Innovation Spending on the Decline

Utilization of Rapidly Developing Economies

The percentage of respondents who said their company plans to make greater use of rapidly developing economies (RDE) in their innovation activities in the year ahead jumped to 45% in 2009 from 37% in 2008; consistent with a growing sensitivity to costs. By region, Asia-Pacific companies have the most aggressive plans, with 70% of Asia-Pacific respondents expecting to increase their investment in RDEs. By industry, technology and telecommunications companies and industrial and manufacturing companies are the most bullish: 60% and 58% of respondents in those sectors, respectively, said their company would increase its investment in R&D in these countries.

Perceived Strengths and Weaknesses

Executives consider executive-level sponsorship of projects (66% of respondents) and developing a deep understanding of customers (65%) to be their companies’ greatest strengths in advancing their innovation efforts.

Companies’ biggest hurdle is speed, or the time it takes to move from idea generation to initial sales. Forty-five percent (45%) of respondents identified speed as their greatest challenge. The second most commonly identified challenge (41%) was discipline—the ability to strictly enforce time lines and milestones. Respondents have identified both as key challenges for the past several years, suggesting that companies are not making the right adjustments to their efforts in these areas.

Measuring Innovation

Customer satisfaction (tracked by 44% of respondents) and overall revenue growth (tracked by 41%) are the two main gauges that companies use to determine the success of their innovation efforts. (For a detailed discussion of metrics and measurement, see BCG’s companion report, Measuring Innovation 2009: The Need for Action).

Innovation Success and Stock Market Performance

Innovative companies generate vastly superior total returns for shareholders. Globally, on an annualized basis, innovators outperformed their industry peers by 430 basis points over three years. Over ten years, they outperformed them by 260 basis points. The pattern of superior performance for innovators held when viewed along regional lines as well.

Differences in Perception

C-level executives are more satisfied with the return on innovation spending than the rest of the company. Sixty-three percent (63%) of C-level respondents said they were satisfied, versus 50% of vice presidents and managers and 47% of other employees.

The Role of M&A

M&A activity—whether for gaining access to new markets, acquiring innovation-supporting technology, or securing innovative leaders and personnel—plays a significant part in many companies’ innovation strategies. As might be expected, it plays a particularly key role among pharmaceutical, biotechnology, and health care companies (Only 19% of respondents from that industry said that M&A does not play a significant role in their innovation strategy.) And it plays an important role among European companies generally. (Only 24% of European respondents said it was not a major part of their company’s innovation strategy.)

The Most Innovative Companies

For the third straight year, respondents ranked the “evergreens”—Apple, Google, and Toyota—the most innovative companies, with Apple once again the hands-down winner.

“Economic pressures are making companies rethink all aspects of their business, and innovation is certainly fair game,” said Andrew. “But companies need to be smart about it. By thinking strategically, they can address near-term cost concerns without sacrificing the long term. The true innovation leaders are currently asking themselves, How can we use this opportunity to win? instead of How can we survive?”