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2010/12/03

The Global Innovation 1000: How the To…

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RESOURCES
Barry Jaruzelski and Kevin Dehoff, “Profits Down, Spending Steady: The Global Innovation 1000,” s+b, Winter 2009: Last year’s study showed that most companies were sticking with their innovation programs in the early stages of the recession — and many were boosting spending to compete in the upturn. Barry Jaruzelski and Kevin Dehoff, “Beyond Borders: The Global Innovation 1000,” s+b, Winter 2008: This study revealed for the first time how R&D money is benefiting most parts of the world. Barry Jaruzelski and Kevin Dehoff, “The Customer Connection: The Global Innovation 1000,” s+b, Winter 2007: This study identified the three distinct innovation strategies: Need Seekers, Market Readers, and Technology Drivers. adv ertisement

Published: November 3, 2010 / Winter 2010 / Issue 61

Barry Jaruzelski and Richard Holman, “Innovating through the Downturn: A Memo to the Chief Innovation Officer,” Booz & Company white paper, March 2009 (PDF): How companies can tailor their product and technology initiatives to new market realities and refocus their investments on their core R&D and innovation capabilities.

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Innovation

The Global Innovation 1000: How the To… innovation capabilities. Zia Kahn and Jon Katzenbach, “Are You Killing Enough Ideas?” s+b, Autumn 2009: How companies can improve their innovation performance by getting their formal and informal organizations in sync. Alexander Kandybin, “Which Innovation Efforts Will Pay?” MIT

The Global Innovation 1000: How the Top Innovators Keep Winning by Barry Jaruzelski and Kevin Dehoff

Booz & Company’s annual study of the world’s biggest R&D spenders shows why highly innovative companies are able Sloan Management Review, October 1, 2009: How companies can use an incisive analytic tool to gauge their overall R&D to consistently outperform. Their secret? They’re good at the right things, not at everything. effectiveness. Paul Leinwand and Cesare Mainardi, “The Coherence Premium,” Harvard Business Review, June 2010: The power of capabilitiesdriven strategy. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/innovation.

Why are som e com panies able to consistently conceiv e of, create, and bring to m arket innov ativ e and profitable new products and serv ices while so m any others struggle? It isn’t the am ount of m oney they spend on research and dev elopm ent. After all, our annual Global Innov ation 1 000 study has shown tim e and again that there is no statistically significant relationship between financial perform ance and innov ation spending, in term s of either total R&D dollars or R&D as a per centage of rev enues. What m atter s instead is the particular com bination of talent, knowledge, team structures, tools, and processes — the capabilities — that successful com panies put together to enable their innov ation efforts, and thus create products and serv ices they can successfully take to m arket. This y ear’s edition of the Global Innov ation 1 000, our sixth, analy zes the capabilities sy stem s that the m ost successful innov ators hav e assem bled to execute their distinct innov ation strategies, and the way s they hav e aligned those
Illustration by Otto Steininger

capabilities with their ov erall business strategies. Innov ators that hav e achiev ed this state of coherence, we hav e found, consistently and significantly outperform their riv als on sev eral financial m easures. We believ e that this assessm ent of key innov ation capabilities com es at a par ticularly opportune tim e. This y ear, for the first tim e in the m ore than a decade we hav e been tracking global R&D spending, total corporate R&D spending am ong the Global Innov ation 1 000 declined, from US$52 1 billion in 2008 to $503 billion in 2 009 , or 3 .5 percent. (See “Profiling the 2009 Global Innov ation 1 000,” below.) Clear ly , the global recession, which had not y et taken its toll on the world of innov ation in 2008, finally cam e hom e to roost last y ear . Yet that decline m akes it ev en m ore im perativ e that com panies spend their av ailable R&D dollars wisely . Our goal this y ear is to exam ine the capabilities needed to m axim ize the im pact of a com pany ’s innov ation efforts in good tim es and bad, and to highlight the benefits both of focusing on the short list of capabilities that generate differential adv antage, and of clearly linking the specific decisions within innov ation to the com pany ’s ov erall capabilities sy stem and strategy .

