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I S S U E 6 1 WINTER 2010
strategy+business
R E P R I N T 10408
THE GLOBAL INNOVATION 1000
How the Top InnovatorsKeep WinningBooz & Companys annual study of the worlds biggestR&D spenders shows why highly innovative companies areable to consistently outperform. Their secret? Theyre goodat the right things, not at everything.
BY BARRY JARUZELSKI AND KEVIN DEHOFF
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1000, our sixth, analyzes the capabilities systems that the
most successful innovators have assembled to execute
their distinct innovation strategies, and the ways they
have aligned those capabilities with their overall business
strategies. Innovators that have achieved this state of
coherence, we have found, consistently and significantlyoutperform their rivals on several financial measures.
We believe that this assessment of key innovation
capabilities comes at a particularly opportune time. This
year, for the first time in the more than a decade we have
been tracking global R&D spending, total corporate
R&D spending among the Global Innovation 1000 de-
clined, from US$521 billion in 2008 to $503 billion in
2009, or 3.5 percent. (See Profiling the 2009 Global
Innovation 1000, page 7.) Clearly, the global recession,
which had not yet taken its toll on the world of Illustration
by
Otto
Steininger
Why are some companies able to consistently
conceive of, create, and bring to market innovative and
profitable new products and services while so many oth-
ers struggle? It isnt the amount of money they spend on
research and development. After all, our annual Global
Innovation 1000 study has shown time and again thatthere is no statistically significant relationship between
financial performance and innovation spending, in
terms of either total R&D dollars or R&D as a percent-
age of revenues.
What matters instead is the particular combination
of talent, knowledge, team structures, tools, and process-
es the capabilities that successful companies put
together to enable their innovation efforts, and thus cre-
ate products and services they can successfully take to
market. This years edition of the Global Innovation
THE GLOBAL INNOVATION 1000
HOW THE TOPINNOVATORSKEEP WINNINGby Barry Jaruzelski and Kevin DehoffBooz & Companys annual study of the worldsbiggest R&D spenders shows why highly
innovative companies are able to consistentlyoutperform. Their secret? Theyre good atthe right things, not at everything.
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innovation in 2008, finally came home to roost last year.
Yet that decline makes it even more imperative that
companies spend their available R&D dollars wisely.Our goal this year is to examine the capabilities needed
to maximize the impact of a companys innovation
efforts in good times and bad, and to highlight the ben-
efits both of focusing on the short list of capabilities that
generate differential advantage, and of clearly linking the
specific decisions within innovation to the companys
overall capabilities system and strategy.
Strategies and Capabilities
Three years ago, in 2007, we focused our annual inno-
vation study on how companies use distinct innovation
strategies to create their products and take them to mar-
ket. Nearly every company, we found, followed one of
three fundamental innovation strategies:
Need Seekers actively and directly engage current
and potential customers to shape new products and
services based on superior end-user understanding, and
strive to be the first to market with those new offerings.
Market Readers watch their customers and com-
petitors carefully, focusing largely on creating value
through incremental change and by capitalizing onproven market trends.
Technology Drivers follow the direction suggested
by their technological capabilities, leveraging their in-
vestment in research and development to drive both
breakthrough innovation and incremental change, often
seeking to solve the unarticulated needs of their cus-
tomers via new technology.
It is important to note that we found that none of
these three strategies were any better than the others at
producing sustained superior financial results, although
Barry Jaruzelski
barry.jaruzelski@booz.com
is a partner with Booz &
Company in Florham Park,
N.J., and is the global leader
of the firms innovation prac-
tice. He has spent more than
20 years working with high-
tech and industrial clients on
corporate and product strat-
egy, product development effi-
ciency and effectiveness, and
the transformation of core
innovation processes.
Kevin Dehoff
kevin.dehoff@booz.com
is a partner with Booz &
Company in Florham Park,
N.J., and is the global leader
of the firms engineered prod-
ucts and services business. He
has spent nearly 20 years
helping clients drive growth
and improve innovation perfor-
mance in areas including
research and development,
technology management,
product planning, and new
product development.
Also contributing to this article
were s+b contributing editor
Edward H. Baker and Booz &
Company Principal Lisa
Mitchell.
of course individual companies outperform others with-
in each strategic group. The success of each of the strate-
gies depends on how closely companies, in pursuinginnovation, align their innovation strategy with their
business strategy and how much effort they devote to
directly understanding the needs of end-users.
This year we set out to answer two new questions:
Which sets of capabilities are the most critical for the
success of each of the three strategies? And do companies
that focus on those critical capabilities see improved
overall financial results? Our hypothesis: Companies
that can craft a tightly focused set of innovation capa-
bilities in line with their particular innovation strategy
and then align them with other enterprise-wide capa-
bilities and their overall business strategy will get a
better return on the resources they invest in innovation.
Innovation capabilities enable companies to per-
form specific functions at all the stages of the R&D
value chain ideation, project selection, product de-
velopment, and commercialization. We asked respon-
dents to this years Global Innovation 1000 survey to
identify which capabilities were most important in
achieving success at innovation. (See Exhibit 1.) Then,
in hopes of getting further insight into which capabili-ties companies ought to work toward, we looked at the
capabilities focused on by the top 25 percent of per-
formers within the group using each of the three inno-
vation strategies. (See Exhibit 2.)
No matter which of the three innovation strategies
they pursued, all the successful companies depended on
a common set of critical innovation capabilities. These
include the ability to gain insights into customer needs
and to understand the potential relevance of emerging
technologies at the ideation stage, to engage actively
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4with customers to prove the validity of concepts during
product development, and to work with pilot users to
roll out products carefully during commercialization.
In addition to these common capabilities, compa-
nies among the top 25 percent in performance within
each strategic group depend on a set of distinct capabil-
ities they feel are critical to achieve success, some of
which overlap with those of other strategies. The mostsuccessful companies, we found, are those that focus
on a particular, narrow set of common and distinct
capabilities that enable them to better execute their cho-
sen strategy.
Need Seekers
The distinct strategy of Need Seekers is to ascertain the
needs and desires of consumers and then to develop
products that address those needs and get them to mar-
ket before the competition does. The capabilities re-
quired for success begin at the ideation stage, where
Need Seekers pursue open innovation and directly gen-
erated, deep consumer and customer insights and ana-
lytics, as well as a detailed understanding of emerging
technologies and trends, in order to identify both their
customers needs and the technology trends that can
help them meet those needs.
An example is Stanley Black & Decker Inc.sDeWalt division, a maker of power tools for profession-
al contractors. In its efforts to connect directly with cus-
tomers even before it starts selecting which projects to
develop, DeWalt regularly sends people out to construc-
tion sites to research builders needs and observe con-
struction crews in action. One notable result of such
efforts was the development of a 12-inch miter saw,
which became one of the companys bestsellers, after
researchers watched carpenters struggle to cut large
pieces of molding on the industry-standard 10-inch saw.
Exhibit 1: The Most Important Innovation Capabilities
Innovation executives surveyed this year were asked to rank the capabilities they considered most important for innovation success on a scale of 1 to 5(least to most important). At each of the four stages of the innovation process, a few critical capabilities emerged from the ability to gain customerinsight and analytics at the ideation stage to expertise in pilot-user selection and controlled rollouts at the commercialization stage.
IDEATION
Supplier and distributor engagement in ideation process
Independent competitive insights from the marketplace
Open innovation/capturing ideas at any point in the processDetailed understanding of emerging technologies and trends
Deep consumer and customer insights and analytics
PROJECT SELECTION
Strategic disruption decision making and transition plan
Technical risk assessment/management
Rigorous decision making around portfolio trade-offs
Project resource requirement forecasting and planning
Ongoing assessment of market potential
PRODUCT DEVELOPMENT
Reverse engineering
Supplierpartner engagement in product development
Design for specific goals
Product platform management
Engagement with customers to prove real-world feasibility
0Average ranking 0.5 1.0 1.5 2.0 2.5 3.0 3.5
COMMERCIALIZATION
Diverse user group management
Production ramp-up
Regulatory/government relationship management
Global, enterprise-wide product launch
Product life-cycle management
Pilot-user selection/controlled rollouts
Source: Booz & Company
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Need Seekers generally continue to remain con-
nected to customers both during the project selection
process, in which ongoing assessment of market poten-
tial is a key capability, and during product development,
when it is critical for Need Seekers to engage with cus-
tomers to prove the real-world feasibility of their prod-
ucts. At DeWalt, for instance, once prototypes of newproducts have been completed, engineers and marketers
take them back to the same job sites where the research
was originally done. They leave the new tools with the
customers, and come back a week or so later to collect
information on how the tools performed. That informa-
tion feeds directly into the companys iterative develop-
ment process.
