When it comes to R&D, it’s not how much you send but how you spend it

Annual spending on Research and Development among the world’s 1,000 largest public corporate R&D spenders has hit a record high of $638 billion, according to consulting firm Booz & Company. Its ninth annual Global Innovation 1000 study shows that despite the sustained overall increase in R&D budgets over the last decade, higher spending doesn’t guarantee bigger results. The firm found that the 10 most innovative companies it identified financially outperformed the world’s top 10 spenders, despite spending significantly less on R&D.

Apple and Google were rated as the top two most innovative companies for the fourth consecutive year, yet Google was just the 12th highest R&D spender in the Top 20 list and Apple didn’t rank at all.

“For the ninth straight year, our research has demonstrated that there is no correlation between how much you spend and how well you perform over the long term,” said Barry Jaruzelski, senior partner at Booz & Company. “It has been proven time and time again that you can’t buy your way to the top. When it comes to innovation, how you spend is much more important than how much you spend.”

Volkswagen heads the Top 20, with Samsung in second place with $10.4bn R&D spend in 2013. Intel is fourth $10.1bn (up 21 per cent from 2012) and Microsoft fifth with $9.8bn (up 8.5 per cent). Google ranks 12th with $6.8bn (up 31.6 per cent) and IBM is 16th with $6.3bn (up 0.7 per cent). The other telecoms-related company in the chart is Nokia in 18th position with a reported $6.1bn R&D spend (the only telecoms firm showing less spending than a year ago, down 14.4 per cent). Interestingly, whilst Intel, Microsoft, Google and Nokia all spend between 13 and 19 per cent of revenue on R&D, second-placed Samsung is only spending 5.8 per cent – highlighting its incredible strong revenue numbers.

The telecoms sector increased its R&D spending by an average of 21.1 per cent, just behind Software and Internet with 22.1 per cent. The third placed sector was Auto, way behind at just 7.8 per cent. The average annual increase in spend was 5.8 per cent. However, telecoms still has a long way to go – it accounts for just 2 per cent of the overall global R&D spend, with Software and Internet at 8 per cent (Computing and Electronics, and Healthcare top the share with 27 and 22 per cent respectively).

“The 22 percent increase in R&D spending among software and internet companies is likely driven by an increasing demand for digital products and services, creating more opportunities for cutting edge innovation,” said Richard Holman, a partner at Booz & Company and co-author of the study.

Seven of the Top Ten Most Innovative Companies identified in the research are active in the telecoms sector. Apple is top of the table with $3.4bn spent on R&D (a mere 2.2 per cent of revenue), Google second and Samsung third. Amazon comes in at four with $4.6bn (7.5 per cent of revenue), Microsoft is 7th and IBM 8th, and Facebook comes in at ten with $1.4bn R&D spend (27.5 per cent of revenues).

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