Strategies and Capabilities
Three y ears ago, in 2007 , we focused our annual innov ation study on how com panies use distinct innov ation strategies to create their products and take them to m arket. Nearly ev ery com pany , we found, followed one of three fundam ental innov ation strategies: Need Seekers activ ely and directly engage current and potential custom ers to shape new products and ser v ices based on superior end-user understanding, and striv e to be the first to m arket with those new offerings. Market Readers watch their custom ers and com petitor s carefully , focusing largely on creating v alue through incr em ental change and by capitalizing on prov en m arket trends. Technology Driv ers follow the direction suggested by their technological capabilities, lev eraging their inv estm ent in r esearch and dev elopm ent to driv e both breakthrough innov ation and increm ental change, often seeking to solv e the unarticulated needs of their custom ers v ia new technology . It is im portant to note that we found that none of these three str ategies were any better than the oth ers at producing sustained superior financial results, although of course indiv idual com panies outperform others within each strategic group. The success of each of the strategies depends on how closely com panies, in pursuing innov ation, align their innov ation strategy with their business strategy and how m uch effort they dev ote to directly understanding the needs of end-users. This y ear we set out to answer two new questions: Which sets of capabilities are the m ost critical for the success of each of the three strategies? And do com panies that focus on those critical capabilities see im prov ed ov erall financial results? Our hy pothesis: Com panies that can cr aft a tightly focused set of innov ation capabilities in line with their particular innov ation strategy — and then align them with other enter pr ise-wide capabilities and their ov erall business strategy — will get a better return on the resour ces they inv est in innov ation. Innov ation capabilities enable com panies to perform specific functions at all the stages of the R&D v alue chain — ideation, project selection, product dev elopm ent, and com m er cialization. We asked respondents to this y ear’s Global Innov ation 1 000 surv ey to identify which capabilities were m ost im portant in achiev ing success at innov ation. (See Exhibit 1 .) Then, in hopes of getting fur ther insight into which capabilities com panies ought to work toward, we looked at the capabilities focused on by the top 2 5 percent of perform ers within the group using each of the three innov ation strategies. (See Exhibit 2 .)

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No m atter which of the three innov ation strategies they pursued, all the successful com panies depended on a com m on set of critical innov ation capabilities. These include the ability to gain insights into custom er needs and to understand the potential relev ance of em erging technologies at the ideation stage, to engage activ ely with custom ers to prov e the v alidity of concepts during product dev elopm ent, and to work with pilot users to roll out products carefully during com m er cialization. In addition to these com m on capabilities, com panies am ong the top 25 percent in perform ance within each strategic group depend on a set of distinct capabilities they feel are critical to achiev e success, som e of which ov erlap with those of other strategies. The m ost successful com panies, we found, ar e those that focus on a par ticular, narr ow set of com m on and distinct capabilities that enable them to better execute their chosen strategy .
PROFILING THE 2009 GLOBAL INNOVATION 1000

The global recession finally caught up with the wor ld’s top innov ators in 2 009. Following a relativ ely strong 2 008, dur ing which total R&D spending continued to grow despite the recessionary headwinds, the 1 ,000 com panies that spent the m ost on research and dev elopm ent decr eased their total R&D spending in 2 009 by 3 .5 percent, to US$503 billion. This decline in corporate R&D spending is the first we’v e seen in the m ore than 1 0 y ears we hav e tracked the global innov ators, and it is clearly a result of the econom ic downturn’s im pact on corporate R&D budgets. Rev enue for the Global Innov ation 1 000 plunged at an 1 1 percent rate, from $1 5.1 trillion in 2008 to $1 3 .4 trillion in 2009 — nearly three tim es the rate of decline in R&D spending. The r esult was that R&D intensity (innov ation spending as a percentage of rev enue) actually increased, fr om 3 .5 percent to 3 .8 percent, indicating that com panies attem pted to stay the course with their ov erall innov ation progr am s, and that they continue to see innov ation as essential for futur e growth. (See Exhibit 3 .) Com par ed to the 3 .5 percent reduction in R&D spending, the 1 ,000 top R&D

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spenders cut m uch m ore deeply into both sales, general, and adm inistr ativ e expenses (a 5.4 percent reduction) and capital expenditures (a 1 7 .5 per cent drop). (See Exhibit 4.)

