Companies That Put Tons Of Money Into R&D Aren't More Innovative Than Those That Don't

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Photo: Asa Mathat | All Things Digital

It’s not easy to replicate a culture as innovative as Apple or Google’s. But venture capitalists are pouring money into start-ups they hope is Silicon Valley’s next big thing.According to Booz & Co.’s latest Global Innovation 1000 report, this may be the right strategy – because corporations that are throwing tons of money into R&D aren’t necessarily the most innovative.

By polling 600 senior managers and R&D professionals around the world, Booz & Co. determined the world’s most innovative companies, and compared them against those that spend the most on R&D. What they found was that only three companies were on both lists: Microsoft, Toyota and Samsung. According to the study: 

There is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues. Many companies — notably, Apple — consistently underspend their peers on R&D investments while outperforming them on a broad range of measures of corporate success, such as revenue growth, profit growth, margins, and total shareholder return. Meanwhile, entire industries, such as pharmaceuticals, continue to devote relatively large shares of their resources to innovation, yet end up with much less to show for it than they — and their shareholders — might hope for.

It comes down to having a few things aligned: a company’s business model, culture and spending. Focusing on any one of the three won’t do it alone. We’ve compiled the most interesting charts from the Booz & Co. study that reveal how companies are spending and innovating today.

Companies spent 9.3% more money — reaching $550 billion — on R&D in 2010 after scaling back during the recession

Electronics, healthcare and auto companies poured the most money into R&D

Individually, pharmaceutical companies put the most money into R&D

Yet the most innovative companies — like Apple, Google and Facebook — didn't spend as much on R&D

Innovative companies outperformed companies that put the most into R&D

Moreover, Silicon Valley companies are often viewed as Technology Drivers, but in fact almost half of the companies we surveyed that hail from the Bay Area are actually Need Seekers.

Indian and Chinese companies have increased R&D spending by nearly 40% for two years in a row

Companies say their top innovation goal is superior product performance (and that it's much more important than the product's actual success)

Innovative companies place a ton of value on the customer experience and passion for and pride in their products

Companies with highly-aligned cultures and innovation strategies have 30% higher enterprise value growth

Few companies have been able to innovate over several decades

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