Estudio Relacion Innovacion Competitividad

ISSUE 61 WINTER 2010
strategy+business
REPRINT 10408
THE GLOBAL INNOVATION 1000
How the Top Innovators
Keep Winning
Booz & Companys annual study of the worlds biggest
R&D spenders shows why highly innovative companies are
able to consistently outperform. Their secret? Theyre good
at 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 significantly
outperform 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 I
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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 that
there 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, teamstructures, 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
HOWTHETOP
INNOVATORS
KEEPWINNING
by Barry Jaruzelski and Kevin Dehoff
Booz & Companys annual study of the worlds
biggest R&D spenders shows why highly
innovative companies are able to consistently
outperform. Their secret? Theyre good at
the 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 on
proven 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 pursuing
innovation, 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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with 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 most
successful 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.s
DeWalt 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 customer
insight 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 process
Detailed 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 Average 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 new
products 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? he
asks. 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 Technology
Drivers, all agreed on a shared set of critical innovation capabilities, but for each of the three strategies, a distinct set of capabilities such as
resource-requirement management and supplierpartner engagement for Market Readers ranked among the most critical.
MARKET READERS
All Three
NEED SEEKERS
TECHNOLOGY DRIVERS
Open innovation
Market potential
assessment
Resource-requirement
management
Rigorous
decision making
Technical risk
assessment
Engagement with customers
Broad consumer and customer insights
General understanding of emerging
technologies
Pilot-user selection/
controlled rollouts
Product life-cycle
management
Detailed understanding of
emerging technologies
and trends
Enterprise-wide
launch
Directly generated deep
consumer/customer
insights
Supplierpartner
engagement
COMMERCIALIZATION
IDEATION
PROJECT SELECTION
PRODUCT DEVELOPMENT
CATEGORY OF
CRITICAL CAPABILITY
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 them
create 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 key
capabilities 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 Visteons
Yerdon, 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
newtechnologies 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 their
time 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 building
products 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 2009
Global Innovation
1000
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
2000 97 09 05
Exhibit 3: R&D and Sales
R&D spending fell in 2009, but sales fell more
sharply, 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 Spending
as a % of Sales
Exhibit 4: Cost Reductions
Companies cut other discretionary
spending categories, such as sales,
general, and administrative expenses
(SG&A), more sharply than R&D
spending. This was especially true for
capital expenditures.
SG&A
5.4%
17.5%
Capital
Expenditures R&D
3.5%
2009 vs. 2008
L
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-user
selection/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 for
R&D spending.
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&D
Spending by Industry, 200809
NET
CHANGE
IN
SPENDING
$17,963
Healthcare $1,626
Software/
Internet $1,560
Other $635
Telecom $508
Chemicals/ $431
Energy
Aerospace/ $389
Defense
Consumer $111
Industrials $1,308
Computing/ $9,771
Electronics
Auto $12,144
INCREASED
SPENDING
DECREASED
SPENDING
$US millions
R&D cutbacks were concentrated in three
sectors: auto, computing and electronics, and
industrials. Spending was up, on average, in
all other sectors.
money, chances are that product is going to struggle
or even fail.
Focus Matters
The capabilities required to pursue each strategy form
a 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 project
selection, 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 inferior
performance.
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 of
the 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 as
a key source of growth. Thus, with the
recession drawing to a close and
(Profiling the 2009 Global Innovation 1000,
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 remains
concentrated among companies headquartered
in North America, Europe, and Japan.
Source: Bloomberg data (2009), Booz & Company
analysis
Rest of World
$26,708
India/China $7,528
$US millions, 2009
North
America
$193,807
Europe
$161,862
Japan
$113,670
Exhibit 7: R&D Spending
Growth 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
Area of circle represents
2009 spending
DECELERATED
GROWTH RATE
ACCELERATED
GROWTH RATE
= $100,000
$US millions
R&D decreased in North America
and Japan and flatlined in Europe; the rate
of spending growth decelerated in the rest of
the world. China and India were the outliers
where spending growth accelerated.
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are three customer- and market-oriented capabilities
that matter most: Gathering customer insights during
the 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
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 from
five to 11. Pharmaceutical giant Roche Holding rose from number three to the top spot.
Rank
2009 2008
Company Industry
2009, $US
Millions
Change
from 2008
As a %
of Sales
Headquarters
Location
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
Auto
Healthcare
Auto
Industrials
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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1
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 consistent
set 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 product
development stages of the innovation process, companies gave themselves generally good marks. The survey, however, revealed a general shortcoming
at 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 process
Detailed 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
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
Percentage of Respondents Rating Performance 4 or 5
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The 10 Most
Innovative
Companies
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 between
innovation 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 next
seven were much more modest.
R&D Spending
2009
$US mil.
Sales
2009
$US mil.
1
2
3
4
5
6
7
8
9
10
81
44
84
35
4
2
58
12
10
13
Apple
Google
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 of
Industry Peers: 50
Highest Possible
Score: 100
Lowest Possible
Score: 0
Revenue
Growth
5-yr. CAGR
EBITDA as
%of Revenue
5-yr. AVG.
Market Cap
Growth
5-yr. CAGR
56
42
80
67
54
35
TOP 10
INNOVATORS
TOP 10
SPENDERS
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E
R
S
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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 will
be 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.
H
I
G
H
L
Y
C
O
H
E
R
E
N
T
53
L
E
S
S
C
O
H
E
R
E
N
T
45
52
74
Industry Peers
Normalized
Performance: 50
Highest Possible
Score: 100
Lowest Possible
Score: 0
Market
Capitalization
5-yr. CAGR
EBITDA as
% of Revenue
5-yr. AVG.
HIGHLY COHERENT
COMPANIES
LOW TO MODERATELY
COHERENT 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.
Booz & Company identified the 1,000 pub-
lic companies around the world that spent
the most on research and development in
2009. To be included, a companys data on
its R&D spending had to be public; all
data is based on each companys most
recent fiscal year, as of June 30, 2010.
Subsidiaries more than 50 percent owned
by 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 we
have used in the previous five years of
the study.
For each of the top 1,000 companies,
we obtained key financial metrics for 2002
through 2009, including sales, gross
profit, operating profit, net profit, R&D
expenditures, and market capitalization.
All foreign currency sales and R&D
expenditure figures through 2009 were
translated into U.S. dollars at 2009 daily
average exchange rates. In addition, total
shareholder return was gathered and
adjusted for each companys correspon-
ding local market.