The r eductions in R&D spending, howev er, were neither as widespread nor as ev enly distributed am ong industries as the ov erall num ber s m ight suggest. Just ov er half of all the com panies we tracked this y ear cut their R&D spending in 2009 . Nearly all the cuts, howev er, cam e in just three industr ies: auto, com puting and electronics, and industrials. The other industries increased spending to a greater or lesser degr ee. (See Exhibit 5.) The auto industry alone accounted for fully two-thirds of the $1 8 billion contr action in R&D spending — not surprising, giv en the crunch the industry went through in 2 009. A large num ber of auto par ts suppliers fell into bankruptcy protection last y ear, and v irtually ev ery com pany in the industry cut spending in all areas of operations. Still, the industry ’s 1 4 percent decrease in R&D spending was roughly in line with its 1 2.7 per cent decrease in r ev enue; as a result, the auto industry ’s R&D intensity was essentially unchanged, at 3 .9 percent. The com puting and electronics industry r eported sim ilar but less drastic R&D spending reductions. The industry ’s rev enues were down by 7 percent from 2008 as a result of the recession and the accom pany ing dr op in sales. Yet as with autos, the decline in R&D spending for com puting and electronics — 7 percent — tracked the decline in r ev enue, so there was v ir tually no change in the industr y ’s R&D intensity . Despite the $9 .7 billion decline in its R&D spending, com puting and electronics kept its top spot as the biggest spender on innov ation, while autos rem ained at num ber three. (See Exhibit 6 .) The industry in the num ber two spot, healthcare, increased its R&D spending by 1 .5 percent — m uch slower than the industry ’s recession-defy ing rev enue gr owth rate of 6 percent.

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Giv en the recession’s ov erall effect on innov ation spending, it’s not surprising that com panies headqu artered in the regions that were hit hardest cut their R&D spending the m ost, on av erage. Of the top three regions, Japan registered the largest percentage drop in spending, at 1 0.8 percent, while North Am erica’s spending declined by 3 .8 percent and Europe’s by just 0.2 percent. (See Exhibit 7 .) The innov ation program s of com panies based in China and India, on the other hand, seem ed unaffected by the recession: They boosted R&D spending by 4 1 .8 percent (albeit fr om a sm all base; they account for only 1 percent of total Global Innov ation 1 000 corporate R&D spending). (See Exhibit 8.)

Changes in the list of the top 20 spenders pr ov ided further signs of the tim es. The Toy ota Motor Corporation fell from the top spending spot am ong the Global Innov ation 1 000 for the first tim e since our 2 006 study . (See Exhibit 9 .) Toy ota cut spending alm ost 20 percent, while its R&D intensity fell to 3 .8 percent from 4.4 percent in 2 008 — no doubt a direct result of its first-ev er loss (m ore than $4 .3 billion that y ear). Other autom akers also fell on the Top 20 list, while m ost com panies in com puting and electronics rose a notch or two.

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Taking ov er the num ber one position was pharm aceutical giant Roche Holding Ltd., which boosted its R&D spending 1 1 .6 percent, to $9.1 billion. Indeed, healthcare com panies took six of the top 1 0 spots on the list, and sev en of the top 20. Com ing in at num ber 1 ,000 was the m edical m anufactur er Seikagaku Corporation, which spent $59 .5 m illion in 2009, down 7 .5 percent from the pr ev ious y ear. In hindsight, giv en the sev erity of the r ecession and the econom ic uncertainty that gripped the wor ld, it seem s inev itable that com panies would cut their innov ation budgets in 2009 . Still, their ov erall unwillingness to r educe spending in line with their decline in rev enues is a tribute to the im por tance com panies in ev ery indu str y now place on innov ation as a key source of growth. Thus, with the recession drawing to a close and com panies continuing to post strong earnings, 201 0 will be an im portant test of their innov ation m ettle: The m ost forwardlooking com panies will m ov e quickly to restore or ev en increase the R&D spending they cut in 2 009 and to deploy it still m ore effectiv ely . — B.J. and K.D.

Need Seekers
The distinct strategy of Need Seekers is to ascertain the needs and desires of consum ers and then to dev elop products that address those needs and get them to m arket before the com petition does. The capabilities required for success begin at the ideation stage, wher e Need Seekers pursue open innov ation and directly generated, deep consum er and custom er insights and analy tics, as well as a detailed understanding of em erging technologies and trends, in order to identify both their custom ers’ needs and the technology trends that can help them m eet those needs. An exam ple is Stanley Black & Decker Inc.’s DeWalt div ision, a m aker of power tools for professional contr actors. In its efforts to connect directly with custom ers ev en before it starts selecting which projects to dev elop, DeWalt regularly sends people out to construction sites to research builders’ needs and observ e constr uction crews in action. One notable result of such efforts was the dev elopm ent of a 1 2 -inch m iter saw, which becam e one of the com pany ’s bestsellers, after researchers watched carpenters struggle to cut large pieces of m olding on the industry -standard 1 0inch saw. Need Seekers generally continue to rem ain connected to custom ers both dur ing the project selection process, in which ongoing assessm ent of m arket potential is a key capability , and during product dev elopm ent, when it is critical for Need Seeker s to engage with custom ers to prov e the r eal-world feasibility of their products. At DeWalt, for instance, once prototy pes of new pr oducts hav e been com pleted, engineers and m arketer s take them back to the sam e job sites where the research was originally done. They leav e the new tools with the custom ers, and com e back a week or so later to collect inform ation on how the tools perform ed. That inform ation feeds directly into the com pany ’s iter ativ e dev elopm ent process. Giv en that Need Seekers frequently depend for their success on dev eloping technically innov ativ e pr oducts, a further key capability at the project selection stage inv olv es technology risk assessm ent and m anagem ent. At the Xer ox Corpor ation, for exam ple, Stev e Hoov er, v ice pr esident of R&D in charge of software dev elopm ent for the com pany ’s products, notes the im portance of risk m anagem ent in assessing the potential business v alue of any project under dev elopm ent. “How big an opportunity are y ou going after here?” he asks. “What will driv e its v alue? Where are the biggest technical r isks? What m ight cause the project to fail? You’re looking for correlations. Where there’s risk, y ou hav e to put in the extra work to ensur e y ou capture the potential v alue.” At the com m ercialization stage, Need Seeker s v alue pilot-user program s and global product launches as crucial for keeping in touch with custom ers ev en as they scale up their sales efforts to capture the m axim um v alue of being fir st to m arket. Both DeWalt and dental equipm ent m aker Dentsply rigor ously assess the percentage of sales com ing from new products. For Xerox, which sells its products around the world, m anaging the launch phase is a critical and