Given that Need Seekers frequently depend for
their success on developing technically innovative prod-
ucts, a further key capability at the project selection
stage involves technology risk assessment and manage-
ment. At the Xerox Corporation, for example, Steve
Hoover, vice president of R&D in charge of software
development for the companys products, notes the
importance of risk management in assessing the poten-
tial business value of any project under development.
How big an opportunity are you going after here? heasks. What will drive its value? Where are the biggest
technical risks? What might cause the project to fail?
Youre looking for correlations. Where theres risk, you
have to put in the extra work to ensure you capture the
potential value.
At the commercialization stage, Need Seekers value
pilot-user programs and global product launches as cru-
cial for keeping in touch with customers even as they
scale up their sales efforts to capture the maximum value
of being first to market. Both DeWalt and dental equip-
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Exhibit 2: Critical and Specific Capabilities by Strategy
The top-performing companies in each of the innovation strategies, whether they were classified as Need Seekers, Market Readers, or TechnologyDrivers, all agreed on a shared set of critical innovation capabilities, but for each of the three strategies, a distinct set of capabilities such asresource-requirement management and supplierpartner engagement for Market Readers ranked among the most critical.
Source: Booz & Company
MARKET READERS
All Three
NEED SEEKERS
TECHNOLOGY DRIVERS
Open innovation
Market potentialassessment
Resource-requirementmanagement
Rigorousdecision making
Technical riskassessment
Product platform management
Engagement with customers
Broad consumer and customer insights
General understanding of emergingtechnologies
Pilot-user selection/controlled rollouts
Product life-cyclemanagement
Detailed understanding ofemerging technologiesand trends
Enterprise-widelaunch
Directly generated deepconsumer/customerinsights
Supplierpartnerengagement
COMMERCIALIZATION
IDEATION
PROJECT SELECTION
PRODUCT DEVELOPMENT
CATEGORY OF
CRITICAL CAPABILITY
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ment maker Dentsply rigorously assess the percentage of
sales coming from new products. For Xerox, which sells
its products around the world, managing the launch
phase is a critical and highly complex endeavor, designed
to accommodate the long lead times, logistics, and train-
ing needs involved in selling large and sophisticated
machines in very diverse markets.
Market Readers
Market Readers, on the other hand, pursue their cus-
tomers more cautiously, preferring to innovate incre-
mentally and keeping a close eye on the innovations of
competitors. Like Need Seekers, they must pay careful
attention at the ideation stage to what customers are
looking for in the products they choose but in their
case, the goal is to make sure they are delivering success-
fully differentiated alternatives. Market Readers also
seek to track the technology trends that can help themcreate that differentiation.
Tim Yerdon is director of innovation and design at
Visteon, a global auto parts manufacturer. But his real
focus, he says, is to look at market trends and translate
those trends and needs into new products and services.
Thats why taking accurate readings of the marketplace
at both the ideation and the project selection stages is
a key capability for Visteon. A case in point is the com-
panys development of reconfigurable digital displays for
cars. Until recently, not many in the auto industry antic-
ipated that drivers would favor digital displays over tra-
ditional instrument clusters. Yet consumers were clearly
happy with the flat-screen TVs they were buying for
their homes. Says Yerdon: We did the market research,
we put all these data points together, and we could see
where the trends were going. In late 2009, Visteon suc-
cessfully launched its first reconfigurable displays.
The success of the Market Readers strategy depends
on managers making sure the right products hit the
market at the right time. So the initial process of select-
ing which projects to focus on is critical: Here, the keycapabilities include forecasting and planning for
project resource requirements, and rigorous decision
making involving portfolio trade-offs. At the Parker
Hannifin Corporation, a diversified manufacturer of in-
dustrial equipment, this understanding led to the imple-
mentation of a highly disciplined stage-gate process for
green-lighting projects, embedded in every division in
the company. Parker Hannifin treats its general man-
agers and their staff as venture capitalists who are being
asked to invest the companys money in certain projects.
The rigorous value screens that the company has devel-
oped as part of this process have enabled management to
filter out the good projects from the bad much more
successfully than before.
For companies like Visteon, an equally critical capa-
bility is engagement with customers to prove real-world
feasibility throughout the product development stage.
By working actively with automakers, says VisteonsYerdon, were taking a substantial amount of risk out of
the system. Rather than coming up with an idea, build-
ing it, and then bringing it to a customer, only to find
out they dont want it, were much better off working
together and more openly.
In the next year or so, Asia will become Visteons
largest market a remarkable achievement for a com-
pany that started out as a spin-off of the Ford Motor
Company. As Visteon continues to expand from its
longtime base in North America, its capabilities in read-ing different markets accurately and collaborating with
original equipment manufacturers in each market will
become even more essential, and thus having in-region
engineering capabilities will become increasingly critical.
Technology Drivers
Technology Drivers begin with a different approach to
ideation, using their technological prowess to develop
products their customers may not know they need.
Thats why the ideation stage is so critical for these com-
panies. They must pursue open innovation processes
that capture as many potential ideas as possible, all the
while avoiding being hobbled by a not invented here
attitude. They must also constantly scan markets for
new technologies that might further their pursuit of new
ideas. In addition, Technology Drivers must ensure that
their technical personnel have time to ideate: This is the
rationale for Googles well-known 70-20-10 rule,
which directs engineers to spend 70 percent of their
time on core business tasks and 20 percent on related
projects, but allows them to spend 10 percent of theirtime pursuing their own ideas.
Technology Drivers can take different approaches
to the ideation stage. The German technology giant
Siemens AG, for example, spends 5 percent of its over-
all R&D budget on planning for the long term, which
involves developing detailed technology road maps
within individual business units, as well as longer-range
scenarios of future technology trends at the corporate
level. This dual process has generated perspectives that
have enabled the company to expand its large health
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technologies business into new areas such as personal-
ized healthcare. And Siemens works hard to track the
payback from its centralized innovation office in the
form of actual new products launched.
The Masco Corporation, an $8 billion buildingproducts company, is more freewheeling in its ideation;
Masco seeks to be ready to leverage new technologies no
matter where they can be found. A few years back, com-
pany representatives noticed some interesting technol-
ogy at a trade show a wireless, battery-less switch,
which they were sure would have applications in the
home. We vetted the technology, brainstormed specif-
ic applications for the home, and developed a pilot,
recalls Thom Nealssohn, manager of innovation imple-
mentation services at Masco. Every time we showed it
to someone, we learned a little bit more, and that gave
us the fuel that we needed to go back and make it bet-
ter. Masco launched a new line of innovative program-
mable lighting products based on the technology
Verve Living Systems in 2009.Masco has had many similar successes. In many
cases, its just a matter of sitting down and saying, Heres
the problem we want to solve, Nealssohn says. What
really differentiates us is our willingness to partner with
customers, to try not only to understand what issues
theyre struggling with today, but to anticipate issues
that may arise as a result of what we see going on in the
world around us. That strategy, in turn, demands that
Technology Drivers like Masco also focus on rigorous
decision making in R&D portfolio trade-offs at the proj-
Profiling the 2009Global Innovation1000
most on research and development
decreased their total R&D spending in
2009 by 3.5 percent, to US$503 billion.
This decline in corporate R&D
spending is the first weve seen in the
more than 10 years we have tracked
the global innovators, and it is clear-
ly a result of the economic down-
turns impact on corporate R&D
budgets. Revenue for the Global
Innovation 1000 plunged at an 11
percent rate, from $15.1 trillion in
2008 to $13.4 trillion in 2009 near-
ly three times the rate of decline in
R&D spending. The result was that
R&D intensity (innovation spending
as a percentage of revenue) actually
increased, from 3.5 percent to 3.8
percent, indicating that companies
attempted to stay the course with
their overall innovation programs,
and that they continue to see innova-
tion as essential for future growth.
