companies. Emphasizing

innovation is also a proven boon to shareholders. We

looked at the total shareholder returns of the most inno-

vative companies (as identified by our survey respon-

dents) versus those of their industry peers for the three-and ten-year periods ending December 31, 2009; the

results were compelling. (See Exhibit 2.) Globally, on an

annualized basis, innovators outperformed their peers by

a whopping 12.4 percentage points over three years and

by a more modest but still significant 2 percentage points

per year over ten years. The bottom line: if you are an in-

vestor, youd do well to seek out innovative companies.

Companies Spending Plans

Consistent with this heightened emphasis on innovation,companies are nudging up their spending. Sixty-one per-

cent of respondents said that their company plans to

boost its innovation spending (versus 58 percent in 2009);

26 percent said their company plans to raise spending sig-

nificantly (that is, by more than 10 percent). And only

8 percent of respondents said their company plans tore-

duce innovation spending, versus 14 percent who said so

in 2009. (See Exhibit 3.)

By industry, automotive companies are the most bullish:

69 percent of respondents said their company would

raise innovation spending, and 36 percent said their com-

pany would do so significantly.

Satisfaction with the Returnon Innovation Spending

One factor that may be driving the uptick in spendingplans is rising satisfaction with the return on innovation

spending. While the level of satisfaction is still lowonly

55 percent of respondents said that their company is sat-

isfiedit has been on the rise for the last three years.

(See Exhibit 4.) Satisfaction is particularly strong this year

among consumer products companies; 64 percent of re-

spondents from that industry said that their company is

satisfied.

Worth noting, though, is the persistent difference in view

between senior executives and decision makers and the

12.4

2.0

12.0

2.0

7.2

1.9

16.5

6.0

5

0

5

10

15

20

Annualized TSR premium (%)

Three- and ten-year annualizedtotal-shareholder-return premiumsof innovative companies compared

with their industry peers

Globalinnovators

Americasinnovators

Europeaninnovators

Asia-Pacificinnovators

Three-year premium Ten-year premium

Exhibit 2. Innovative Companies Typically

Generate Superior Returns

for Shareholders

Sources: BCG 2010 Senior Executive Innovation Survey; BCG

ValueScience Center analysis.

Note: Returns were annualized for December 31, 2006, to December

31, 2009, for the three-year comparison, and for December 31,1999,

to December 31, 2009, for the ten-year comparison, and account for

price appreciation and dividends. To generate the comparison data,we compared the TSR of each innovative company, as identified by

survey respondents, with the TSR of its industry overall and averaged

the differences globally and by region.


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T B CG

rest of the company. Simply put, the top brass are farmore satisfied. In 2010, the majority of C- and VP-level

executives, directors, and managers said they were satis-

fied with their companys return on innovation spending,

versus only 36 percent of other employees. (See Exhibit

5.) C-level executives are the most satisfied (59 percent of

respondents), as they have been historically in our sur-

veys. Given the role that these executives, particularly the

CEO, play in their organizations innovation effortsthe

CEO has consistently been identified as the biggest force

driving innovation in our surveysthis enthusiasm is

perhaps not surprising. (See Exhibit 6.) In fact, its prob-

ably vital to have a bullish CEO if innovation is critical toyour company.

But the ongoing gap in perspective between top execu-

tives and the rest of the organization may be indicative

of problemsor problems to come. Assuming that the

CEO is, in fact, correct in his or her assessment, he or she

should ultimately be able to sell that vision to the rest of

the company. But clearly this hasnt happened. Could it

be that CEOs and other top executives are wrong? Does

the rest of the company have a better read on the true

state of affairs? Obviously both sides cant be right.

How will your companys investments in innovationcompare with its investments last year?

5

9

28

32

35

31

35

26


26

Increasesignificantly

(>10%)

Increaseslightly

(1%10%)

Stayroughly

the same

Decreaseslightly

(1%10%)

Decreasesignificantly

(>10%)

2009 2010

40

30

20

10

0

Exhibit 3. Sixty-One Percent of Companies Plan to Increase Their Innovation Spending,

While Only 8 Percent Plan to Reduce It

Sources: BCG Senior Executive Innovation Surveys, 2010, 2009.

Are you satisfied with the financial returnon your investments in innovation?