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highly com plex endeav or , designed to accom m odate the long lead tim es, logistics, and tr aining needs inv olv ed in selling large and sophisticated m achines in v ery div erse m arkets.

Market Readers
Mar ket Readers, on the other hand, pur sue their custom ers m ore cautiously , prefer ring to innov ate increm entally and keeping a close ey e on the innov ations of com petitors. Like Need Seekers, they m ust pay car eful attention at the ideation stage to what custom ers ar e looking for in the pr oducts they choose — but in their case, the goal is to m ake sure they are deliv er ing successfully differentiated alternativ es. Mar ket Readers also seek to track the technology tr ends that can help them create that differentiation. Tim Yerdon is director of innov ation and design at Visteon, a global auto parts m anufacturer . But his real focus, he say s, is “ to look at m arket trends and translate those trends and needs into new products and serv ices.” That’s why taking accurate readings of the m arketplace at both the ideation and the project selection stages is a key capability for Visteon. A case in point is the com pany ’s dev elopm ent of reconfigurable digital display s for cars. Until recently , not m any in the auto industry anticipated that driv ers would fav or digital display s ov er tr aditional instrum ent clusters. Yet consum er s were clearly happy with the flat-screen TVs they were buy ing for their hom es. Say s Yerdon: “We did the m arket research, we put all these data points together, and we could see where the trends were going.” In late 2 009, Visteon successfully launched its fir st r econfigur able display s. The success of the Market Reader s strategy depends on m anagers m aking sure the r ight products hit the m arket at the right tim e. So the initial process of selecting which projects to focus on is cr itical: Here, the key capabilities include forecasting — and planning for — project resource requirem ents, and r igorous decision m aking inv olv ing portfolio trade-offs. At the Parker Hannifin Corporation, a div ersified m anufacturer of industrial equ ipm ent, this understanding led to the im plem entation of a highly disciplined stage-gate process for green-lighting projects, em bedded in ev ery div ision in the com pany . Parker Hannifin treats its general m anagers and their staff as v entur e capitalists who are being asked to inv est the com pany ’s m oney in certain projects. The rigorous v alue screens that the com pany has dev eloped as part of this process hav e enabled m anagem ent to filter out the good pr ojects from the bad m uch m ore successfully than before. For com panies like Visteon, an equally critical capability is engagem ent with custom ers to pr ov e r eal-world feasibility throughout the product dev elopm ent stage. By wor king activ ely with autom akers, say s Visteon’s Yer don, “we’re taking a su bstantial am ount of risk out of the sy stem . Rather than com ing up with an idea, building it, and then bringing it to a custom er, only to find out they don’t want it, we’re m uch better off working together and m or e openly .” In the next y ear or so, Asia will becom e Visteon’s lar gest m arket — a rem arkable achiev em ent for a com pany that started out as a spin-off of the Ford Motor Com pany . As Visteon continues to expand from its longtim e base in North Am erica, its capabilities in reading different m arkets accurately and collaborating with original equipm ent m anufacturers in each m arket will becom e ev en m ore essential, and thus hav ing in-region engineer ing capabilities will becom e increasingly critical.