(See Exhibit 3.) Compared to the 3.5
percent reduction in R&D spending,
the 1,000 top R&D spenders cut
much more deeply into both sales,
general, and administrative expens-
es (a 5.4 percent reduction) and capi-
tal expenditures (a 17.5 percent
drop). (See Exhibit 4.)The reductions in R&D spending,
however, were neither as widespread
nor as evenly distributed among
industries as the overall numbers
might suggest. Just over half of all
the companies we tracked this year
cut their R&D spending in 2009.
Nearly all the cuts, however, came
in just three industries: auto, com-
puting and electronics, and industri-
als. The other industries increased
spending to a greater or lesser de-
gree. (See Exhibit 5.)
The auto industry alone accounted
he global recession finally
caught up with the worlds top
innovators in 2009. Following a rela-
tively strong 2008, during which total
R&D spending continued to grow
despite the recessionary headwinds,
the 1,000 companies that spent the
T
Source: Booz & Company
200097 0905
Exhibit 3: R&D and Sales
R&D spending fell in 2009, but sales fell moresharply, and as a result, R&D intensity the
dotted line rose by a fraction.
1997 base year = 1.0
1.0
1.5
0.5
2.0
2.5
3.0
Sales
R&D Spending
R&D Spendingas a % of Sales
Exhibit 4: Cost Reductions
Companies cut other discretionaryspending categories, such as sales,general, and administrative expenses(SG&A), more sharply than R&Dspending. This was especially true forcapital expenditures.
Source: Booz & Company
SG&A
5.4%
17.5%
CapitalExpendituresR&D
3.5%
2009 vs. 2008
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ect selection stage, if they are to funnel their wide-ranging
ideas into products that can succeed in the market.
Finally, because of the nature of their products,
Technology Drivers must pay strict attention to two key
capabilities in the commercialization stage: pilot-userselection/controlled rollouts, and product life-cycle
management. In essence, Masco serves three different
sets of customers: large home builders, home improve-
ment chains, and ultimately, end-users. Says Nealssohn:
We believe that everyone in the distribution chain
has to win. A shift of margin from one partner in the
chain to another does not necessarily equate to a win-
ning product. So it doesnt matter how much the cus-
tomer wants the product if the distributor or the
home builder doesnt see the opportunity to make
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for fully two-thirds of the $18 billion
contraction in R&D spending not
surprising, given the crunch the
industry went through in 2009. A large
number of auto parts suppliers fell
into bankruptcy protection last year,
and virtually every company in the
industry cut spending in all areas of
operations. Still, the industrys 14
percent decrease in R&D spending
was roughly in line with its 12.7 per-
cent decrease in revenue; as a result,
the auto industrys R&D intensity was
essentially unchanged, at 3.9 percent.
The computing and electronics
industry reported similar but less
drastic R&D spending reductions.
The industrys revenues were down
by 7 percent from 2008 as a result of
the recession and the accompanying
drop in sales. Yet as with autos, the
decline in R&D spending for comput-
ing and electronics 7 percent
tracked the decline in revenue, so
there was virtually no change in the
industrys R&D intensity.
Despite the $9.7 billion decline in
its R&D spending, computing and
electronics kept its top spot as the
biggest spender on innovation, while
autos remained at number three.
(See Exhibit 6.) The industry in the
Exhibit 6: 2009 Spending by Industry
Auto, computing and electronics, and healthcare remained the three biggest industries forR&D spending.
Source: Booz & Company
Other $8,287
Telecom $10,487
Consumer $19,533
Aerospace/Defense
Software/Internet
$21,704
$33,510
Chemicals/Energy $36,558
Industrials $50,704
Auto $73,082
Computing/Electronics
$136,921
Healthcare$112,790
$US millions
Exhibit 5: Change in R&DSpending by Industry, 200809
NETCHANGE
INSPENDING
$17,963
Healthcare $1,626
Software/Internet $1,560
Other $635
Telecom $508
Chemicals/ $431Energy
Aerospace/ $389Defense
Consumer $111
Industrials $1,308
Computing/ $9,771Electronics
Auto $12,144
INCREASEDSPENDING
DECREASEDSPENDING
Source: Booz & Company
$US millions
R&D cutbacks were concentrated in threesectors: auto, computing and electronics, andindustrials. Spending was up, on average, inall other sectors.
money, chances are that product is going to struggle
or even fail.
Focus Matters
The capabilities required to pursue each strategy forma systematic set of skills, processes, and tools that com-
panies must focus on to succeed at each stage of the
innovation process. In contrast to top-performing inno-
vators such as Apple, Google, Xerox, Visteon, and
Siemens, the poorest-performing companies within each
strategic group those among the bottom 25 percent
take a less-focused approach to the most critical
innovation capabilities.
These lower-performing companies, regardless of
which of the three strategies they are pursuing, cite only
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three common capabilities as important: early customer
insight, assessment of market potential during projectselection, and engaging with customers at the develop-
ment stage. Although all three of these capabilities
involve critical customer- and market-driven elements,
they are not sufficient; they need to be integrated with
more distinctive capabilities, such as awareness of new
technology developments and close attention to product
platform management. Notably, there is significantly
less overlap among the capabilities that low-performing
companies depend on. This suggests that these compa-
nies take more of a scattershot approach to building
the innovation capabilities systems they need. This lack
of focus, we believe, is a primary cause of their inferiorperformance.
Focusing on a systematic set of capabilities means
that companies must first choose the capabilities that
matter most to their particular innovation strategy, and
then execute them well. Our analysis suggests, however,
that although most companies are relatively strong at
executing critical capabilities within the areas of ide-
ation, project selection, and product development, they
underperform at the commercialization stage. (See
Exhibit 10.) Executives agree consistently that there
regions, Japan registered the largest
percentage drop in spending, at 10.8
percent, while North Americas
spending declined by 3.8 percent and
Europes by just 0.2 percent. (See
Exhibit 7.)
The innovation programs of com-
panies based in China and India, on
the other hand, seemed unaffected
by the recession: They boosted R&D
spending by 41.8 percent (albeit from
a small base; they account for only
1 percent of total Global Innovation
1000 corporate R&D spending). (See
Exhibit 8.)
Changes in the list of the top 20
spenders provided further signs ofthe times. The Toyota Motor Corpo-
ration fell from the top spending spot
among the Global Innovation 1000 for
the first time since our 2006 study.
(See Exhibit 9.) Toyota cut spending
almost 20 percent, while its R&D
intensity fell to 3.8 percent from 4.4
percent in 2008 no doubt a direct
result of its first-ever loss (more than
$4.3 billion that year). Other auto-
makers also fell on the Top 20 list,
while most companies in computing
and electronics rose a notch or two.
Taking over the number one posi-
tion was pharmaceutical giant Roche
Holding Ltd., which boosted its R&D
spending 11.6 percent, to $9.1 billion.
Indeed, healthcare companies took six
of the top 10 spots on the list, and
seven of the top 20. Coming in at num-
ber 1,000 was the medical manufac-
turer Seikagaku Corporation, which
spent $59.5 million in 2009, down 7.5
percent from the previous year.
In hindsight, given the severity
of the recession and the economic
uncertainty that gripped the world, it
seems inevitable that companies
would cut their innovation budgets in
2009. Still, their overall unwilling-
ness to reduce spending in line with
their decline in revenues is a tribute
to the importance companies in every
industry now place on innovation asa key source of growth. Thus, with the
recession drawing to a close and
(Profiling the2009 Global Innovation1000,
continued)
number two spot, healthcare,
increased its R&D spending by 1.5
percent much slower than the
industrys recession-defying revenue
growth rate of 6 percent.
Given the recessions overall effect
on innovation spending, its not sur-
prising that companies headquar-
tered in the regions that were hit
hardest cut their R&D spending the
most, on average. Of the top three
Exhibit 8: Spending by Region
The vast bulk of R&D spending remainsconcentrated among companies headquarteredin North America, Europe, and Japan.
Source: Bloomberg data (2009), Booz & Companyanalysis
Rest of World$26,708
India/China $7,528
$US millions, 2009
NorthAmerica$193,807
Europe$161,862
Japan$113,670
Exhibit 7: R&D SpendingGrowth Rates by Region
Source: Bloomberg data (2009), Booz&Company
analysis
20%
10%
0
10%
20%
30%
40%
50%
0 10% 20% 30% 40% 50%
Japan
Europe
North America
Rest of World
India/China
5-yr.CAGR
1-yr.CAGR
Areaof circle represents2009 spending
DECELERATEDGROWTH RATE
ACCELERATEDGROWTH RATE
= $100,000
$US millions
R&D decreased in North Americaand Japan and flatlined in Europe; the rateof spending growth decelerated in the rest ofthe world. China and India were the outlierswhere spending growth accelerated.