Each company was coded into one of
nine industry sectors (or other) accord-
ing to Bloombergs standard industry des-
ignations, and into one of five regional
designations as determined by each com-
panys reported headquarters location. To
enable meaningful comparisons across
industries, we indexed the R&D spending
levels and financial performance metrics
of each company against its industry
groups median values.
This year, to better understand the
relationship between innovation strategy
and capabilities, we also conducted a
Web-based survey of more than 450 sen-
ior managers and R&D professionals
from more than 400 different companies
around the globe. The companies partici-
pating represented more than US$150 bil-
lion in R&D spending, or 40 percent of the
total Global Innovation 1000 R&D spend-
ing for 2009. Respondents came from all
industry sectors; 52 percent came from
North America, 33 percent from Europe,
and 15 percent from the rest of the world.
We asked respondents to evaluate the
innovation capabilities they believed were
most important across the value chain,
as well as their performance in each of
these capabilities. Responses were ana-
lyzed with a variety of statistical methods
to allow us to distinguish the capabilities
most important in pursuing each of the
three innovation strategies we defined in
our 2007 study. Although company names
and responses were kept confidential
(unless permission to use them was
explicitly given), a large number of the
respondents identified themselves, en-
abling us to associate their survey an-
swers with their companys performance.
Financial performance was normalized by
industry to compare the impact of capa-
bility coherence on corporate financial
performance both within strategies and
across all companies.
Booz & Company Global Innovation 1000: Methodology
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Apple is the classic example: In the early 1990s, the
company squandered enormous resources and billions
of dollars on a series of failed products like printers,
scanners, and the Newton PDA. Its efforts to do every-
thing itself, building capabilities as varied as cutting-
edge hardware development and volume manufactur-
ing, led to huge losses and massive layoffs. But once
Steve Jobs returned as chairman and CEO in 1997,
Apple began to focus its portfolio and its capabilities.
The company has since concentrated very selectively on
what it does well, and what really differentiates it from
its peers: deep understanding of end-users, a high-touch
consumer experience, intuitive user interfaces, sleek
product design, and iconic branding. For example,
Apple narrowed its product line and began leveraging
the Apple brand through its Apple Store retail strategy.
The results speak for themselves. Apples profitabil-
ity and market cap are well above the industry average,
and this year our survey respondents voted it far and
away the most innovative company all of which it
achieved while consistently spending far less on R&D as
a percentage of sales than the median company in the
computing and electronics sector. (See The 10 Most
Innovative Companies, page 12.)
Innovators and Strategists
The virtue of thinking about innovation in terms of
capabilities and the capabilities systems that enable com-
panies to be coherent is that it provides a specific way of
talking about what companies need to focus on to trans-
late their innovation efforts into sustained success. The
job of innovation leaders and of corporate strategists
isnt only to choose which capabilities to pursue. Its
just as often to decide which ones dont matter as much
in achieving superior performance. As Xeroxs Steve
Hoover puts it, If a certain competency has nothing to
do with how youre positioning yourself in your market
and creating value for your customers, then dont over-
supply it. Put your energy elsewhere, where you are
going to differentiate.
Companies, by focusing on the capabilities they
believe are critical differentiating factors in their efforts
to conceive of, develop, and sell their product in their
particular markets on what they need to do better
than competitors can gain the coherence necessary to
outperform. And that, of course, is what innovation
and corporate strategy is really all about. +
Reprint No. 10408
Resources
Barry Jaruzelski and Kevin Dehoff, Profits Down, Spending Steady: The
Global Innovation 1000, s+b, Winter 2009, www.strategy-business.com/
article/09404a: Last years 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, www.strategy-business.com/
article/08405: 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, www.strategy-business.com/
article/07407: This study identified the three distinct innovation
strategies: Need Seekers, Market Readers, and Technology Drivers.
Barry Jaruzelski and Richard Holman, Innovating through the
Downturn: A Memo to the Chief Innovation Officer, Booz & Company
white paper, March 2009, www.booz.com/media/uploads/
Innovating_through_the_Downturn.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.
Zia Kahn and Jon Katzenbach, Are You Killing Enough Ideas? s+b,
Autumn 2009, www.strategy-business.com/article/09303: How companies
can improve their innovation performance by getting their formal and
informal organizations in sync.
Alexander Kandybin, Which Innovation Efforts Will Pay? MIT Sloan
Management Review, October 1, 2009, http://sloanreview.mit.edu/
the-magazine/articles/2009/fall/51115/which-innovation-efforts-will-pay:
How companies can use an incisive analytic tool to gauge their overall
R&D effectiveness.
Paul Leinwand and Cesare Mainardi, The Coherence Premium,
Harvard Business Review, June 2010, http://hbr.org/2010/06/
the-coherence-premium/an/1: The power of capabilities-driven strategy.
For more thought leadership on this topic, see the s+b website at:
www.strategy-business.com/innovation.
Online Innovation Profiler
For a new assessment tool from Booz & Company,
designed to help evaluate your companys R&D strategy
and the capabilities required, visit:
www.booz.com/innovation-profiler.
strategy+business magazine
is 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,
visit www.booz.com
www.strategy-business.com
www.facebook.com/strategybusiness
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.
Innovation 2010
A Return to Prominenceand the Emergence
of a New World Order
R
The Boston Consulting Group (BCG) is a global manage-
ment consulting rm 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
company with 69 o ces in 40 countries. For more infor-
mation, please visit www.bcg.com.
Innovation 2010
A Return to Prominenceand the Emergence
of a New World Order
bcg.com
James P. Andrew
Joe Manget
David C. Michael
Andrew Taylor
Hadi Zablit
April 2010
The Boston Consulting Group, Inc. 2010. All rights reserved.
For information or permission to reprint, please contact BCG at:
E-mail: bcg-info@bcg.com
Fax: +1 617 850 3901, attention BCG/Permissions
Mail: BCG/Permissions
The Boston Consulting Group, Inc.
One Beacon Street
Boston, MA 02108
USA
IuuOvA1IOu 2u1u
Contents
Executive 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 9
Hurdles 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
( TL BOs1Ou COusuL1IuG GROuI
T
he 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 nancial 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 oers pragmatic advice for individuals
who want to make a dierence 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 benets 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 eorts in this still
very challenging economic and business environment.
