Interesting article written by James R. Hagerty in today’s Wall Street Journal regarding R&D spending titled R&D Spending Drops at Major Firms. But the tile is a bit misleading because depending on how you look at it, R&D spending was either up or down. Here’s what I mean:
Research and development spending at major companies declined last year for the first time in more than a decade, according to a survey by management consulting firm Booz & Co. But R&D as a percentage of revenues was up slightly from a year earlier because revenues dropped at a faster rate than R&D spending.
Total 2009 R&D spending by the companies surveyed declined 3.5% from a year earlier to $503 billion. But that worked out to 3.8% of 2009 sales, up from 3.5% in 2008.
The worldwide leaders in R&D spending were Roche Holding AG with the biggest spending total last year, at $9.12 billion. It was followed by Microsoft Corp. with $9.01 billion and Nokia Corp. at $8.24 billion. Toyota Motor Corp.’s spending totaled $7.82 billion, and Pfizer Inc. had $7.74 billion. Toyota topped the list in 2008.
Additionally, the survey of more than 450 “innovation executives” from 400 companies, asked respondents to name the companies they considered “most innovative.”
Not surprisingly, Apple, Google and the 3M Co. topped the list of being the most innovative companies for 2009. Ironically, none of the three were among the 10 biggest spenders on R&D in 2009.
Apple is even more interesting in that they spent only $1.13 billion on R&D for 2009; about 3.1% of sales for 2009. That ratio is about half the industry norm for computer and electronic companies and the dollar amount is dwarfed by rival Microsoft’s $9.0 billion sum for 2009.
According to Barry Januzelski, a partner at Booz, “Apple succeeds because it has a deep understanding of consumers, is focused in its projects as opposed to trying to spread their bets; and attracts superior talent.”
Here’s the takeaway: Throwing money at R&D / innovation does not guarantee success. Microsoft spends about 8 times as many dollars on R&D as Apple, but Apple continues to out-innovate its long-time rival.