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are three customer- and market-oriented capabilities
that matter most: Gathering customer insights duringthe ideation stage, assessing market potential during the
selection stage, and engaging with customers during the
development stage. Yet when it comes to the capabilities
needed to introduce their products into the market,
there is no single one consistently named as a strength.
Clearly, there is a substantial gap between most compa-
nies ability to create innovative new products and their
ability to successfully take them to market.
In commercialization, the top performers stand out
by executing well in two critical areas: global product
launches and pilot-user selection and rollout. This
should come as no surprise, given that commercializa-tion capabilities are by nature the most cross-functional,
and are tied tightly to several other capabilities compa-
nies need to succeed in the marketplace, including man-
ufacturing, logistics, sales, and marketing. Xeroxs
Hoover acknowledges just how important the company-
wide process of launching products in the marketplace is
in the ability to capture the business value of innovation.
What do we have to get done, and when, so that we
can feed the new product into the global operating com-
panies pipeline, and what do they have to have ready so
Source: Booz & Company
Exhibit 9: The Innovation Top 20
The recession shook up the ranking of the Top 20 spenders. Toyota dropped from its number one spot to number four, and General Motors fell fromfive to 11. Pharmaceutical giant Roche Holding rose from number three to the top spot.
Rank2009 2008
Company Industry
2009, $USMillions
Changefrom 2008
A s a %of Sales
HeadquartersLocation
R&D Spending
3.7% 8.3%
$9,120
$9,010
$8,240
$7,822
$7,739
$7,469
$6,986
$6,391
$6,187
$6,002
$6,000
$5,820
$5,653
$5,613
$5,359
$5,285
$5,208
$5,143
$4,996
$4,900
Healthcare
Software and Internet
Computing and Electronics
Auto
Healthcare
Healthcare
Healthcare
Healthcare
Healthcare
Computing and Electronics
Auto
Computing and Electronics
Computing and Electronics
Healthcare
Auto
Industrials
Computing and Electronics
Computing and Electronics
Auto
Auto
11.6%
10.4%
1.0%
19.8%
2.6%
3.5%
7.8%
0.2%
12.7%
7.9%
25.0%
8.2%
1.2%
16.8%
3.6%
3.1%
1.1%
7.9%
17.7%
32.9%
20.1%
15.4%
14.4%
3.8%
15.5%
16.9%
11.3%
15.6%
13.9%
5.5%
5.7%
6.1%
16.1%
20.5%
3.7%
5.1%
14.4%
6.4%
5.4%
4.1%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
3
4
2
1
6
9
7
10
11
12
5
13
14
23
17
15
19
20
16
8
Roche Holding
Microsoft
Nokia
Toyota
Pfizer
Novartis
Johnson & Johnson
Sanofi-Aventis
GlaxoSmithKline
Samsung
General Motors
IBM
Intel
Merck
Volkswagen
Siemens
Cisco Systems
Panasonic
Honda
Ford
Europe
North America
Europe
Japan
North America
Europe
North America
Europe
Europe
South Korea
North America
North America
North America
North America
Europe
Europe
North America
Japan
Japan
North America
TOP 20 TOTAL: $128,943
most forward-looking companies will
move quickly to restore or even
increase the R&D spending they cut
in 2009 and to deploy it still more
effectively.
B.J. and K.D.
companies continuing to post strong
earnings, 2010 will be an important
test of their innovation mettle: The
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they can push it out? Its really basic project manage-
ment, but it has to be executed really well.
Aligning with Corporate Strategy
Companies that focus on a consistent set of innovation
capabilities clearly outperform their rivals. But as the
issue of commercialization demonstrates, a consistentset of innovation capabilities cant by itself explain why
they outperform. Innovation and the particular
strategies companies employ to pursue innovation is
just one aspect of every companys efforts to succeed in
the marketplace. They must also excel in areas outside
R&D, including manufacturing, logistics, sales, market-
ing, and human resources. And their innovation efforts
must be in sync with their overall corporate strategy:
They must integrate the right innovation capabilities
with the right set of firm-wide capabilities, as deter-
mined by their overall strategy.
Why is strategic alignment so critical? As part of
corporate strategy, every company needs to ask itself
what business it is really in, and how it intends to win
and then ask the individual business units the same
question. This must be both a bottom-up and a top-
down process. On the one hand, the business units,which are so much closer to the customer, must first see
an opportunity, and begin to innovate. On the other
hand, corporate strategists must manage the company-
wide R&D and sales agenda necessary to compete suc-
cessfully, even as they work to minimize spending and
make the process as efficient as possible. As we demon-
strated in 2007, companies that achieve a tight align-
ment of their firm-wide and innovation strategies on
average generate 40 percent higher operating income
growth and 100 percent greater total shareholder return.
Exhibit 10: Innovators Performance on Critical Capabilities
Respondents were asked to rate their companies performance on critical capabilities on a scale of 1 to 5. At the ideation, project selection, and productdevelopment stages of the innovation process, companies gave themselves generally good marks. The survey, however, revealed a general shortcomingat the commercialization stage, where companies agreed that their efforts were falling short.
IDEATION
Supplier and distributor engagement in ideation process
Independent competitive insights from the marketplace
Open innovation/capturing ideas at any point in the processDetailed understanding of emerging technologies and trends
Deep consumer and customer insights and analytics
PROJECT SELECTION
Strategic disruption decision making and transition plan
Technical risk assessment/management
Rigorous decision making around portfolio trade-offs
Project resource requirement forecasting and planning
Ongoing assessment of market potential
PRODUCT DEVELOPMENT
Reverse engineering
Supplierpartner engagement in product development
Design for specific goals
Product platform management
Engagement with customers to prove real-world feasibility
0 10% 20% 30% 40% 50% 60%
COMMERCIALIZATION
Diverse user group management
Production ramp-up
Regulatory/government relationship management
Global, enterprise-wide product launch
Product life-cycle management
Pilot-user selection/controlled rollouts
ource: Booz & Company
Percentage of Respondents Rating Performance 4 or 5
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The 10 MostInnovativeCompanies
vote; it is followed by Google, with 49
percent; 3M is in third place, with 20
percent. Apple is an exceptional
example of our observation that suc-
cess in innovation is determined not
by how much money you spend, but
rather by how you spend it. The com-
pany has a long history of bringing
innovative and stylish products to
market, from the first Apple personal
computer in 1976 to the iPod, the
iPhone, and the iPad today. Yet it
invests just 3.1 percent of its rev-
enues in R&D, less than half the
average percentage of the computing
and electronics industry. Apples
financial performance has been stel-lar: a five-year total shareholder
return (TSR) of 63 percent. Second-
place Googles five-year TSR is even
more impressive, at 102 percent; its
R&D intensity (innovation spending
as a percentage of revenue), at 12
percent, is just 1.3 percentage points
lower than the average of the soft-
ware and Internet industry as a
whole. Third-place 3M has been seen
as a highly innovative company for
many years, and its five-year TSR of
almost 50 percent shows that it con-
tinues to spend its R&D money in the
right places. (See Exhibit 11.)
Only three of the companies on the
10 most innovative list Toyota,
Microsoft, and Samsung also
appear among this years top 10
spenders, reiterating the lack of cor-
relation between R&D spending and
innovation results. We also compared
the overall financial results of the
most innovative group with our listing
of the top R&D spenders. The results
are clear: The most innovative com-
panies outperformed their industry
peers on three different indicators of
financial success. (See Exhibit 12.)Companies that are perceived to be
highly innovative are clearly success-
ful in creating new products and
bringing them to market. Some
spend more than others to accom-
plish this goal, but the real winners,
financially speaking, are those com-
panies, like Apple, Google, and 3M,
that can innovate successfully with-
out breaking the bank.
B.J. and K.D.
very year, readers of the annu-
al Global Innovation 1000 study
which tracks the companies that
spend the most on innovation ask
us which companies are in fact the
most innovative. So this year, we
decided to query innovation execu-
tives for their perspective on this
question. As part of our survey
exploring the relationship betweeninnovation capabilities, corporate
strategy, and financial performance,
we asked more than 450 innovation
leaders in more than 400 companies
and 10 industries to name the three
companies they considered to be the
most innovative in the world.