Aer a pause in 2009 that reected 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 seven
years 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 benets 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 innovation
spending 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 signicantly (that is, by more than 10
percent). Only 8 percent of respondents said their com-
pany plans to reduce 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-ve percent of respondents said
Executive Summary
IuuOvA1IOu 2u1u
their company is satised, 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 satised with the
return on innovation spending. In sharp contrast, little
more than a third of other employees36 percent of
respondentsare satised.
Caution remains in the air, however, and companies
are adjusting their strategies and tactics.
Reecting 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 in
2010, 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 biggest
factors holding down the return on their innovation
spending.
The majority of companies are dissatised 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 eorts.
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 ve years.
About the Authors
James P. Andrew is a senior partner and managing direc-
tor in the Chicago o ce 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 rms Toronto o ce; 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-
ce; you may contact him by e-mail at michael.david@
bcg.com. Andrew Taylor is a partner and managing di-
rector in the rms Chicago o ce; you may contact him
by e-mail at taylor.andrew@bcg.com. Hadi Zablit is a
partner and managing director in BCGs Paris o ce; you
may contact him by e-mail at zablit.hadi@bcg.com.
6 TL BOs1Ou COusuL1IuG GROuI
I
nnovation, aer a brief pause, is back. That was
the headline message conveyed by our latest an-
nual survey on the topic, which reects 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 signicantly
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 among
your companys strategic priorities?
Percentage of respondents who consider
innovation a top-three strategic priority
6
23
45
26
Top-three
priority
1
Top-ten
priority
Not
a priority
0
20
40
30
Percentage of respondents
Top
priority
1
72
64
66 66
72
0
20
40
60
80
100
2006 2007 2008 2009 2010
Exhibit 1. Innovation Returned to Prominence in 2010
Sources: BCG Senior Executive Innovation Surveys, 2010, 2009, 2008, 2007, 2006.
1
The total percentage of respondents who said that innovation is one of their companys top-three priorities rounds to 72 percent.
IuuOvA1IOu 2u1u ,
hibit 1.) Seventy-two percent of respondents said it is one
of their companys top-three strategic priorities, up sig-
nicantly 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 benet 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 o. 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 identied 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 signicant 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-
nicantly (that is, by more than 10 percent). And only
8 percent of respondents said their company plans to re-
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 signicantly.
Satisfaction with the Return
on Innovation Spending
One factor that may be driving the uptick in spending
plans 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-
isedit 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
satised.
Worth noting, though, is the persistent dierence 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 annualized
total-shareholder-return premiums
of innovative companies compared
with their industry peers
Global
innovators
Americas
innovators
European
innovators
Asia-Pacic
innovators
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.
8 TL BOs1Ou COusuL1IuG GROuI
rest of the company. Simply put, the top brass are far
more satised. In 2010, the majority of C- and VP-level
executives, directors, and managers said they were satis-
ed with their companys return on innovation spending,
versus only 36 percent of other employees. (See Exhibit
5.) C-level executives are the most satised (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 eortsthe
CEO has consistently been identied 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 to
your 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 aairs? Obviously both sides cant be right.
How will your companys investments in innovation
compare with its investments last year?
5
9
28
32
3
5
31
35
26
26
Increase
signicantly
(>10%)
Increase
slightly
(1%10%)
Stay
roughly
the same
Decrease
slightly
(1%10%)
Decrease
signicantly
(>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 satised with the nancial return
on your investments in innovation?
57
43
48
52
45
55
0
20
40
60
Yes No/Not sure
2008 2009 2010
Exhibit 4. Satisfaction with the Return on
Innovation Spending Has Risen for the
Past Three Years but Remains Low
Sources: BCG Senior Executive Innovation Surveys, 2010, 2009,
2008.
IuuOvA1IOu 2u1u
A nal thought on the topic of leadership: CEOs are the
most recognized leaders of companies innovation eorts.
Yet only 28 percent of survey respondents identied the
CEO 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 con-
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 satised
with their companys measurement practices.
The choice of metrics is undoubtedly part of the problem.
Companies biggest aw is typically that they undermeas-
ure. Our 2009 report Measuring 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 satised with your companys
return on innovation spending?
0
20
40
60
59
58
54
53
36
C-level Vice
president
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
Chief
executive
ocer
President Chairperson Chief
operating
ocer
Vice
president
or head
of R&D
Chief
information
ocer
Vice
president
or head of
marketing
Vice
president
or head of
innovation
Chief
nancial
ocer
Vice
president
or head of
strategy
Other
Exhibit 6. CEOs Are Innovations Biggest Champions
1u TL BOs1Ou COusuL1IuG GROuI
merely react to, the innovation process. Companies go
wrong 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-
uenced 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 identied 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 actually
improving time to market is totally understandable.
Hurdles to Generating a Higher Return
on Innovation Spending
What do companies believe is weighing down their re-
turn on innovation spending? Respondents identied 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 the
past several years. A risk-averse culture is a particular
problem for retailers (40 percent of respondents from
that industry identied 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) identied a shortage of great
ideas as a major hurdle. (The noteworthy exception is
How does your company measure its success at innovation?
30
40
50
45
40
35
29
27
26 26
25
20
15
20
10
0
Customer
satisfaction
Overall
revenue
growth
Percentage
of sales
from new
products or
services
Higher
margins
New-
product
success
ratios
Return on
innovation
spending
Projected
versus actual
performance
Number
of new
products
or services
Time to
market
Patents
Exhibit 7. Customer Satisfaction and Overall Revenue Growth Are the Most Commonly
Used Metrics
IuuOvA1IOu 2u1u 11
travel and tourism companies: 34 percent of respondents
from that industry identied it as a challenge.) In fact,
most organizations have any number of promising ideas.
But generating ideas and turning those ideas into cash
are two entirely dierent things, as most companies learn
fairly quickly.
What are the biggest obstacles you face when it comes to
generating a return on your investments in innovation?