57

43

4852

45

55

0

20

40

60

Yes No/Not sure


2008 2009 2010

Exhibit 4. Satisfaction with the Return onInnovation Spending Has Risen for the

Past Three Years but Remains Low

Sources: BCG Senior Executive Innovation Surveys, 2010, 2009,

2008.


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I

A final thought on the topic of leadership: CEOs are the

most recognized leaders of companies innovation efforts.

Yet only 28 percent of survey respondents identified theCEO as the key driver at their company. This suggests a

general absence of high-level leadership regarding inno-

vationand a real opportunity for many companies to

improve.

Measurement Practices

Gauging returns on innovation spending with any confi-

dence requires proper measurement. Are most compa-

nies hitting the mark? Based on our survey, the answer is

no. Only 41 percent of respondents said they are satisfied

with their companys measurement practices.

The choice of metrics is undoubtedly part of the problem.

Companies biggest flaw is typically that they undermeas-

ure. Our 2009 reportMeasuring Innovation 2009: The Need

for Action revealed that the majority of companies use

only 5 or fewer metrics. In contrast, our experience has

shown that 10 to 12 metrics are required to provide the

information necessary to really manage, rather than

Are you satisfied with your companysreturn on innovation spending?

0

20

40

60 59 5854 53

36

C-level Vicepresident

Director Manager Other

Percentage of respondents who said yes

Exhibit 5. Satisfaction With the Return on

Innovation Spending Correlates Closely

with Position in the Organization

Source: BCG 2010 Senior Executive Innovation Survey.

Who is the biggest force driving innovation at your company?

30 28

19

10

8 8

5 5 4 4

2

6

20

10

0


Chiefexecutive

officer

President Chairperson Chiefoperating

officer

Vicepresidentor headof R&D

Chiefinformation

officer

Vicepresidentor head ofmarketing

Vicepresidentor head ofinnovation

Chieffinancialofficer

Vicepresidentor head ofstrategy

Other

Exhibit 6. CEOs Are Innovations Biggest Champions



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T B CG

merely react to, the innovation process. Companies gowrong in other ways as well. They measure the wrong

things, they fail to tie incentives to metrics so that the

metrics stickor, in some cases, they do not measure

at all.

When companies do measure innovation, which metrics

do they use? In past surveys, the two most widely em-

ployed yardsticks were customer satisfaction and overall

revenue growth. That remains the case in 2010, with 45

percent and 40 percent of respondents, respectively, nam-

ing these two metrics. (See Exhibit 7.) Neither of these

measures is perfect, it should be noted, since both are in-fluenced by many other factors besides a companys in-

novation capabilities or success.

One metric that continues to be underutilized is time to

marketthis year, only 20 percent of respondents said

their company monitored it. Given that respondents have

consistently identified lack of speed as one of their com-

panys biggest weaknesses, as well as one of the biggest

hurdles to raising their return on innovation spending,

the neglect of this measure remains perplexing. Given the

persistent failure to measure the time it takes to turn

ideas into cash, however, the lack of progress in actuallyimproving time to market is totally understandable.

Hurdles to Generating a Higher Returnon Innovation Spending

What do companies believe is weighing down their re-

turn on innovation spending? Respondents identified a

broad mix of challenges. (See Exhibit 8.) The most fre-

quently cited were a risk-averse corporate culture (31 per-

cent of respondents) and lengthy development times (30

percent), which have been the top two responses for thepast several years. A risk-averse culture is a particular

problem for retailers (40 percent of respondents from

that industry identified it) and makers of consumer prod-

ucts (36 percent). Long development times are a major

barrier for entertainment and media companies (40 per-

cent of respondents) and, not surprisingly, pharmaceuti-

cal companies (38 percent).

It is noteworthy that, as in past years, relatively few re-

spondents (22 percent) identified a shortage of great

ideas as a major hurdle. (The noteworthy exception is

How does your company measure its success at innovation?

30

40

5045

40

35

2927 26 26 25

20

15

20

10

0


Customersatisfaction

Overallrevenuegrowth

Percentageof sales

from newproducts or

services

Highermargins

New-productsuccessratios

Return oninnovationspending

Projectedversus actualperformance

Numberof new

productsor services

Time tomarket

Patents

Exhibit 7. Customer Satisfaction and Overall Revenue Growth Are the Most Commonly

Used Metrics



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I

travel and tourism companies: 34 percent of respondentsfrom that industry identified it as a challenge.) In fact,

most organizations have any number of promising ideas.