T echnology Driv ers
Technology Driv ers begin with a different approach to ideation, using their technological prowess to dev elop products their custom ers m ay not know they need. That’s why the ideation stage is so critical for these com panies. They m ust pur sue open innov ation processes that capture as m any potential ideas as possible, all the while av oiding being hobbled by a “not inv ented here” attitude. They m ust also constantly scan m arkets for new technologies that m ight further their pursuit of new ideas. In addition, Technology Driv ers m ust ensure that their technical personnel hav e tim e to ideate: This is the rationale for Google’s well-known “7 0-2 0-1 0” rule, which directs engineers to spend 7 0 percent of their tim e on core business tasks and 2 0 per cent on related projects, but allows them to spend 1 0 percent of their tim e pursuing their own ideas. Technology Driv ers can take different approaches to the ideation stage. The Germ an technology giant Siem ens AG, for exam ple, spends 5 percent of its ov erall R&D bu dget on planning for the long term , which inv olv es dev eloping detailed technology road m aps within indiv idual business units, as well as longer -range scenarios of future technology trends at the corporate lev el. This dual process has generated per spectiv es that hav e enabled the com pany to expand its lar ge health technologies business into new areas such as per sonalized healthcare. And Siem ens works hard to track the pay back from its centralized innov ation office in the for m of actual new products launched. The Masco Corporation, an $8 billion building produ cts com pany , is m ore freewheeling in its ideation; Masco seeks to be ready to lev erage new technologies no m atter wher e they can be found. A few y ear s back, com pany representativ es noticed som e interesting technology at a trade show — a wir eless, battery -less switch, which they were sur e would hav e applications in the hom e. “We v etted the technology , br ainstorm ed specific applications for the hom e, and dev eloped a pilot,” recalls Thom Nealssohn, m anager of innov ation im plem entation ser v ices at Masco. “Ev er y tim e we showed it to som eone, we learned a little bit m ore, and that gav e us the fuel that we needed to go back and m ake it better.” Masco launched a new line of innov ativ e program m able lighting products based on the technology — Verv e Liv ing Sy stem s — in 2 009 . Masco has had m any sim ilar successes. “In m any cases, it’s just a m atter of sitting down and say ing, ‘Her e’s the problem we want to solv e,’” Nealssohn say s. “What really differentiates us is our willingness to partner with custom ers, to try not only to under stand what issues they ’re str uggling with today , but to anticipate issues that m ay

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arise as a result of what we see going on in the wor ld around us.” That strategy , in turn, dem ands that Technology Driv ers like Masco also focus on r igorous decision m aking in R&D portfolio trade-offs at the project selection stage, if they are to funnel their wide-r anging ideas into products that can succeed in the m arket. Finally , because of the nature of their products, Technology Driv er s m ust pay strict attention to two key capabilities in the com m ercialization stage: pilot-user selection/controlled rollouts, and product life-cy cle m anagem ent. In essence, Masco serv es three different sets of custom ers: large hom e builders, hom e im prov em ent chains, and ultim ately , end-users. Say s Nealssohn: “We believ e that ev ery one in the distribution chain has to win. A shift of m argin from one par tner in the chain to another does not necessar ily equate to a winning product. So it doesn’t m atter how m uch the custom er wants the pr oduct — if the distributor or the hom e builder doesn’t see the opportunity to m ake m oney , chances ar e that product is going to struggle or ev en fail.”

Focus Matters
The capabilities requir ed to pursue each strategy for m a sy stem atic set of skills, processes, and tools that com panies m ust focus on to succeed at each stage of the innov ation process. In contrast to top-perform ing innov ators such as Apple, Google, Xerox, Visteon, and Siem ens, the poorest-perform ing com panies within each strategic group — those am ong the bottom 2 5 percent — take a less-focused approach to the m ost critical innov ation capabilities. These lower-perform ing com panies, r egardless of which of the three strategies they are pursuing, cite only thr ee com m on capabilities as im portant: early custom er insight, assessm ent of m arket potential during pr oject selection, and engaging with custom ers at the dev elopm ent stage. Although all three of these capabilities inv olv e critical custom er- and m arket-driv en elem ents, they are not sufficient; they need to be integrated with m or e distinctiv e capabilities, such as awareness of new technology dev elopm ents and close attention to product platform m anagem ent. Notably , there is significantly less ov erlap am ong the capabilities that low-perform ing com panies depend on. This suggests that these com panies take m ore of a scattershot approach to building the innov ation capabilities sy stem s they need. This lack of focus, we believ e, is a prim ary cause of their inferior perfor m ance. Focusing on a sy stem atic set of capabilities m eans that com panies m ust fir st choose the capabilities that m atter m ost to their par ticular innov ation str ategy , and then execute them well. Our analy sis suggests, howev er, that although m ost com panies ar e relativ ely strong at executing critical capabilities within the areas of ideation, project selection, and product dev elopm ent, they underperform at the com m ercialization stage. (See Exhibit 1 0.) Executiv es agree consistently that there are thr ee custom er- and m ar ket-oriented capabilities that m atter m ost: Gathering custom er insights during the ideation stage, assessing m arket potential during the selection stage, and engaging with custom ers during the dev elopm ent stage. Yet when it com es to the capabilities needed to introduce their products into the m arket, there is no single one consistently nam ed as a strength. Clearly , there is a su bstantial gap between m ost com panies’ ability to create innov ativ e new products and their ability to successfully take them to m arket.