30
40
31
30
26
24
22 22
21 21 21
20
20
10
0
Risk-
averse
culture
Lengthy
development
times
Diculty selecting
the right ideas to
commercialize
Inability to
adequately
measure
performance
Not enough
great ideas
Lack of
coordination
within the
company
Ineective
marketing and
communications
Compensation
not tied
to innovation
results
Not enough
customer
insight
Insucient
support from
leadership and
management
Exhibit 8. A Risk-Averse Culture and Lengthy Development Times Are the Biggest Hurdles
to Improving the Return on Innovation Spending
El impacto dE la i+d+i En El sEctor productivo Espaol
79
v Conclusiones
v. conclusionEs
El objetivo del presente trabajo es analizar el impacto que las actividades de innovacin de las em-
presas espaolas tienen en sus resultados tecnolgicos y econmicos, identifcados a travs de una
serie de indicadores contenidos en el Panel de Innovacin tecnolgica (PItEC) y en la Encuesta sobre
Estrategias Empresariales (EsEE)
se han aplicado dos metodologas de anlisis complementarias En primer lugar, se realiza un anlisis
descriptivo, prestando especial atencin a las diferencias que existen entre las medias del indicador de
las empresas innovadoras y las no-innovadoras, entendiendo por empresa innovadora aquella empresa
con gastos en innovacin en el ao considerado En esta descripcin se procede, asimismo, a distinguir
entre Pyme y empresas grandes, entre empresas de manufacturas y de servicios y entre empresas que
operan en sectores de alto y de bajo nivel tecnolgico
Posteriormente, se analizan los datos utilizando herramientas economtricas Esta metodologa per-
mite cuantifcar en qu medida afecta a los resultados de la empresa el hecho de realizar actividades
de I+D+i Para ello, se llevan a cabo estimaciones de modelos en los que la variable a explicar refeja
un resultado concreto de la empresa
25
A partir de estas dos aproximaciones, se extraen las siguientes conclusiones:

rEsultados tEcnolgicos
Existe una relacin positiva muy evidente entre el hecho de realizar gasto en I+D+i y la introduccin
de innovaciones en todos los sectores productivos Las innovaciones de producto son ms frecuentes
entre las Pyme, mientras que las de proceso destacan en el colectivo de empresas grandes Cuando
las empresas no realizan gasto, las innovaciones ms frecuentes son las de tipo organizativo
La probabilidad de lograr innovaciones de producto habiendo realizado gasto de I+D+i el ao ante-
rior se incrementa en un 56% cuando la empresa opera en sectores manufactureros y en un 46%
cuando pertenece al sector servicios Para las innovaciones de proceso estos porcentajes son del
55% y el 54% respectivamente
La frecuencia con la que las empresas patentan sus innovaciones es mucho ms baja que la fre-
cuencia con la que innovan Las empresas grandes registran con mayor frecuencia patentes que
las Pymes Para ambos colectivos se contabiliza un mayor porcentaje de empresas con patentes en
aquellos sectores considerados de nivel tecnolgico bajo
El registro de marcas comerciales es ms frecuente que el de patentes en todos los sectores econ-
micos En las manufacturas, la probabilidad de que una empresa registre una patente o una marca
comercial se incrementa en un porcentaje similar (aproximadamente un 14%) cuando ha realizado
gasto en I+D+i el ao anterior, mientras que en los servicios este incremento es mucho ms elevado
para las marcas comerciales (un 12%) que para las patentes (un 7%)
25
El efecto concreto de todas las variables consideradas en cada estimacin y una descripcin pormenorizada del mtodo economtrico utilizado en cada
estimacin puede consultarse en el Anexo IV.
Impacto de la I+D+i V3.indd 79 10/3/09 13:15:16
80
CDtI
rEsultados Econmicos
Los resultados econmicos medidos a travs de las ventas y el margen bruto de explotacin son
mejores para las empresas innovadoras Las diferencias entre innovar y no innovar son ms acen-
tuadas en el colectivo de las Pyme que en las grandes compaas En concreto, la diferencia en las
tasas de variacin de las ventas es de 8 puntos porcentuales para las Pyme y de tan slo un punto
para las grandes
En el periodo 2005-2006, la cifra de ventas se incrementa en un 2% adicional cuando la empresa
realiz gasto en innovacin el ao anterior Este impacto positivo, pero de pequea cuanta, pone
de manifesto que en la evolucin del volumen de negocio de una empresa inciden multitud de
factores, siendo uno de ellos su actividad innovadora No obstante, el incremento adicional rela-
cionado con el gasto en I+D+i es el doble cuando se trata de una empresa manufacturera (un 4,4%
concretamente)
Buena parte del comportamiento positivo de las ventas est relacionado directamente con la intro-
duccin de innovaciones en el mercado En las Pyme, el 30% de su facturacin proviene de nuevos
productos y en las grandes el 21% se observa un mayor dinamismo en los sectores de tecnologa
madura, ya que estos porcentajes se elevan al 32% y al 28%, respectivamente
El grado de presencia en mercados internacionales es mayor en todos los sectores econmicos si
la empresa realiza gasto en I+D+i se observa que los colectivos que aprovechan mejor su actividad
innovadora para consolidar sus ventajas competitivas en el exterior son las Pyme de servicios y las
empresas grandes manufactureras
La probabilidad de exportar se incrementa alrededor de 18 puntos porcentuales si la empresa
realiz gasto en innovacin el ao anterior se detecta un impacto de mayor cuanta en la industria
(16 puntos) que en el sector servicios (11 puntos)
El volumen de inversin en capital fjo es mayor cuando la empresa realiza gasto en I+D+i Para el
colectivo de empresas grandes, los datos indican que las diferencias de comportamiento se generan,
especialmente, en los servicios y en los sectores de alta tecnologa, donde el volumen de inversin
de las innovadoras prcticamente triplica al de las no innovadoras
El anlisis economtrico corrobora que, en las manufacturas y para 2005 y 2006, un 36% del incremento
en la tasa de variacin de la inversin bruta de capital por empleado estuvo inducido por la ejecucin
de gasto en I+D+i el ao previo sin embargo, no se puede confrmar que este gasto haya tenido un
impacto estadsticamente signifcativo en la inversin realizada por las empresas de servicios
Las Pyme innovadoras han creado empleo a una tasa media anual del 3% durante 2005 y 2006,
mientras que la tasa de crecimiento fue de -6% para las empresas que no realizaron gasto La baja
tasa de creacin de empleo en las empresas no-innovadoras se debi, fundamentalmente, a la
destruccin de puestos de trabajo que tuvo lugar en el sector de la construccin
se confrma la existencia de un efecto positivo del gasto en I+D+i sobre el empleo En 2005 y 2006
