3M Three-Peats on Global Innovation List

For the third year in a row, 3M has been named the third most-innovative company in the world, according to the Booz & Company annual global survey on innovation. No surprise, Apple retained the number one spot and Google stayed in second place. Following 3M were Samsung, GE, Microsoft, and Toyota. P&G and IBM tied, and Amazon rounded out the top 10.

The study also reaffirmed that there is not a direct correlation between spending on research and development, often thought to be an indication of innovation, and innovation ranking. In fact, Apple ranked 53rd in global R&D spending, Google ranked 26th, and 3M ranked 86th. The only companies that received top-10 status in both innovation and R&D spending were Toyota, which ranked number one in R&D spending, and Samsung, which ranked 6th in total R&D spend.

Even though Apple ranks number one when it comes to innovation, it has the lowest percentage of R&D-spend-to-sales, at 2.2 percent. 3M’s percentage was 5.3 percent, and the highest R&D-to-sales ratio among the top 10 was Samsung, at 13.6 percent.

Another interesting finding in the study: “There’s no long-term correlation between the amount of money a company spends on its innovation efforts and its overall financial performance; instead, what matters is how companies use that money and other resources, as well as the quality of their talent, processes, and decision making.”

In 3M’s case, its long history of allowing its scientists to spend 15 percent of their time on whatever projects they choose continues to be a key ingredient in the company’s secret innovation sauce.

Spend All You Want, We Can Still Make More

You can spend all you want on research and development—because we’ll spend less and make more money. Seems kind of counterintuitive, but it’s true.

Booz & Company, which tracks R&D spending, compared the biggest global corporate spenders of R&D to a second list of “high-leverage innovators” identified by outperforming their peers on a variety of financial measurements, according to a report in the Wall Street Journal.

 

The research found that no company from the biggest R&D spenders list made the second list of companies, which had the highest leveraged returns on R&D/innovation spending and actually spent less than the median on R&D than others in their industry.

 

This news surfaced following a report last week that, for the first time ever, Asia will have a greater percentage of total global R&D spending (36.7 percent) than the Americas (36 percent), and it is pulling farther ahead of Europe (24.1 percent).

 

But according to the experts, it really doesn’t make a difference.

 

Michael Schrage, a research fellow at MIT’s Sloan School, says: “What matters more is the kind of innovator you are. If it were really true that the people who spent the most on R&D were the most successful, we wouldn’t be subsidizing General Motors.”

 

And when it comes to who has the most high-tech toys, as Barry Jaruzelski of Booz & Company says: “Technology is not equal to innovation.” Rather, he contends, technology is one part of a complex puzzle whose pieces all have to fit together for successful innovation to occur.

 

You might have a good idea, but if you don’t have the necessary elements to bring it to fruition, support it, market it effectively, fend off competitors, protect it legally . . . you get my drift. R&D spending is a good indicator of where to find innovation, but it’s not the only indicator. Which is to say that you can out-think the competition without outspending them.

 

Heads up, Goliath. David lives.

When Desperate Leads to Disparate

While Detroit could be used as an example of how not to be innovative, Motown has been starting to do some things right.

Ford Motor Company may be one of the best examples of two important principles of innovation: the ability to focus, and investment in innovation—even when times are tough. Both have paid off handsomely for the 108-year-old company.

Some may not remember, but at one time a struggling Ford had a variety of other badges, including Aston Martin, Jaguar, Land Rover, Volvo, and Mazda. I specifically recall selling my British car when Ford started making something it called a Jaguar that looked, rode, and performed like a bad Taurus. Such was the marketing wisdom of someone that thought the brand needed an entry-level model and the overall Ford brand needed an entry in the luxury car market beyond its Lincoln line.

Enter Alan Mulally and some common sense.

Almost like McDonalds selling off its majority ownership in a variety of other food concepts (like Donatos Pizza, Boston Market, and Chipotle) to get its own house in order several years ago, Mulally saw that the Ford had lost its identity and divested all brands to focus on Ford and Lincoln—its core.

The other thing that Mulally did was invest in new product development during one of the worst recessions the country has seen. So, rather than cutting back on research and development spending, Ford increased its investment in innovation (research and development), and the results of those investments are paying dividends today.

Companies that try to do too much can lose sight of their core business and, even worse, what they stand for. Trying to innovate across differing brands can scatter resources and focus—and sometimes desperate leads to disparate, as it did for Ford.