In com m er cialization, the top per form ers stand out by executing well in two critical areas: global product launches and pilot-user selection and rollout. This should com e as no surprise, giv en that com m ercialization capabilities are by natur e the m ost cr oss-functional, and are tied tightly to sev eral other capabilities com panies need to succeed in the m arketplace, including m anufacturing, logistics, sales, and m arketing. Xer ox’s Hoov er acknowledges just how im portant the com pany -wide process of launching products in the m arketplace is in the ability to captur e the business v alue of innov ation. “What do we hav e to get done, and when, so that we can feed the new product into the global oper ating com panies’ pipeline, and what do they hav e to hav e ready so they can push it out? It’s really basic project m anagem ent, but it has to be executed really well.”

Aligning with Corporate Strategy
Com panies that focus on a consistent set of innov ation capabilities clearly outper for m their riv als. But as the issue of com m ercialization dem onstrates, a consistent set of innov ation capabilities can’t by itself explain w hy they

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outperform . Innov ation — and the particular strategies com panies em ploy to pur sue innov ation — is just one aspect of ev ery com pany ’s efforts to succeed in the m arketplace. (See “The 1 0 Most Innov ativ e Com panies.”) They m ust also excel in areas outside R&D, including m anufacturing, logistics, sales, m arketing, and hum an resources. And their innov ation efforts m ust be in sy nc with their ov erall corporate strategy : They m ust integr ate the right innov ation capabilities with the right set of firm -wide capabilities, as determ ined by their ov er all strategy .
THE 10 MOST INNOVATIVE COMPANIES

Ev ery y ear, readers of the annual Global Innov ation 1 000 study — which tracks the com panies that spend the m ost on innov ation — ask us which com panies are in fact the m ost innov ativ e. So this y ear, we decided to query innov ation executiv es for their perspectiv e on this question. As part of our surv ey exploring the relationship between innov ation capabilities, cor por ate strategy , and financial perform ance, we asked m ore than 450 innov ation leaders in m ore than 4 00 com panies and 1 0 industr ies to nam e the three com panies they considered to be the m ost innov ativ e in the world. Our surv ey participants’ collectiv e opinion suggests that their v iews are v ery m uch in line with popular perception. Apple far and away leads the Top 1 0, capturing 7 9 percent of the v ote; it is followed by Google, with 49 percent; 3 M is in third place, with 2 0 per cent. Apple is an exceptional exam ple of our observ ation that success in innov ation is determ ined not by how m uch m oney y ou spend, but r ather by how y ou spend it. The com pany has a long history of br inging innov ativ e and sty lish products to m arket, from the first Apple personal com puter in 1 9 7 6 to the iPod, the iPhone, and the iPad today . Yet it inv ests just 3 .1 percent of its rev enues in R&D, less than half the av erage percentage of the com puting and electronics industr y . Apple’s financial perform ance has been stellar: a fiv e-y ear total shar eholder return (TSR) of 6 3 percent. Second-place Google’s fiv e-y ear TSR is ev en m ore im pressiv e, at 1 02 percent; its R&D intensity (innov ation spending as a per centage of rev enue), at 1 2 percent, is just 1 .3 percentage points lower than the av er age of the software and Internet industry as a whole. Third-place 3 M has been seen as a highly innov ativ e com pany for m any y ears, and its fiv e-y ear TSR of alm ost 50 per cent shows that it continues to spend its R&D m oney in the right places. (See Exhibit 1 1 .)

Only three of the com panies on the “1 0 m ost innov ativ e” list — Toy ota, Microsoft, and Sam sung — also appear am ong this y ear’s top 1 0 spenders, reiterating the lack of correlation between R&D spending and innov ation results. We also com pared the ov erall financial results of the m ost innov ativ e gr oup with our listing of the top R&D spenders. The results are clear: The m ost innov ativ e com panies outperform ed their industry peers on three differ ent indicators of financial success. (See Exhibit 1 2 .)