el empleo se increment, tanto en manufacturas como en servicios, en un 2% adicional cuando la
empresa realiz gasto de I+D+i el ao anterior
El impacto dE la i+d+i En El sEctor productivo Espaol
81
El impacto del gasto de I+D+i es mucho ms relevante en las empresas pequeas En concreto, las
Pyme con gasto de innovacin en 2004 presentan, por trmino medio, una tasa de crecimiento del
empleo en 2006 superior en 3,5 puntos porcentuales a las que no realizaron I+D+i Este diferencial
sera de 2,8 puntos para las manufacturas y 5,9 puntos para el sector servicios
En general, se observa que las empresas con gasto en innovacin son ms productivas que las que
no lo hacen y estas diferencias de productividad son ms acentuadas en las grandes que en las
Pyme
Es signifcativo comprobar que, pese a haber registrado durante 2005 y 2006 tasas positivas de
creacin de empleo, el importante incremento en las ventas de las Pyme innovadoras (un 12% frente
al 4% de las no-innovadoras), ha servido para mantener unos niveles de productividad en lnea con
el grupo de referencia, donde, por el contrario, se destruy empleo
Cuando la empresa realiz gasto de I+D+i durante el ao previo, su productividad se incrementa en
16 puntos porcentuales, tanto en las manufacturas como en los servicios
otros EfEctos cualitativos dE la i+d+i
En general, se observa que una de cada dos empresas que hace gasto en innovacin experimenta
mejoras relacionadas con la ampliacin de la gama de productos y servicios y con la mejora de la
calidad De hecho, la probabilidad de obtener estos dos tipos de mejoras se incrementa en un 14%
cuando se realiz gasto en I+D+i el ao anterior
La proporcin baja a una de cada tres empresas, aproximadamente, cuando nos referimos a me-
joras en los procesos de produccin, tales como el incremento de la fexibilidad o el aumento de la
capacidad productiva De la misma manera, la probabilidad de introducir estas mejoras es menor
que las anteriores, concretamente un 8% y un 5% para cada una de ellas
Por trmino medio, el 18% de las Pyme y el 20% de las grandes empresas consideran que su acti-
vidad innovadora favorece la introduccin de mejoras relacionadas con el impacto medioambiental
Algo ms alta es la frecuencia con la que las empresas introducen mejoras relacionadas con el
cumplimiento de la normativa vigente
rEsultados para las EmprEsas quE cotizan En Bolsa
No parece que el hecho de cotizar o no en bolsa sea, a priori, una variable que marque una diferencia
signifcativa al analizar el impacto que las actividades asociadas con la I+D+i tienen en las variables
de resultados tecnolgicos, especialmente en el caso de las innovaciones de producto y proceso
En lo que se refere al impacto econmico de la I+D+i, las discrepancias que se aprecian, ms que por
una diferente reaccin de las empresas ante la realizacin de gasto en innovacin, pueden deberse
a la diferente idiosincrasia de las empresas segn coticen o no en bolsa
Las empresas que cotizan en bolsa muestran una mayor tendencia a realizar gasto en innovacin,
lo que supone que muy pocas empresas de las que cotizan aparezcan entre las que no realizan
gasto
v Conclusiones
82
CDtI
impacto dE las ayudas cdti
Las empresas en sectores con difcultades de fnanciacin, tanto por la falta de fondos, como por la
existencia de costes de innovacin elevados, tienen una mayor probabilidad de obtener un crdito
del CDtI Este hecho puede explicarse por dos razones: por una parte, las empresas con problemas
fnancieros tienden a solicitar ms ayudas pblicas; por otra, el CDtI cumple una importante funcin
fnanciando a aquellas empresas que pertenecen a sectores afectados por los fallos de mercado,
que son precisamente aquellos sectores que sufren mayores restricciones fnancieras
Las compaas en sectores con difcultades de conocimiento tienen una menor probabilidad de
obtener un crdito del CDtI, lo que puede ser consecuencia de unos mayores obstculos a la hora
de solicitar las ayudas Este efecto negativo es de mayor magnitud para las Pyme que para las
empresas grandes
Las difcultades sectoriales relacionadas con el mercado (falta de informacin sobre mercados,
dominio de empresas establecidas, e incertidumbre o ausencia de demanda de bienes y servicios
innovadores) no parecen afectar a la probabilidad de obtener un crdito, lo que parece indicar que,
en general, la actuacin del Centro no interfere sustancialmente en la dinmica de la competencia
preexistente en los mercados
La obtencin de un crdito blando del CDtI incrementa en ms de 55 puntos porcentuales la pro-
babilidad de llevar a cabo actividades de I+D+i utilizando fondos propios El impacto es mayor en el
caso de las Pyme (61,8) que en el de las empresas grandes (32,9) y menor en las de servicios (14,8)
que en las empresas manufactureras (49,3)
Cuando se descuenta de estos impactos el efecto derivado de la persistencia en la decisin de
gasto en I+D+i, el incremento en la probabilidad de realizar gastos de I+D+i interna asociado a la
obtencin de un crdito del CDtI sigue siendo sustancial (32,4 puntos porcentuales), confrmando
la efectividad de este sistema de ayudas
El 50% de las empresas NEotEC proviene de universidades, centros tecnolgicos o el Consejo su-
perior de Investigaciones Cientfcas (CsIC), lo que confrma su importancia en la transmisin de
conocimiento desde la investigacin bsica a la industria y el xito del programa NEotEC a la hora
de cubrir esta necesidad
En trminos de ventas, las NEBt participantes en el programa NEotEC crecen en 2005 un 37,4%
ms que la media de Pyme tecnolgicas, porcentaje que se eleva al 51,1% en el caso de las empre-
sas de servicios
La participacin en el programa NEotEC lleva asociado, asimismo, un 32,8% adicional de crecimiento
en el empleo, porcentaje que se eleva hasta el 53,5% en el caso de las manufacturas
Which Innovation
Efforts Will Pay?
FAL L 2009 VOL . 51 NO. 1
RE PRI NT NUMBE R 51115
Alexander Kandybin
Please note that gray areas reflect artwork that has been
intentionally removed. The substantive content of the ar-
ticle appears as originally published.
SLOANREVIEW.MIT.EDU FALL 2009 MIT SLOAN MANAGEMENT REVIEW 53
SUCCESSFUL INNOVATION the kind that leads to customer engagement and profits
is rare and hard to achieve, or so one might conclude from observing the results of many companies
innovation efforts. Some have tried investing intensively in research and development. But a recent
Booz & Co. study of public companies representing almost 60% of global R&D expenditures
found that above a certain minimal level, there is generally no correlation between R&D spend-
ing and financial metrics such as sales or profit growth.
