Study Shows Innovative Cultures Bring Financial Success
R&D spending on innovation in 2011 came in 5.6 percent above the pre-recession total of 2008, marking a return to its long-term growth trajectory, according to a major consulting company study.
Booz & Company’s seventh annual report, "Global Innovation 1000", found that the 1,000 public companies that spent the most on research and development in 2010 increased total R&D outlay $550 billion, versus $521 billion in 2008.
Spending was also 9.3 percent higher than 2009, a down year. Every global region in the study showed growth. India- and China-based firms increased their total R&D outlays by the highest rates.
Barry Jaruzelski, a company partner and author of the study, says that spending alone won’t drive results, and that "culture is key to innovation success, and its impact on performance is measurable."
"It's not that money doesn’t matter," adds Jaruzelski. "You have to have resources, but the differences between two companies with the same budget is really the quality of their process culture, alignment and focus."
The Booz & Company study concludes that companies whose innovation strategies are clearly aligned with their business and culture goals delivered 17-percent higher profit growth over five-year periods than those lacking such tight alignment.
"If your business strategy requires open innovation, but you have a culture that rejects the ideas of anybody who doesn’t wear your corporate badge that is incoherent, it wont work," says Jaruzelski.
Jaruzelski says successful tech leaders can no longer depend solely on the ability of their researchers to develop the newest products.
"Look at Google and Apple , they don't have the same budgets as many of the same companies they compete with," says Jaruzelski, citing two examples of strong alignment.
Computing and electronics, health and automotive firms spent the most and accounted for 77 percent, or $36.1 billion of total outlays.
Spending, however, doesn’t always correlate with success:Justthree of this year’s top ten spenders also ranked among the top ten innovators in the study:Microsoft, Samsung, and Toyota Motor .
Even in depths of recession R&D was the last place corporations cut to save, Jaruzelski says. "Everybody knows R&D as a bit of an arms race, if you don't continually create new products, your competitors will because everybody is fighting for sales. Whether it's the latest feature, the latest innovation, having some level of new products is essentially a table stakes in staying in business."