The Most Innovative Countries in the World

This is the time of year for all sorts of rankings to be published. One by the Legatum Institute, a non-partisan think tank, looked at innovation on a global basis and came up with a list of the top 10 innovative countries in the world.

The study based its rankings on the countries that “contribute to the general advancement of mankind’s wellbeing.” No easy task.

The Institute used five criteria to score countries on the aforementioned goal:
• A strong entrepreneurial climate
• Low costs to starting a business
• Public perception of a good entrepreneurial environment
• Ability to commercialize innovation
• IT and telecom infrastructure that enables productive commercial endeavors

And the number one country in the world is . . . Denmark. If you’re an entrepreneur looking to start a business, Denmark may be the place for you, because it has the lowest startup costs in the world, the second lowest level of inequality in economic development, and the seventh-best level of research and development spending.

The U.S. didn’t fare badly, coming in at number three overall. Spending on research and development is 2.2 percent of GDP (Sweden spends 3.1 percent and Iceland spends 2.8 percent). And income from what the study calls “royalty receipts,” or income from intellectual property, total almost $92 billion.

Rounding out the overall top 10 innovative countries are: Denmark, Sweden, United States, Finland, Britain, Norway, Ireland, Singapore, Iceland, and Canada.

3M Still Tops Among Innovators

The annual Booz & Company global innovation study, which measures innovation based on investment in research and development, asked 450 innovation leaders in more than 400 companies and 10 industries to name the three companies they thought were the most innovative in the world.

You can all probably guess the top two: Apple and Google. And right there in the number three spot was Minnesota’s own 3M. No small achievement when you consider that the competition comprises every other company in the world. 3M came out ahead of companies that dwarf its R&D spending—companies like GE, Toyota, Microsoft, and IBM, to name a few.

No other Minnesota companies made the top 10 list.

In overall R&D spending, 3M ranked 84th globally with estimated expenditures of $1.3 billion, yet it ranked third for its innovation reputation. Not bad.

Number crunching by the study’s authors showed that the companies that innovation experts thought were most innovative—not based on R&D spending, but purely reputation—outperformed their peers on the global innovation list over a five-year period with respect to revenue growth, EBITA as a percentage of revenue, and market cap growth.

For all of you market players out there, the top 10 innovation companies as voted by innovation experts were, in order of ranking: Apple, Google, 3M, GE, Toyota, Microsoft, P&G, IBM, Samsung, and Intel.

The top three also had very healthy total shareholder returns over a five-year period. 3M returned almost 50 percent; Apple returned 63 percent; and Google blew everybody away with 102 percent return while spending 1.3 percent less on R&D than the average of the software and Internet industry as a whole.

The analysis brings to light the fact that it’s not how much you spend on R&D (innovation), but whether you spend those dollars in the right places.

Global Innovation Spending Down

In its annual innovation survey of global companies, Booz & Company found that overall spending on research and development (the marker used to gauge innovation spending) was down in 2009, the most recently measured year. Out of the top 20 spenders on innovation, total dollars allocated to R&D declined by 3.7 percent from 2008 to 2009.

 

The data shows that the greatest declines were experienced by the automobile industry—where Toyota, which previously ranked first in spending, cut its R&D expenditures by 19.8 percent and dropped to the number four ranking. Honda reduced its spending by 17.7 percent, and General Motors slashed 25 percent. Ford had the biggest cut in R&D spending out of the all of the top 20 companies with a reduction of 32.9 percent.

 

On the other side of the spending curve, large pharmaceutical companies posted the biggest increases of the top 20 spenders. Merck led the pack with an increase of 16.8 percent—catapulting it from number 23 in R&D spending to the 14th spot. GlaxoSmithKline increased spending by 12.7 percent and went from 11th to ninth on the top 20 list.

The number one position—formerly held by Toyota—is now occupied by Roche Holding, which increased spending by 11.6 percent.

 

The top 20 companies spent a total of $128.9 billion on R&D in 2009, which represented 8.3 percent of total sales.

It can be somewhat misleading to look at raw percentages when it comes to spending by countries and regions of the world. The two countries everyone seems to be looking over their shoulder at, China and India, increased R&D spending by a whopping 41.8 percent. But keep in mind that the grand total of their combined spending accounts for only 1 percent of the total spending by the 1,000 companies involved in the study.

 

Total global innovation spending continues to be led by companies based in North America, which spent $201.3 billion—compared to India and China’s combined spending of $5.3 billion.

 

In next week’s entry we’ll take a look at the Minnesota company that continues to be a global innovation leader and how they get the job done.