1
Some have tried to follow prevailing
trends such as open innovation but that, too, doesnt necessarily lead to higher innovation re-
turns.
2
Many pursue a strategy of tacit benchmarking: They invest near the average amount of
R&D spending for their industries, while running development shops that use many of their peers
best practices. That approach, over time, has led to greater numbers of minor product line exten-
sions with often diminishing returns.
THE LEADING
QUESTION
How can
companies
have a better
sense in
advance of
which innova-
tion efforts
are most likely
to pay off?
FINDINGS
Successful innova-
tion comes from
careful attention to
a small number of
important criteria.
Dont ask how
much to spend,
but how to spend.
The return on inno-
vation investment
methodology corre-
lates with organic
growth and links
innovation spend-
ing with financial
performance.
An innovation
effectiveness curve
lets companies plot
innovation spending
against the financial
returns from those
projects and
solve for growth.
Which Innovation
Efforts Will Pay?
For many companies, developing new products is a hit-or-miss
proposition. Some businesses with successful innovation
practices are relying on a new analytic tool to ensure that the
hits are much more likely.
BY ALEXANDER KANDYBIN
MANAGI NG I NNOVAT I ON
Whether in pharmaceuticals
or other fields, companies
that make decisions about
innovation spending based
on a rigorous methodology
are likely to invest far more
effectively.
54 MIT SLOAN MANAGEMENT REVIEW FALL 2009 SLOANREVIEW.MIT.EDU
Yet some companies seem to be better at dream-
ing up great new products while spending less to do
it. Apple Inc. commits 5.9% of sales to R&D, less
than its industrys average of 7.6%. The R&D bud-
gets for two of Detroits beleaguered Big Three have
been consistently higher than that of Toyota Motor
Corp., at least until 2008. Where innovation invest-
ment is concerned, the key question is not how
much to spend but how to spend it.
Return on Innovation Investment
Its easy to conclude from this track record that in-
novation success depends on mysterious factors,
part science and part magic, rather than business
acumen. But there are companies that overcome
these hurdles and regularly produce high-yield in-
novations. Examples include companies as
disparate as Cisco Systems, Tata Sons, Campbells
Soup and Volkswagen. Because these companies
(and other successful innovators) are so diverse and
the factors that distinguish them have been obscure,
my colleagues and I have looked for a reliable ana-
l ytic tool that can hel p expl ain why some
innovations succeed and others fail. We believe we
have found one with the return on innovation in-
vestment or ROI
2
methodology.
The ROI
2
approach is based on a series of inno-
vation studies conducted during the past seven years
with companies in the consumer products, health
care and chemical industries.
3
ROI
2
correlates di-
rectly with organic growth and links innovation
spending with financial performance in ways that
can lead decision makers to generate higher, more
reliable returns on innovation and R&D.
In 2002, Pfizer Inc.s Consumer Healthcare sub-
group wrestled with innovation effectiveness and
organic growth. Company leaders wondered
whether there was a way to replace going from the
gut with real science in managing innovation. The
company (since acquired by Johnson & Johnson)
was hindered by a new product development sys-
tem that was long on process and short on results.
The number of products Pfizer CHC managed to
roll out each year was below the industry average,
and its annual project cost was one of the highest.
In an industrywide benchmarking study con-
ducted by the company that year, its innovation
performance was ranked below average among
nine competitors. Following received wisdom, the
managers invested based on industry norms, de-
spite not knowing what level of innovation
investment was required to meet their ambitious
growth objectives. They knew that spending more
on R&D hadnt always yielded a payout in the past,
so they wanted to invest more wisely. Yet they had
no reliable way of evaluating different types of
projects and determining which products in their
development portfolio would be the most produc-
tive. The innovation portfolio was only vaguely
guided by corporate strategy. Decisions on what to
spend money on were based much more on guess-
work than methodology.
None of this is unusual. But product develop-
ment is not a business for those who are afraid to
start over. The Pfizer CHC team posed a question
that will be familiar to many organizations that are
underwhelmed by their innovation performance
but overwhelmed with advice on how to fix it:
Where do we start?
The right answer, we believe, is with the ROI
2

analysis. By breaking down the R&D process into
its fundamental components, expressed as a set of
simple key numbers, and placing those compo-
nents in the context of a portfolio explicitly aligned
with corporate strategy, ROI
2
offers managers a way
to increase returns without necessarily spending
more money.
Analysis based on this metric (and on an in-
novation effectiveness curve that is derived from
it) shows why many companies have not achieved
their hoped-for results. When corporate leaders
understand this, and when they see their R&D-
related decisions and capabilities tracked in
rigorous economic terms, they can see how they
might improve their current innovation practices.
They can more confidently expect to improve
short-term innovation performance by reallocat-
ing resources and reach longer-term growth goals
by building rigorous self-understanding and supe-
rior innovation capabilities.

The Innovation Effectiveness Curve
Imagine you are a manager faced with a budget
cycle and an unwieldy portfolio of projects, each
with a marketer or chemist attached who assures
you this project is the greatest idea ever. The first
step is understanding, and so to identify both
short- and long-term improvement opportunities,
a company needs to diagnose its innovation prac-
tices and capabilities. The diagnosis can be quite
different from one company to the next, and that is
one of the reasons why adopting industry bench-
marks doesnt work. The individual innovation
profile represents the value and quality of a com-
panys innovation portfolio and can be clearly
expressed as an innovation effectiveness curve.
(See Innovation Effectiveness Curve.) The shape
and height of this curve, not the total amount spent
on R&D, reflect how much a company may ulti-
mately expect to earn from its innovation
investments and how much organic growth these
investments will generate.
To build the effectiveness curve, we plot annual
spending on innovation projects against the finan-
cial returns from those projects, measured as a
projected internal rate of return.
4

This is done on a project-by-project basis,
which means that the curve contains data about
every active project in the pipeline for a given com-
pany. While each point on the curve represents
return on innovation investment for a particular
project (see Innovation Effectiveness Curve), the
area under the curve represents the companys
total projected return on annual innovation in-
vestment. The height of this curve provides a
definitive verdict on the power of the innovation
capability to drive returns and generate growth.
The higher the curve, the greater the overall re-
turns on innovation investments.