But generating ideas and turning those ideas into cashare two entirely different things, as most companies learn

fairly quickly.

What are the biggest obstacles you face when it comes togenerating a return on your investments in innovation?

30

40

31 30

2624

22 22 21 21 2120

20

10

0


Risk-averseculture

Lengthydevelopment

times

Difficulty selectingthe right ideas tocommercialize

Inability toadequatelymeasure

performance

Not enoughgreat ideas

Lack ofcoordination

within thecompany

Ineffectivemarketing and

communications

Compensationnot tied

to innovationresults

Not enoughcustomer

insight

Insufficientsupport from

leadership andmanagement

Exhibit 8. A Risk-Averse Culture and Lengthy Development Times Are the Biggest Hurdles

to Improving the Return on Innovation Spending



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El impacto dE la i+d+ En El sEctor productivo Espaol

79v Cncluine

v. conclusionEs

El objetivo del preente trabajo e analizar el impacto que la actividade de innovacin de la em-

prea epaola tienen en u reultado tecnolgico y econmico, identifcado a trav de una

erie de indicadre cnenid en el Panel de Innacin tecnlgica (PItEC) y en la Encuea bre

Eraegia Empreariale (EsEE)

se han aplicad d medlga de anlii cmplemenaria En primer lugar, e realiza un anlii

decripiv, preand epecial aencin a la dierencia que exien enre la media del indicadr de

la emprea innovadoras y la no-innovadoras, enendiend pr emprea innvadra aquella emprea

cn ga en innvacin en el a cniderad En ea decripcin e prcede, aimim, a diinguir

enre Pyme y emprea grande, enre emprea de manuacura y de ervici y enre emprea que

peran en ecre de al y de baj niel ecnlgic

Perirmene, e analizan l da uilizand herramiena ecnmrica Ea medlga per-

mie cuantifcaren qu medida aeca a l reulad de la emprea el hech de realizar aciidade

de I+D+i Para ell, e llean a cab eimacine de mdel en l que la ariable a explicar refeja

un reulad cncre de la emprea25

A parir de ea d aprximacine, e exraen la iguiene cncluine:

rEsultados tEcnolgicos

Exie una relacin piiva muy evidene enre el hech de realizar ga en I+D+i y la inrduccin

de innvacine en d l ecre prduciv La innvacine de prduc n m recuene

enre la Pyme, mienra que la de prce deacan en el cleciv de emprea grande Cuand

la emprea n realizan ga, la innacine m recuene n la de ip rganizai

La prbabilidad de lgrar innacine de prduc habiend realizad ga de I+D+i el a ane-

rir e incremena en un 56% cuand la emprea pera en ecre manuacurer y en un 46%

cuand perenece al ecr erici Para la innacine de prce e prcenaje n del

55% y el 54% repeciamene

La recuencia con la que la emprea patentan u innovacione e mucho m baja que la re-cuencia con la que innovan La emprea grande regitran con mayor recuencia patente que

la Pyme Para amb cleciv e cnabiliza un mayr prcenaje de emprea cn paene en

aquell ecre cniderad de niel ecnlgic baj

El regir de marca cmerciale e m recuene que el de paene en d l ecre ecn-

mic En la manuacura, la prbabilidad de que una emprea regire una paene una marca

cmercial e incremena en un prcenaje imilar (aprximadamene un 14%) cuand ha realizad

ga en I+D+i el a anerir, mienra que en l ervici ee incremen e much m elevad

para la marca cmerciale (un 12%) que para la paene (un 7%)

25 El efecto concreto de todas las variables consideradas en cada estimacin y una descripcin pormenorizada del mtodo economtrico utilizado en cadaestimacin puede consultarse en el Anexo IV.


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80 CDtI

rEsultados Econmicos

Lo reultado econmico medido a trav de la venta y el margen bruto de explotacin on

mejre para la emprea innadra La dierencia enre innar y n innar n m acen-

uada en el cleci de la Pyme que en la grande cmpaa En cncre, la dierencia en la

aa de ariacin de la ena e de 8 pun prcenuale para la Pyme y de an l un pun

para la grande

En el periodo 2005-2006, la cira de venta e incrementa en un 2% adicional cuando la emprea

realiz gato en innovacin el ao anterior Ete impacto poitivo, pero de pequea cuanta, pone

de manifeto que en la evolucin del volumen de negocio de una emprea inciden multitud de

actore, iendo uno de ello u actividad innovadora No obtante, el incremento adicional rela-

cinad cn el ga en I+D+i e el dble cuand e raa de una emprea manuacurera (un 4,4%

cncreamene)