Our survey participants collective
opinion suggests that their views are
very much in line with popular per-
ception. Apple far and away leads the
Top 10, capturing 79 percent of the
E
Exhibit 11: The 10 Most Innovative Companies
Innovation executives we surveyed voted overwhelmingly for Apple,Google, and 3M as the most innovative companies. Votes for the nextseven were much more modest.
Source: Booz & Company
R&D Spending2009$US mil.
Sales2009$US mil.
1
2
3
4
5
6
7
8
9
10
81
44
84
35
4
2
58
12
10
13
Apple
3M
GE
Toyota
Microsoft
P&G
IBM
Samsung
Intel
$1,333
$2,843
$1,293
$3,300
$7,822
$9,010
$2,044
$5,820
$6,002
$5,653
$42,905
$23,651
$23,123
$155,777
$204,363
$58,437
$79,029
$95,759
$109,541
$35,127
3.1%
12.0%
5.6%
2.1%
3.8%
15.4%
2.6%
6.1%
5.5%
16.1%
Rank
Intensity(Spending as% of sales)
Exhibit 12: Top 10 Innovators vs. Top R&D Spenders
The Top 10 innovators significantly outperformed their peers on the
Global Innovation 1000 list on three key financial metrics.
Normalized
Performance ofIndustry Peers: 50
Highest PossibleScore: 100
Lowest PossibleScore: 0
RevenueGrowth5-yr. CAGR
EBITDA as% of Revenue5-yr. AVG.
Market CapGrowth5-yr. CAGR
56
42
80
67
54
35
TOP 10INNOVATORS
TOP 10SPENDERS
INNOVATORS
SPENDERS
Source: Booz & Company
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The Coherent Innovator
Companies that develop the relatively cohesive set of
innovation capabilities we have outlined, and then com-
bine them with similarly distinctive firm-wide capabili-
ties thus aligning their innovation strategy with the
overall corporate strategy can be said to be coherent.
They gain what we call a coherence premium, which
is manifested in their ability to outperform their rivals.By comparing the financial results of highly coherent
companies in the Global Innovation 1000 to their less-
coherent rivals, we found that, when normalized, the
profit margins of companies ranked in the top third in
terms of coherence were 22 percent higher, on average,
than those of companies in the bottom two-thirds, and
that the coherent companies achieved 18 percent greater
market capitalization growth as well. (See Exhibit 13.)
In general, the more coherent a company is, the more
competitive success it will have and the more it willbe able to generate the higher margins that result from
being truly differentiated.
Why are strong margins associated with higher
coherence? Optimizing the proper set of capabilities
allows companies to focus on what matters most, and
not spread effort and resources across a wide range of
capabilities that are less critical. More specifically, com-
panies that focus on critical capabilities aligned with
overall strategy tend to innovate more effectively and
bring their innovations to market more efficiently,
boosting top-line growth while reducing relative costs.
Regarding market cap growth, as companies gain the
differentiating capabilities that give them coherence,
their built-in advantage enables them to improve earn-
ings growth, a key metric that the stock market takes
into account when pricing a companys shares.
HIGHLYCOHERENT
53
LESS
COHERENT
45
52
74
Industry Peers
NormalizedPerformance: 50
Highest Possible
Score: 100
Lowest PossibleScore: 0
MarketCapitalization5-yr. CAGR
EBITDA as% of Revenue5-yr. AVG.
HIGHLY COHERENT
COMPANIES
LOW TO MODERATELYCOHERENT COMPANIES
Exhibit 13: The Coherent Innovators Premium
Companies on the Global Innovation 1000 list that scored in the top third
in terms of overall coherence those that had focused on a narrow set
of innovation capabilities, and aligned them with their innovation and
corporate strategy outperformed their less-coherent industry peers.
Source: Booz & Company
Booz & Company identified the 1,000 pub-lic companies around the world that spentthe most on research and development in2009. To be included, a companys data onits R&D spending had to be public; alldata is based on each companys mostrecent fiscal year, as of June 30, 2010.Subsidiaries more than 50 percent ownedby a single corporate parent were exclud-ed because their financial results are
included in the parent companys report-ing. This is the same core approach wehave used in the previous five years ofthe study.
For each of the top 1,000 companies,we obtained key financial metrics for 2002through 2009, including sales, grossprofit, operating profit, net profit, R&Dexpenditures, and market capitalization.All foreign currency sales and R&Dexpenditure figures through 2009 weretranslated into U.S. dollars at 2009 dailyaverage exchange rates. In addition, totalshareholder return was gathered and
adjusted for each companys correspon-ding local market.
Each company was coded into one ofnine industry sectors (or other) accord-ing to Bloombergs standard industry des-ignations, and into one of five regionaldesignations as determined by each com-panys reported headquarters location. Toenable meaningful comparisons acrossindustries, we indexed the R&D spending
levels and financial performance metricsof each company against its industrygroups median values.
This year, to better understand therelationship between innovation strategyand capabilities, we also conducted aWeb-based survey of more than 450 sen-ior managers and R&D professionalsfrom more than 400 different companiesaround the globe. The companies partici-pating represented more than US$150 bil-lion in R&D spending, or 40 percent of thetotal Global Innovation 1000 R&D spend-ing for 2009. Respondents came from all
industry sectors; 52 percent came fromNorth America, 33 percent from Europe,and 15 percent from the rest of the world.
We asked respondents to evaluate theinnovation capabilities they believed weremost important across the value chain,as well as their performance in each ofthese capabilities. Responses were ana-lyzed with a variety of statistical methodsto allow us to distinguish the capabilities
most important in pursuing each of thethree innovation strategies we defined inour 2007 study. Although company namesand responses were kept confidential(unless permission to use them wasexplicitly given), a large number of therespondents identified themselves, en-abling us to associate their survey an-swers with their companys performance.Financial performance was normalized byindustry to compare the impact of capa-bility coherence on corporate financialperformance both within strategies andacross all companies.
Booz & Company Global Innovation 1000: Methodology
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strategy+businessmagazineis published by Booz & Company Inc.
To subscribe, visit www.strategy-business.com/subscriber
or call 1-877-829-9108.
For more information about Booz & Company,
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www.strategy-business.com
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101 Park Ave., 20th Floor, New York, NY 10178
Looking for Booz Allen Hamilton? It can be found at at www.boozallen.com 2010 Booz & Company Inc.
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Innovation 2010A Return to Prominenceand the Emergence
of a New World Order
R
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The Boston Consulting Group (BCG) is a global manage-
ment consulting firm and the worlds leading advisor on
business strategy. We partner with clients in all sectors
and regions to identify their highest-value opportunities,
address their most critical challenges, and transform their
businesses. Our customized approach combines deep in-
sight into the dynamics of companies and markets with
close collaboration at all levels of the client organization.
This ensures that our clients achieve sustainable compet-
itive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private
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mation, please visit www.bcg.com.
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Innovation 2010A Return to Prominenceand the Emergenceof a New World Order
bcg.com
James P. Andrew
Joe Manget
David C. Michael
Andrew Taylor
Hadi Zablit
April 2010
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The Boston Consulting Group, Inc. 2010. All rights reserved.
For information or permission to reprint, please contact BCG at:E-mail: bcg-info@bcg.comFax: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions
The Boston Consulting Group, Inc.
One Beacon StreetBoston, MA 02108USA
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I
ContentsExecutive Summary 4
Innovation in 2010 6
Innovation Regains Its Priority Status 6
Companies Spending Plans 7
Satisfaction with the Return on Innovation Spending 7
Measurement Practices 9Hurdles to Generating a Higher Return on Innovation Spending 10
Goals and Tactics 12
What Kind of Innovation? 12
Leveraging RDEs 12
The Most Innovative Companies 15
An Emerging New World Order in Innovation? 18
Driving the BICs 18
Implications for Leaders 20
Survey Methodology 22
For Further Reading 23
Note to the Reader 24
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T B CG
The Boston Consulting Group, working in
partnership with BusinessWeek, recently
completed its seventh annual global survey
of senior executives on their innovation
practices. This report summarizes that sur-
veys results. It covers the full suite of interrelated activi-
ties involved in turning ideas into financial returns, going
well beyond ideation and new-product development to
include such issues as portfolio and life-cycle manage-
ment, organizational alignment, and demands on lead-
ers. It discusses what works and what doesnt and the ac-
tions companies are taking to make innovation happen.