The curve has three properties that make it a
powerful analytical tool:
It is comprehensive. ROI
2
provides a holistic
view of R&D, marketing, strategy and operations
the activities directly bearing upon the creation and
launch of new products. Most corporations silo
these activities and evaluate them separately, against
different goals.
5
The effectiveness curve rolls into
one all functions that bear on new products.
It is stable. For the companies studied, the effec-
tiveness curve has remained remarkably consistent
over time. Even when projects in the innovation
pipeline changed, the overall shape of the curve re-
mained the same, unless a company significantly
changed its innovation strategy and capability.
It correlates with growth. Until now, the precise
nature of the relationship between growth and R&D
investments has puzzled practitioners and largely
been unproven. The curve demonstrates a connec-
tion between the effectiveness of innovation efforts
and the growth of the company. (Total Return on
Innovation Investment vs. Revenue Growth [p. 56]
shows the correlation between ROI
2
and organic
growth for consumer health care companies.)
On one level, the relationship between ROI
2
and
organic growth rates makes it a metric to track over
time; when a companys innovation effectiveness fal-
ters, that is a signal that growth may slow as well. A
more directly practical value lies in letting R&D and
marketing organizations rethink how they create
and launch products. Beyond the ROI
2
metric serv-
ing as an indicator and a rapid diagnostic, it lets
companies solve for growth by analytically design-
ing an innovation pipeline to achieve specific growth
objectives. By making measurable improvements to
any of the components of ROI
2
, a company can in-
crease the area under the curve and therefore its
organic growth. Knowing the relationship between
ROI
2
and organic revenue growth allows a company
to maximize the incremental growth rate that can be
achieved by tuning up its innovation engine.
INNOVATION EFFECTIVENESS CURVE
The innovation effectiveness curve can help companies track which
innovation projects are worth funding and which are likely to yield little.
Total Annual Innovation Investments
Current
Innovation
Curve
Return on Innovation
Investment ROI
2
Raised
Innovation
Curve
Healthy Innovation Projects Tail
Annual
Investment
per Project
ROI
2
per Project
When corporate leaders look at their own effective-
ness curve, they usually find room for improvement.
Some supposedly active projects, they learn, havent
been touched in years. Others turn out to have only
one single, vocal champion. Since the curve itself is a
summary view of a number of different projects, ex-
amining it yields insights into the innovation
organization and the portfolio as a whole.
6

Most effectiveness curves consist of three visu-
ally distinct sections:
Hits A handful of high-return projects that
usually cannot be consistently replicated. These
could be visible endeavors with broad appeal or
smaller, less expensive changes to an existing prod-
uct that significantly improve its functionality or
convenience.
Healthy Innovation The middle region of
solid projects, which provide the bulk of returns on
innovation. These are the modest but nonetheless
respectable base hits that form the bulk of most
companies product and service portfolios.
The Tail The low- to no-return stragglers
that probably shouldnt remain in the portfolio.
Most curves we have seen display clear dividing
lines among the sections: a few obvious winners, a
separate but larger cluster of healthy innovations
and a too-long tail. The number of companies with a
long innovation tail reflects the natural tendency
to put more money into new product development
pipelines than those pipelines can efficiently spend.
Moreover, the curve remains unchanged in
many companies even when leaders try to improve
their innovation performance. For example, in-
creases in R&D spending alone not only fail to raise
returns on investment but often drive them down.
These corporations end up spending beyond their
point of minimum returns, throwing good money
away on more marginal projects, usually without
knowing that they are doing so. In such cases, fur-
ther increases in R&D expenditures only extend the
tail portion of the effectiveness curve, the portion
without significant returns.
Businesses can change the curve. One company
that was able to make significant short-term im-
provement in its innovation effectiveness was Bayer
MaterialScience AG, a subsidiary of Bayer AG that
produces polymers used in high-performance plas-
tics, coatings and sealants. BMSs effectiveness
curve revealed a lengthy tail, which suggested an
opportunity to redistribute resources. A closer
look revealed a recurring characteristic of the
lower-performing projects: They tended to target a
different customer segment and be in a different
product category than projects higher up the curve.
Understanding which customer segments and cat-
egories generate higher innovation returns let BMS
reprioritize new product initiatives and redeploy
resources in R&D, sales and marketing into projects
supporting these higher-return markets, customers
and categories. Customer groups that placed more
value on BMSs innovation products were identi-
fied, and new projects were targeted for them. The
result was that BMS increased its ROI
2
by 14% and
by the end of 2007 accelerated its organic growth
rate from 3% to 4%.
Improving the Effectiveness Curve (p. 57)
shows the original and improved effectiveness
curve for BMS before and after the reallocation.
Portfolio realignment can yield strong results
BMS saw action within a year but more
important than cost cutting is raising the effective-
ness curve itself. Raising the curve requires a more
granular understanding of the companys overall
profile so that its clear which innovation capabili-
ties need investment.
TOTAL RETURN ON INNOVATION
INVESTMENT VS. REVENUE GROWTH
Growth of these health care companies is not correlated with innovation
so much as it is correlated with the effectiveness of the innovation.
0.00%
14%
6%
4%
2%
0%
0.25% 0.75%
Revenue Growth (organic)
0.50%
12%
10%
8%
1.00%
Total Innovation Return as a Percentage of Revenue
R
2
= 0.8716
Company C
Company B
Company A
Company D
Company F
Company E
Using the Effectiveness Curve to
Identify Longer-Term Opportunities
Six distinct innovation key performance indicators
or KPIs can be derived from the effectiveness curve.
They provide a diagnostic tool that can tease apart
the components of the companys innovation capa-
bility. These KPIs are:
Average internal rate of return for innovation
projects, weighted by cost
Total return on innovation investment per year
Annual innovation investment
Proportion of the portfolio made up of projects
with lower returns (the tail)
Ratio of growth to maintenance projects (projects
designed to maintain share in a shifting market)
Average projected revenue of big idea projects
(those with higher risk/reward)
By using the curve to diagnose companies ac-
cording to their key innovation metrics, one can see
more clearly where adjustments must be made. If a
company wants to raise the growth rate of its core
offerings or adjacencies, the KPIs tell it how plenti-
ful, daring or wide-ranging its innovation efforts
must be. A company can then alter its profile and
escape the constraints of the past.