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Com panies that are perceiv ed to be highly innov ativ e are clearly successful in creating new products and bringing them to m ar ket. Som e spend m ore than others to accom plish this goal, but the real winners, financially speaking, are those com panies, like Apple, Google, and 3 M, that can innov ate successfully without breaking the bank. — B.J. and K.D.

Why is strategic alignm ent so critical? As part of cor porate strategy , ev ery com pany needs to ask itself what business it is really in, and how it intends to win — and then ask the indiv idual business units the sam e question. This m ust be both a bottom -up and a top-down process. On the one hand, the business units, which are so m uch closer to the custom er, m ust fir st see an opportunity , and begin to innov ate. On the other hand, corporate strategists m ust m anage the com pany wide R&D and sales agenda necessary to com pete successfully , ev en as they work to m inim ize spending and m ake the pr ocess as efficient as possible. As we dem onstrated in 2 007 , com panies that achiev e a tight alignm ent of their firm -wide and innov ation strategies on av erage generate 40 percent higher operating incom e growth and 1 00 percent greater total shareholder return.

T he Coherent Innov ator
Com panies that dev elop the relativ ely cohesiv e set of innov ation capabilities we hav e outlined, and then com bine them with sim ilarly distinctiv e firm -wide capabilities — thus aligning their innov ation strategy with the ov erall corpor ate strategy — can be said to be coherent. They gain what we call a “coherence prem ium ,” which is m anifested in their ability to outperform their riv als. By com paring the financial results of highly coherent com panies in the Global Innov ation 1 000 to their less-coherent riv als, we found that, when norm alized, the pr ofit m argins of com panies ranked in the top thir d in ter m s of coherence were 22 percent higher, on av erage, than those of com panies in the bottom two-thirds, and that the coherent com panies achiev ed 1 8 percent gr eater m arket capitalization growth as well. (See Exhibit 1 3 .) In general, the m ore coherent a com pany is, the m or e com petitiv e success it will hav e — and the m ore it will be able to generate the higher m argins that result from being truly differentiated. Why are strong m ar gins associated with higher coherence? Optim izing the proper set of capabilities allows com panies to focus on what m atters m ost, 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 ov erall str ategy tend to innov ate m ore effectiv ely and bring their innov ations to m arket m ore efficiently , boosting top-line growth while reducing relativ e costs. Regarding m arket cap growth, as com panies gain the differentiating capabilities that giv e them coherence, their built-in adv antage enables them to im prov e earnings gr owth, a key m etric that the stock m arket takes into account when pricing a com pany ’s shares. Apple is the classic exam ple: In the early 1 99 0s, the com pany squandered enorm ous r esources and billions of dollars on a ser ies of failed products like printers, scanners, and the Newton PDA. Its efforts to do ev ery thing itself, building capabilities as v aried as cutting-edge har dware dev elopm ent and v olum e m anufactur ing, led to huge losses and m assiv e lay offs. But once Stev e Jobs returned as chairm an and CEO in 1 99 7 , Apple began to focus its portfolio and its capabilities. The com pany has since concentrated v er y selectiv ely on what it does well, and what really differentiates it from its peers: deep understanding of end-users, a high-touch

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consum er exper ience, intuitiv e user interfaces, sleek product design, and iconic branding. For exam ple, Apple nar rowed its pr oduct line and began lev eraging the Apple brand through its Apple Store retail strategy . The results speak for them selv es. Apple’s profitability and m arket cap are well abov e the industry av erage, and this y ear our surv ey respondents v oted it far and away the m ost innov ativ e com pany — all of which it achiev ed while consistently spending far less on R&D as a percentage of sales than the m edian com pany in the com puting and electronics sector.

Innov ators and Strategists
The v irtue of thinking about innov ation in term s of capabilities and the capabilities sy stem s that enable com panies to be coherent is that it prov ides a specific way of talking about what com panies need to focus on to tr anslate their innov ation efforts into sustained success. The job of innov ation leader s — and of corporate strategists — isn’t only to choose which capabilities to pursue. It’s just as often to decide which ones don’t m atter as m uch in achiev ing superior perform ance. As Xerox’s Stev e Hoov er puts it, “ If a cer tain com petency has nothing to do with how y ou’re positioning y ourself in y our m ar ket and creating v alue for y our custom ers, then don’t ov ersupply it. Put y our energy elsewhere, where y ou are going to differentiate.” Com panies, by focusing on the capabilities they believ e are critical differentiating factors in their efforts to conceiv e of, dev elop, and sell their pr oduct in their particular m arkets — on what they need to do better than com petitors — can gain the coherence necessary to outperform . And that, of course, is what innov ation — and cor porate strategy — is really all about.
BOOZ & COMPANY GLOBAL INNOVATION 1000: METHODOLOGY