Finally, the report offers pragmatic advice for individualswho want to make a difference in their organizations.
Our survey revealed that, aer a moderate retrenchment
in 2009, companies have recommitted to pursuing inno-
vation in 2010. They have pushed it back to the top of
their priority lists and plan to boost their innovation
spendingdespite the stagnant economy. Indeed, many
companies consider innovation a key weapon in their ef-
forts to seize the benefits of a tentatively emerging eco-
nomic recovery. The report also postulates that a new
world order in innovation is taking hold, one in which
rapidly developing economies (RDEs), led by China, In-dia, and Brazil, will increasingly assume more prominent
positions, while the United States and other mature econ-
omies continue to play major roles but gradually become
less dominant.
This report examines these and a host of other innova-
tion-related topics, including which types of innovation
companies consider most critical to their success, what
companies consider to be the biggest obstacles to raising
their return on innovation spending, and how innovation
is regarded within organizations. The report also suggests
actions that companies and their leaders can take to max-
imize the return on their innovation efforts in this still
very challenging economic and business environment.
Aer a pause in 2009 that reflected companies grow-
ing concerns about the economy, innovation is once
again a top priority for most companies.
A large majority of companies consider innovation a
top strategic priority for 2010. Seventy-two percent of
respondents said that their company considers it a top-
three priority, versus 64 percent in 2009. This percent-
age matches the highest reading seen in the sevenyears we have been conducting the survey.
Fully 84 percent of respondents said their company
considers innovation an important or extremely im-
portant lever in its ability to reap the benefits of an
economic recovery.
Companies willingness to spend on innovation, and
their satisfaction with the return on innovation
spending, are inching higher.
The majority of companies expect to raise innovationspending in 2010. Sixty-one percent of respondents
(versus 58 percent in 2009) said their company plans
to boost spending; 26 percent said their company
plans to raise it significantly (that is, by more than 10
percent). Only 8 percent of respondents said their com-
pany plans toreduce innovation spending, versus 14
percent who said so in 2009.
Companies satisfaction with their return on innova-
tion spending continues to edge higherbut remains
relatively low. Fiy-five percent of respondents said
Executive Summary
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I
their company is satisfied, versus 43 percent in 2008
and 52 percent in 2009.
The majority of senior executives (that is, C-level ex-
ecutives and vice presidents) and decision makers
(that is, directors and managers) are satisfied with the
return on innovation spending. In sharp contrast, little
more than a third of other employees36 percent of
respondentsare satisfied.
Caution remains in the air, however, and companies
are adjusting their strategies and tactics.
Reflecting lingering caution about the economy, com-
panies continue to ramp up their emphasis on innova-
tion geared toward minor improvements to existing
products and services (as opposed to, for example, in-
novation targeting the launch of new products). Eighty
percent of survey respondents said their company con-
siders this type of innovation important or extremely
important, versus 55 percent in 2008 and 65 percent in
2009.
Businesses are tempering their innovation investments
in RDEs. Forty-one percent of respondents said their
company plans to raise its R&D investment in RDEs in2010, down from 45 percent in 2009. Simultaneously,
companies are broadening the types of innovation
functions they are targeting with those investments. In
particular, they are aggressively expanding their em-
phasis on product development and idea generation.
Executives consider a risk-averse corporate culture,
lengthy product-development times, and inadequate
measurement practices to be key areas of weakness.
Executives identify a risk-averse corporate culture and
lengthy product-development times as the two biggestfactors holding down the return on their innovation
spending.
The majority of companies are dissatisfied with their
innovation-measurement practices. Only 41 percent of
respondents said that their company is measuring ef-
fectively. Customer satisfaction and overall revenue
growth are the two main gauges that companies use to
determine the success of their innovation efforts.
The organizations that top our list of the most inno-
vative companies remain unchallengedbut a lon-
ger-term change seems to be under way.
For the fourth straight year, respondents ranked Apple
and Google the two most innovative companies, with
Apple once again the hands-down winner. Apple has
held the top spot in our survey since 2005.
There is much to suggest that a new world order is
emerging, with RDEs, led by China, India, and Brazil,
gradually assuming more prominent positions, while
the United States and the other mature economies
continue to play major roles but gradually become less
dominant.
Less than half of survey respondents believe that U.S.
companies will remain the most innovative over the
next five years.
About the AuthorsJames P. Andrew is a senior partner and managing direc-
tor in the Chicago office of The Boston Consulting Group;
you may contact him by e-mail at andrew.james@bcg.com.Joe Manget is a senior partner and managing direc-
tor in the firms Toronto office; you may contact him by
e-mail at manget.joe@bcg.com. David C. Michael is a se-
nior partner and managing director in BCGs Beijing of-
fice; you may contact him by e-mail at michael.david@
bcg.com. Andrew Taylor is a partner and managing di-
rector in the firms Chicago office; you may contact him
by e-mail at taylor.andrew@bcg.com. Hadi Zablit is a
partner and managing director in BCGs Paris office; you
may contact him by e-mail at zablit.hadi@bcg.com.
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T B CG
Innovation, aer a brief pause, is back. That was
the headline message conveyed by our latest an-
nual survey on the topic, which reflects the in-
sights of nearly 1,600 executives. Companies had
taken a relatively defensive stance on innovation
heading into 2009, easing back on spending plans and
keeping a closer eye on costs. While that caution has cer-
tainly not vanished, the general outlook is significantly
more positive. Companies believe in innovation, consider
it critical (especially in the current economic environ-
ment), and are increasingly willing to spend more to be-
come more innovative.
Simultaneously, there is much to suggest that a new world
order in innovation is emerging, one in which RDEs, led
by China, India, and Brazil, are in the ascendancy and
gradually assume the reins from established economies,
in particular the United States, which has long been (and
remains) the torchbearer for innovation. The implications
of this trend, especially for managers, are sizable.
Below we discuss the current state of play in innovation,
starting with the importance companies are attaching to
innovation and how that translates into spending plans.
Innovation Regains Its Priority Status
Aer falling for several years, innovations status as a
strategic priority bounced back strongly in 2010. (See Ex-
Innovation in 2010
Where does innovation rank amongyour companys strategic priorities?
Percentage of respondents who considerinnovation a top-three strategic priority
6
23
45
26
Top-threepriority
1Top-tenpriority
Nota priority
0
20
40
30
Percentage of respondents
Toppriority
1
72646666
72
0
20
40
60
80
100Percentage of respondents
2006 2007 2008 2009 2010
Exhibit 1. Innovation Returned to Prominence in 2010
Sources: BCG Senior Executive Innovation Surveys, 2010, 2009, 2008, 2007, 2006.1The total percentage of respondents who said that innovation is one of their companys top-three priorities rounds to 72 percent.
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I
hibit 1.) Seventy-two percent of respondents said it is one
of their companys top-three strategic priorities, up sig-
nificantly from the 64 percent who said so in 2009. Inno-vation is deemed particularly important by the travel and
tourism and retail industries; 79 percent and 77 percent
of respondents from those industries, respectively, said
that their company considers it important or extremely
important.
A strong majority of respondentsfully 84 percentalso
said they consider innovation important or extremely im-
portant for positioning their company to benefit from an
economic recovery. This view held across industries, with
automakers, in particular, deeming it essential (93 per-
cent of respondents from that industry said they consider
it vital).
As we have noted in previous reports, making innovation
a top priority pays off. There is a strong correlation be-
tween innovation prowess and overall business success,
as evidenced by the organizations that consistently top
our list of the most innovative companies. Emphasizing
innovation is also a proven boon to shareholders. We
looked at the total shareholder returns of the most inno-
vative companies (as identified by our survey respon-
dents) versus those of their industry peers for the three-and ten-year periods ending December 31, 2009; the
results were compelling. (See Exhibit 2.) Globally, on an
annualized basis, innovators outperformed their peers by
a whopping 12.4 percentage points over three years and
by a more modest but still significant 2 percentage points
per year over ten years. The bottom line: if you are an in-
vestor, youd do well to seek out innovative companies.
Companies Spending Plans
Consistent with this heightened emphasis on innovation,companies are nudging up their spending. Sixty-one per-
cent of respondents said that their company plans to
boost its innovation spending (versus 58 percent in 2009);
26 percent said their company plans to raise spending sig-
nificantly (that is, by more than 10 percent). And only
8 percent of respondents said their company plans tore-
duce innovation spending, versus 14 percent who said so
in 2009. (See Exhibit 3.)
