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 our 2018 ranking, the highest R&D spending industrial firms included Siemens, General Electric, Toshiba, Hon Hai Precision, Koninklijke Philips, Mitsubishi Electric, Caterpillar, China State Construction Engineering, and 3M.
The top 20 R&D spenders in the sector spent between $6.1B and $1.2B each. Six companies were new to the list of top spenders, including two each from the US and China. The six Chinese companies on the list, as well as one from Taiwan, had R&D intensity scores (ratio of R&D spend to revenue) below the group median.
Overall, the 161 industrial firms in the Innovation 1000 increased their R&D spending from $71.2B in 2017 to $82.5B in 2018, an increase of 15.9 percentage points. But total revenue increased as well, so that R&D intensity was unchanged at 2.8%. 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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