Booz & Com pany identified the 1 ,000 public com panies around the wor ld that spent the m ost on r esearch and dev elopm ent in 2 009. To be included, a com pany ’s data on its R&D spending had to be public; all data is based on each com pany ’s m ost recent fiscal y ear, as of June 3 0, 2 01 0. Su bsidiar ies m ore than 50 percent owned by a single cor porate parent were excluded because their financial results are included in the parent com pany ’s r eporting. This is the sam e core approach we hav e used in the pr ev ious fiv e y ears of the study . For each of the top 1 ,000 com panies, we obtained key financial m etrics for 2002 through 2 009, including sales, gross profit, operating profit, net profit, R&D expenditures, and m arket capitalization. All foreign currency sales and R&D expenditure figures through 2009 were translated into U.S. dollars at 2009 daily av erage exchange rates. In addition, total shareholder return was gathered and adjusted for each com pany ’s corr esponding local m arket. Each com pany was coded into one of nine industr y sectors (or “other ”) according to Bloom berg’s standard industry designations, and into one of fiv e regional designations as determ ined by each com pany ’s reported headquarters location. To enable m eaningful com parisons across industr ies, we indexed the R&D spending lev els and financial perform ance m etrics of each com pany against its industry group’s m edian v alues. This y ear, to better understand the r elationship between innov ation strategy and capabilities, we also conducted a Web-based surv ey of m ore than 450 senior m anagers and R&D pr ofessionals from m ore than 400 different com panies around the globe. The com panies participating represented m or e than US$1 50 billion in R&D spending, or 40 percent of the total Global Innov ation 1 000 R&D spending for 2009 . Respondents cam e from all industr y sector s; 52 percent cam e from North Am erica, 3 3 per cent from Eur ope, and 1 5 per cent from the rest of the world. We asked respondents to ev aluate the innov ation capabilities they believ ed were m ost im por tant across the v alue chain, as well as their perform ance in each of these capabilities. Responses were analy zed with a v ariety of statistical m ethods to allow us to distinguish the capabilities m ost im portant in pursuing each of the three innov ation strategies we defined in our 2007 study . Although com pany nam es and r esponses were kept confidential (unless perm ission to use them was explicitly giv en), a large num ber of the respondents identified them selv es, enabling us to associate their surv ey answers with their com pany ’s perform ance. Financial perform ance was norm alized by industry to com pare the im pact of capability coherence on corporate financial perform ance both within strategies and acr oss all com panies.

Reprint No. 1 0408
AUTHOR PROFILES:
Barry Jaruzelski is a partner with Booz & Company in Florham Park, N.J., and is the global leader of the firm’s innovation practice. He has spent more than 20 years working with high-tech and industrial clients on corporate and product strategy, product development efficiency and effectiveness, and the transformation of core innovation processes. Kev in Dehoff is a partner with Booz & Company in Florham Park, N.J., and is the global leader of the firm’s engineered products and services business. He has spent nearly 20 years helping clients drive growth and improve innovation performance 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.

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...How to foster innovation in your business Presentation on the occasion of the Credit Suisse event 7th September 2013, Zurich Dr. Reto Müller Chairman of the Board of Directors Helbling Holding AG Helbling - a Leader in Technological Innovation and Business Consulting Helbling Group Key figures 2012  We are unique through our ability to integrate a spectrum of professional know-how, experience and skills.  458 employees  Our ability to link technological expertise with business competence results in entrepreneurial success for our clients.  Companies in Switzerland, Germany, USA and China  Revenues CHF 110.9m  International Network Offices (Corporate Finance International)  Owned by 25 managing partners 2 Examples of innovations at Helbling Extract out of some thousand innovation projects in more than 50 countries Innovation leaders collaborating with Helbling: Nestlé, Roche, ABB, Airbus, Siemens, Medtronic, Schindler, Pfizer, Novartis, Sonova, Google, BSH, Geberit, Sika, V-Zug, Source: Helbling Qiagen, Tecan and many others 3 Strategic innovation management – selected Helbling references Companies Why Helbling?  We measure ourselves - e.g. on the increase of the value of your innovation pipeline  We are senior experts with over 15 years consulting experience and a focus on the topics "Increasing innovation success and increasing the power of innovation»  We use self-developed tools and instruments ...

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