By industry, automotive companies are the most bullish:
69 percent of respondents said their company would
raise innovation spending, and 36 percent said their com-
pany would do so significantly.
Satisfaction with the Returnon Innovation Spending
One factor that may be driving the uptick in spendingplans is rising satisfaction with the return on innovation
spending. While the level of satisfaction is still lowonly
55 percent of respondents said that their company is sat-
isfiedit has been on the rise for the last three years.
(See Exhibit 4.) Satisfaction is particularly strong this year
among consumer products companies; 64 percent of re-
spondents from that industry said that their company is
satisfied.
Worth noting, though, is the persistent difference in view
between senior executives and decision makers and the
12.4
2.0
12.0
2.0
7.2
1.9
16.5
6.0
5
0
5
10
15
20
Annualized TSR premium (%)
Three- and ten-year annualizedtotal-shareholder-return premiumsof innovative companies compared
with their industry peers
Globalinnovators
Americasinnovators
Europeaninnovators
Asia-Pacificinnovators
Three-year premium Ten-year premium
Exhibit 2. Innovative Companies Typically
Generate Superior Returns
for Shareholders
Sources: BCG 2010 Senior Executive Innovation Survey; BCG
ValueScience Center analysis.
Note: Returns were annualized for December 31, 2006, to December
31, 2009, for the three-year comparison, and for December 31,1999,
to December 31, 2009, for the ten-year comparison, and account for
price appreciation and dividends. To generate the comparison data,we compared the TSR of each innovative company, as identified by
survey respondents, with the TSR of its industry overall and averaged
the differences globally and by region.
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T B CG
rest of the company. Simply put, the top brass are farmore satisfied. In 2010, the majority of C- and VP-level
executives, directors, and managers said they were satis-
fied with their companys return on innovation spending,
versus only 36 percent of other employees. (See Exhibit
5.) C-level executives are the most satisfied (59 percent of
respondents), as they have been historically in our sur-
veys. Given the role that these executives, particularly the
CEO, play in their organizations innovation effortsthe
CEO has consistently been identified as the biggest force
driving innovation in our surveysthis enthusiasm is
perhaps not surprising. (See Exhibit 6.) In fact, its prob-
ably vital to have a bullish CEO if innovation is critical toyour company.
But the ongoing gap in perspective between top execu-
tives and the rest of the organization may be indicative
of problemsor problems to come. Assuming that the
CEO is, in fact, correct in his or her assessment, he or she
should ultimately be able to sell that vision to the rest of
the company. But clearly this hasnt happened. Could it
be that CEOs and other top executives are wrong? Does
the rest of the company have a better read on the true
state of affairs? Obviously both sides cant be right.
How will your companys investments in innovationcompare with its investments last year?
5
9
28
32
35
31
35
26
Percentage of respondents
26
Increasesignificantly
(>10%)
Increaseslightly
(1%10%)
Stayroughly
the same
Decreaseslightly
(1%10%)
Decreasesignificantly
(>10%)
2009 2010
40
30
20
10
0
Exhibit 3. Sixty-One Percent of Companies Plan to Increase Their Innovation Spending,
While Only 8 Percent Plan to Reduce It
Sources: BCG Senior Executive Innovation Surveys, 2010, 2009.
Are you satisfied with the financial returnon your investments in innovation?
57
43
4852
45
55
0
20
40
60
Yes No/Not sure
Percentage of respondents
2008 2009 2010
Exhibit 4. Satisfaction with the Return onInnovation Spending Has Risen for the
Past Three Years but Remains Low
Sources: BCG Senior Executive Innovation Surveys, 2010, 2009,
2008.
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A final thought on the topic of leadership: CEOs are the
most recognized leaders of companies innovation efforts.
Yet only 28 percent of survey respondents identified theCEO as the key driver at their company. This suggests a
general absence of high-level leadership regarding inno-
vationand a real opportunity for many companies to
improve.
Measurement Practices
Gauging returns on innovation spending with any confi-
dence requires proper measurement. Are most compa-
nies hitting the mark? Based on our survey, the answer is
no. Only 41 percent of respondents said they are satisfied
with their companys measurement practices.
The choice of metrics is undoubtedly part of the problem.
Companies biggest flaw is typically that they undermeas-
ure. Our 2009 reportMeasuring Innovation 2009: The Need
for Action revealed that the majority of companies use
only 5 or fewer metrics. In contrast, our experience has
shown that 10 to 12 metrics are required to provide the
information necessary to really manage, rather than
Are you satisfied with your companysreturn on innovation spending?
0
20
40
60 59 5854 53
36
C-level Vicepresident
Director Manager Other
Percentage of respondents who said yes
Exhibit 5. Satisfaction With the Return on
Innovation Spending Correlates Closely
with Position in the Organization
Source: BCG 2010 Senior Executive Innovation Survey.
Who is the biggest force driving innovation at your company?
30 28
19
10
8 8
5 5 4 4
2
6
20
10
0
Percentage of respondents
Chiefexecutive
officer
President Chairperson Chiefoperating
officer
Vicepresidentor headof R&D
Chiefinformation
officer
Vicepresidentor head ofmarketing
Vicepresidentor head ofinnovation
Chieffinancialofficer
Vicepresidentor head ofstrategy
Other
Exhibit 6. CEOs Are Innovations Biggest Champions
Source: BCG 2010 Senior Executive Innovation Survey.
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T B CG
merely react to, the innovation process. Companies gowrong in other ways as well. They measure the wrong
things, they fail to tie incentives to metrics so that the
metrics stickor, in some cases, they do not measure
at all.
When companies do measure innovation, which metrics
do they use? In past surveys, the two most widely em-
ployed yardsticks were customer satisfaction and overall
revenue growth. That remains the case in 2010, with 45
percent and 40 percent of respondents, respectively, nam-
ing these two metrics. (See Exhibit 7.) Neither of these
measures is perfect, it should be noted, since both are in-fluenced by many other factors besides a companys in-
novation capabilities or success.
One metric that continues to be underutilized is time to
marketthis year, only 20 percent of respondents said
their company monitored it. Given that respondents have
consistently identified lack of speed as one of their com-
panys biggest weaknesses, as well as one of the biggest
hurdles to raising their return on innovation spending,
the neglect of this measure remains perplexing. Given the
persistent failure to measure the time it takes to turn
ideas into cash, however, the lack of progress in actuallyimproving time to market is totally understandable.
Hurdles to Generating a Higher Returnon Innovation Spending
What do companies believe is weighing down their re-
turn on innovation spending? Respondents identified a
broad mix of challenges. (See Exhibit 8.) The most fre-
quently cited were a risk-averse corporate culture (31 per-
cent of respondents) and lengthy development times (30
percent), which have been the top two responses for thepast several years. A risk-averse culture is a particular
problem for retailers (40 percent of respondents from
that industry identified it) and makers of consumer prod-
ucts (36 percent). Long development times are a major
barrier for entertainment and media companies (40 per-
cent of respondents) and, not surprisingly, pharmaceuti-
cal companies (38 percent).
It is noteworthy that, as in past years, relatively few re-
spondents (22 percent) identified a shortage of great
ideas as a major hurdle. (The noteworthy exception is
How does your company measure its success at innovation?
30
40
5045
40
35
2927 26 26 25
20
15
20
10
0
Percentage of respondents
Customersatisfaction
Overallrevenuegrowth
Percentageof sales
from newproducts or
services
Highermargins
New-productsuccessratios
Return oninnovationspending
Projectedversus actualperformance
Numberof new
productsor services
Time tomarket
Patents
Exhibit 7. Customer Satisfaction and Overall Revenue Growth Are the Most Commonly
Used Metrics
Source: BCG 2010 Senior Executive Innovation Survey.
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travel and tourism companies: 34 percent of respondentsfrom that industry identified it as a challenge.) In fact,
most organizations have any number of promising ideas.
But generating ideas and turning those ideas into cashare two entirely different things, as most companies learn
fairly quickly.
What are the biggest obstacles you face when it comes togenerating a return on your investments in innovation?
