Certain companies consistently outperform their competitors. How do they do this? In our 2018 Global Innovation 1000 study, which includes the 1,000 publicly held companies that spent the most on research and development, we looked at R&D spending trends and financial results over the last 15 years. We found a very select group of companies that consistently beat their peers on seven key financial metrics—and spent their R&D dollars more efficiently. We call these companies ‘high-leverage innovators.’
Only 88 of the Global Innovation 1000 companies qualified as high-leverage innovators for the five years ended 2017. Overall, they had higher sales and market capitalization growth, lower R&D expenditures as a percentage of sales, higher gross profit growth, higher operating income growth, and better total shareholder returns. Only two companies, Apple and Stanley Black & Decker, made the high-leverage innovator cut for the entire 15-year period.
In 2018, a relatively large number of auto companies were members of Global Innovation 1000. In rank order of R&D spend, these companies include the following: Volkswagen, Toyota, Ford, General Motors, Daimler, Honda, BMW, Nissan, Denso, Fiat Chrysler, Continental, Renault, Peugeot, Hyundai, and Volvo. This order was unchanged from the prior year.
Spending levels for the top 20 R&D spenders in the sector ranged from $15.8B to $1.4B. Two companies were new to this list—one from the US and one from France. R&D spending increased from the prior year for 19 of the 20 companies on the high spender list. The sole exception was also one of two companies that experienced a decrease in revenue from the prior year.
Overall, the 97 auto companies are included in the Innovation 1000 and in total they increased their R&D spending from $108.7B in 2017 to $125.2B in 2018, an increase of 15.2 percentage points. Total revenue increased as well, but R&D intensity (ratio of R&D spend to revenue) was up only slightly, from 4.0% to 4.1%. In comparison, R&D intensity levels for the 1000 global innovators in our study was 4.5% for both 2017 and 2018.
To gain further insights we surveyed a sample of leaders and managers to find out about their innovation efforts. Our analysis revealed that both the high-leverage innovators and the larger universe of companies that report relatively high performance share the following six key characteristics:
High-leverage innovators understand the importance of R&D spending. But they also know that is not enough. Innovation success is the result of painstaking attention to strategy, culture, executive involvement, customer insights, and execution throughout the stages of innovation—all focused on creating unique customer experiences.
For further insights, see the 2018 Global Innovation 1000 study.
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