Buena pare del cmpramien pii de la ena e relacinad direcamene cn la inr-

duccin de innacine en el mercad En la Pyme, el 30% de u acuracin priene de nue

prduc y en la grande el 21% se bera un mayr dinamim en l ecre de ecnlga

madura, ya que e prcenaje e elean al 32% y al 28%, repeciamene

El grad de preencia en mercad inernacinale e mayr en d l ecre ecnmic i

la emprea realiza ga en I+D+i se bera que l cleci que aprechan mejr u aciidad

innadra para cnlidar u enaja cmpeiia en el exerir n la Pyme de erici y la

emprea grande manuacurera

La probabilidad de exportar e incrementa alrededor de 18 punto porcentuale i la emprea

realiz ga en innacin el a anerir se deeca un impac de mayr cuana en la induria

(16 pun) que en el ecr erici (11 pun)

El lumen de inerin en capial j e mayr cuand la emprea realiza ga en I+D+i Para el

cleciv de emprea grande, l da indican que la dierencia de cmpramien e generan,

epecialmene, en l erici y en l ecre de ala ecnlga, dnde el lumen de inerin

de la innadra prcicamene riplica al de la n innadra

El anlii ecnmric crrbra que, en la manuacura y para 2005 y 2006, un 36% del incremenen la aa de variacin de la inverin brua de capial pr emplead euv inducid pr la ejecucin

de ga en I+D+i el a prei sin embarg, n e puede cnrmar que ee ga haya enid un

impac eadicamene ignicai en la inerin realizada pr la emprea de erici

La Pyme innovadora han creado empleo a una taa media anual del 3% durante 2005 y 2006,

mienra que la aa de crecimien ue de -6% para la emprea que n realizarn ga La baja

taa de creacin de empleo en la emprea no-innovadora e debi, undamentalmente, a la

deruccin de pue de rabaj que u lugar en el ecr de la cnruccin

se cnrma la exiencia de un eec pii del ga en I+D+i bre el emple En 2005 y 2006

el emple e incremen, an en manuacura cm en erici, en un 2% adicinal cuand laemprea realiz ga de I+D+i el a anerir


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El impacto dE la i+d+ En El sEctor productivo Espaol

81

El impac del ga de I+D+i e much m releane en la emprea pequea En cncre, laPyme cn ga de innacin en 2004 preenan, pr rmin medi, una aa de crecimien del

emple en 2006 uperir en 3,5 pun prcenuale a la que n realizarn I+D+i Ee dierencial

era de 2,8 pun para la manuacura y 5,9 pun para el ecr erici

En general, e bera que la emprea cn ga en innacin n m prducia que la que

no lo hacen y eta dierencia de productividad on m acentuada en la grande que en la

Pyme

E ignifcativo comprobar que, pee a haber regitrado durante 2005 y 2006 taa poitiva de

creacin de emple, el imprane incremen en la vena de la Pyme innvadra (un 12% rene

al 4% de la n-innadra), ha erid para manener un niele de prduciidad en lnea cn

el grup de reerencia, dnde, pr el cnrari, e deruy emple

Cuand la emprea realiz ga de I+D+i durane el a prei, u prduciidad e incremena en

16 pun prcenuale, an en la manuacura cm en l erici

otros EfEctos cualitativos dE la i+d+

En general, e bera que una de cada d emprea que hace ga en innacin experimena

mejra relacinada cn la ampliacin de la gama de prduc y erici y cn la mejra de la

calidad De hech, la prbabilidad de bener e d ip de mejra e incremena en un 14%

cuand e realiz ga en I+D+i el a anerir

La proporcin baja a una de cada tre emprea, aproximadamente, cuando no reerimo a me-

jra en l prce de prduccin, ale cm el incremen de la fexibilidad el aumen de la

capacidad prducia De la mima manera, la prbabilidad de inrducir ea mejra e menr

que la anerire, cncreamene un 8% y un 5% para cada una de ella

Pr rmin medi, el 18% de la Pyme y el 20% de la grande emprea cnideran que u aci-

vidad innvadra avrece la inrduccin de mejra relacinada cn el impac mediambiena

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