30
40
31 30
2624
22 22 21 21 2120
20
10
0
Percentage of respondents
Risk-averseculture
Lengthydevelopment
times
Difficulty selectingthe right ideas tocommercialize
Inability toadequatelymeasure
performance
Not enoughgreat ideas
Lack ofcoordination
within thecompany
Ineffectivemarketing and
communications
Compensationnot tied
to innovationresults
Not enoughcustomer
insight
Insufficientsupport from
leadership andmanagement
Exhibit 8. A Risk-Averse Culture and Lengthy Development Times Are the Biggest Hurdles
to Improving the Return on Innovation Spending
Source: BCG 2010 Senior Executive Innovation Survey.
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El impacto dE la i+d+ En El sEctor productivo Espaol
79v Cncluine
v. conclusionEs
El objetivo del preente trabajo e analizar el impacto que la actividade de innovacin de la em-
prea epaola tienen en u reultado tecnolgico y econmico, identifcado a trav de una
erie de indicadre cnenid en el Panel de Innacin tecnlgica (PItEC) y en la Encuea bre
Eraegia Empreariale (EsEE)
se han aplicad d medlga de anlii cmplemenaria En primer lugar, e realiza un anlii
decripiv, preand epecial aencin a la dierencia que exien enre la media del indicadr de
la emprea innovadoras y la no-innovadoras, enendiend pr emprea innvadra aquella emprea
cn ga en innvacin en el a cniderad En ea decripcin e prcede, aimim, a diinguir
enre Pyme y emprea grande, enre emprea de manuacura y de ervici y enre emprea que
peran en ecre de al y de baj niel ecnlgic
Perirmene, e analizan l da uilizand herramiena ecnmrica Ea medlga per-
mie cuantifcaren qu medida aeca a l reulad de la emprea el hech de realizar aciidade
de I+D+i Para ell, e llean a cab eimacine de mdel en l que la ariable a explicar refeja
un reulad cncre de la emprea25
A parir de ea d aprximacine, e exraen la iguiene cncluine:
rEsultados tEcnolgicos
Exie una relacin piiva muy evidene enre el hech de realizar ga en I+D+i y la inrduccin
de innvacine en d l ecre prduciv La innvacine de prduc n m recuene
enre la Pyme, mienra que la de prce deacan en el cleciv de emprea grande Cuand
la emprea n realizan ga, la innacine m recuene n la de ip rganizai
La prbabilidad de lgrar innacine de prduc habiend realizad ga de I+D+i el a ane-
rir e incremena en un 56% cuand la emprea pera en ecre manuacurer y en un 46%
cuand perenece al ecr erici Para la innacine de prce e prcenaje n del
55% y el 54% repeciamene
La recuencia con la que la emprea patentan u innovacione e mucho m baja que la re-cuencia con la que innovan La emprea grande regitran con mayor recuencia patente que
la Pyme Para amb cleciv e cnabiliza un mayr prcenaje de emprea cn paene en
aquell ecre cniderad de niel ecnlgic baj
El regir de marca cmerciale e m recuene que el de paene en d l ecre ecn-
mic En la manuacura, la prbabilidad de que una emprea regire una paene una marca
cmercial e incremena en un prcenaje imilar (aprximadamene un 14%) cuand ha realizad
ga en I+D+i el a anerir, mienra que en l ervici ee incremen e much m elevad
para la marca cmerciale (un 12%) que para la paene (un 7%)
25 El efecto concreto de todas las variables consideradas en cada estimacin y una descripcin pormenorizada del mtodo economtrico utilizado en cadaestimacin puede consultarse en el Anexo IV.
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80 CDtI
rEsultados Econmicos
Lo reultado econmico medido a trav de la venta y el margen bruto de explotacin on
mejre para la emprea innadra La dierencia enre innar y n innar n m acen-
uada en el cleci de la Pyme que en la grande cmpaa En cncre, la dierencia en la
aa de ariacin de la ena e de 8 pun prcenuale para la Pyme y de an l un pun
para la grande
En el periodo 2005-2006, la cira de venta e incrementa en un 2% adicional cuando la emprea
realiz gato en innovacin el ao anterior Ete impacto poitivo, pero de pequea cuanta, pone
de manifeto que en la evolucin del volumen de negocio de una emprea inciden multitud de
actore, iendo uno de ello u actividad innovadora No obtante, el incremento adicional rela-
cinad cn el ga en I+D+i e el dble cuand e raa de una emprea manuacurera (un 4,4%
cncreamene)
Buena pare del cmpramien pii de la ena e relacinad direcamene cn la inr-
duccin de innacine en el mercad En la Pyme, el 30% de u acuracin priene de nue
prduc y en la grande el 21% se bera un mayr dinamim en l ecre de ecnlga
madura, ya que e prcenaje e elean al 32% y al 28%, repeciamene
El grad de preencia en mercad inernacinale e mayr en d l ecre ecnmic i
la emprea realiza ga en I+D+i se bera que l cleci que aprechan mejr u aciidad
innadra para cnlidar u enaja cmpeiia en el exerir n la Pyme de erici y la
emprea grande manuacurera
La probabilidad de exportar e incrementa alrededor de 18 punto porcentuale i la emprea
realiz ga en innacin el a anerir se deeca un impac de mayr cuana en la induria
(16 pun) que en el ecr erici (11 pun)
El lumen de inerin en capial j e mayr cuand la emprea realiza ga en I+D+i Para el
cleciv de emprea grande, l da indican que la dierencia de cmpramien e generan,
epecialmene, en l erici y en l ecre de ala ecnlga, dnde el lumen de inerin
de la innadra prcicamene riplica al de la n innadra
El anlii ecnmric crrbra que, en la manuacura y para 2005 y 2006, un 36% del incremenen la aa de variacin de la inverin brua de capial pr emplead euv inducid pr la ejecucin
de ga en I+D+i el a prei sin embarg, n e puede cnrmar que ee ga haya enid un
impac eadicamene ignicai en la inerin realizada pr la emprea de erici
La Pyme innovadora han creado empleo a una taa media anual del 3% durante 2005 y 2006,
mienra que la aa de crecimien ue de -6% para la emprea que n realizarn ga La baja
taa de creacin de empleo en la emprea no-innovadora e debi, undamentalmente, a la
deruccin de pue de rabaj que u lugar en el ecr de la cnruccin
se cnrma la exiencia de un eec pii del ga en I+D+i bre el emple En 2005 y 2006
el emple e incremen, an en manuacura cm en erici, en un 2% adicinal cuand laemprea realiz ga de I+D+i el a anerir
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El impacto dE la i+d+ En El sEctor productivo Espaol
81
El impac del ga de I+D+i e much m releane en la emprea pequea En cncre, laPyme cn ga de innacin en 2004 preenan, pr rmin medi, una aa de crecimien del
emple en 2006 uperir en 3,5 pun prcenuale a la que n realizarn I+D+i Ee dierencial
era de 2,8 pun para la manuacura y 5,9 pun para el ecr erici
En general, e bera que la emprea cn ga en innacin n m prducia que la que
no lo hacen y eta dierencia de productividad on m acentuada en la grande que en la
Pyme
E ignifcativo comprobar que, pee a haber regitrado durante 2005 y 2006 taa poitiva de
creacin de emple, el imprane incremen en la vena de la Pyme innvadra (un 12% rene
al 4% de la n-innadra), ha erid para manener un niele de prduciidad en lnea cn
el grup de reerencia, dnde, pr el cnrari, e deruy emple
Cuand la emprea realiz ga de I+D+i durane el a prei, u prduciidad e incremena en
16 pun prcenuale, an en la manuacura cm en l erici
otros EfEctos cualitativos dE la i+d+
En general, e bera que una de cada d emprea que hace ga en innacin experimena
mejra relacinada cn la ampliacin de la gama de prduc y erici y cn la mejra de la
calidad De hech, la prbabilidad de bener e d ip de mejra e incremena en un 14%
cuand e realiz ga en I+D+i el a anerir
La proporcin baja a una de cada tre emprea, aproximadamente, cuando no reerimo a me-
jra en l prce de prduccin, ale cm el incremen de la fexibilidad el aumen de la
capacidad prducia De la mima manera, la prbabilidad de inrducir ea mejra e menr
que la anerire, cncreamene un 8% y un 5% para cada una de ella
Pr rmin medi, el 18% de la Pyme y el 20% de la grande emprea cnideran que u aci-
vidad innvadra avrece la inrduccin de mejra relacinada cn el impac mediambiena