The KPIs also reveal patterns of over- or underper-
formance. For example, an organization identified
as having a healthy ratio of incremental innovations
to growth-oriented innovations projects a ratio
that should, according to past experience, produce a
strong growth rate might fail to produce that rate
because it is investing too little in both types of proj-
ects. Another might have an ample innovation
budget but might be placing bets on only a few am-
bitious projects, exposing itself to unnecessary risk.
For companies like Bayer MaterialScience, un-
derstanding these next-order metrics provides a
more precise view of the drivers of innovation ef-
fectiveness. For example, by examining the
proportionality metric, BMS executives under-
stood the extent to which resources were being used
on tail projects. And by reevaluating its ROI
2

under different assumptions about revenues and
market conditions, the company was able to under-
stand how a successful reallocation of resources
into higher-value projects would increase growth.
In a similar way, the effectiveness curve allows a
company to build a profile of its current innovation
approach, as well as a regimen of potential new in-
novation capabilities for its particular profile that
can improve longer-term performance. That is pos-
sible because, in compiling the KPIs for a number of
different companies, seven distinct recurring pat-
terns emerged. There appear to be seven clear
archetypes that characterize common groupings
among the KPI drivers. While every company is
unique, knowing its general type can indicate po-
tential approaches for improvement. (See The
Seven Types of Innovators.)
A companys placement in one of these categories
represents an overall judgment about its innovation
projects. Businesses must identify the root causes of
their recurring problems. Bayer Healthcare AGs
Consumer Care Division, another segment of Bayer
AG, was a classic incremental innovator. In 2001, its
brands were household names, but it had a pipeline
filled with small base hits that were launched rap-
idly to a minor market reaction. The organization
was efficient but risk averse.
After understanding that its current capability
could not meet its growth goals, the company
decided to explore larger and higher-risk ideas in
several consumer health care categories. While not
all of these bigger bets were successful, Bayer
IMPROVING THE EFFECTIVENESS CURVE
Bayer MaterialScience reallocated what it was spending on various
innovation initiatives and saw cost savings emerge from knowing which
of them were more likely to garner customer approval.
Total Annual Innovation Investments
Original
Innovation
Curve
Innovation Curve
After Reallocation
of Investments
Resource Reallocation
Cost
Savings
Return on Innovation
Investment ROI
2
Consumer Care raised its overall innovation return
and accelerated its growth rate.

The Real Relationship of
R&D and Strategy
Evaluating innovation metrics and types inevitably
leads to a new view of R&Ds relationship to corpo-
rate strategy. The KPIs describe symptoms, but they
are not root causes. The symptoms are themselves
driven by a combination of the companys innova-
tion capability and its strategy.
Companies can improve their innovation per-
formance by rethinking their strategic choices,
guided by an understanding of the components of
ROI
2
. For example, a company with a first-mover
strategy might reinvent itself as a fast follower by re-
placing a few risky projects with a handful of more
modest, safer alternatives. Coca-Cola Bottling Co.
Consolidated took this approach after the failure of
New Coke in the 1980s, and more recently Hyundai
Corp. and Verizon Communications Inc. have simi-
larly proven to be successful at me-too-ism.
A companys analysis of the effectiveness curve
can reveal important differences between the strate-
gies that lead to healthy innovations and those that
fall into the tail. These differences might be driven by
the approach to innovation just mentioned (first
movers vs. fast followers); by product categories; by
targeted customer segments; by the genre of innova-
tion (formulation vs. packaging); by a specific trend
imperative (convenience innovation vs. taste); or by
the presence of a new technology. Once the differ-
ences are determined and understood, a company
can adjust its strategic innovation priorities by shift-
ing investment into areas with greater returns. As
the example of Bayer MaterialScience showed, this
approach to revamping the innovation strategy can
yield results within a few development cycles.
An even more powerful use of the tool is to drive
sustainably higher returns on investment. Pfizer
CHC was able to use its effectiveness curve and
next-order metrics to develop the innovation capa-
bilities required for success and revamp its
innovation organization. As noted earlier, in 2002
THE SEVEN TYPES OF INNOVATORS
Each category has its own profile, based on scores of innovation effectiveness the combination of seven key performance indicators.
INNOVATION TYPE APPROACH
Healthy Effective: Best practice. High returns and investment; low invest-
ment in modest projects with small prospect of high returns.
Keep up the good work. Consider replicating innovation capabilities
in adjacent markets.
Stingy Effective: High effectiveness and a healthy balance of promising
projects representing varying levels of investment, but low total investment.
Increase innovation investment. These are the only companies for
whom pouring money into all projects is a good idea.
Risky Ventures: Too many higher-risk growth projects. These companies
often have uneven innovation performance, alternating between solid and
more tepid growth.
Consider whether you have enough commercialized projects and
how many of them have failed to survive high-stress periods. Tighten
your project approval criteria and focus more on brand support and
maintenance.
Incremental Innovator: Acceptable effectiveness but excessive focus on
small, safe projects. Many consumer packaged goods companies fit into this
category, with their bias for relatively safe and less expensive line extensions
to existing brands.
A new innovation strategy with clear market and technology priorities
is likely needed. Review the ideation process and organizational in-
centives, with a focus on understanding whether there are enough
high-impact ideas.
Misguided Innovator: Disproportionate investment in more expensive and
risky growth projects with low returns. This profile is typically the result of
either overinvesting in selected breakthrough initiatives or too-conservative
estimation of future sales and profits.
Review the development of business cases for innovation initiatives.
Review innovation market and technology priorities.
Underperformer: Low investment and low realized return. Most of the
companies in this category realize their innovation deficiency and ultimately
lower their R&D budgets as a result.
A comprehensive review and diagnostic of the innovation strategy
and capability is necessary to determine the best way forward.
Low Value Creator: High spending on innovations with low return. These
are companies in a state of denial. They dont realize that their innovation
capability and strategy are below par, and they continue to invest in marginal
projects.
Reduce the number of projects; cut the tail ruthlessly. Improve
project management discipline. As with the category above, a
new innovation strategy with defined market and technology
priorities is likely needed.
FALL 2009 MIT SLOAN MANAGEMENT REVIEW 59 COURTESY OF VOLKSWAGEN
the company was struggling to find an approach to
a sluggish new product pipeline and an arthritic
development process. Having defined some of its
fundamental challenges, Pfizer CHC saw that it was
falling into the category of misguided innovator,
with a significant number of high-cost, risky proj-
ects with disappointing returns.
Guided by specific KPIs, the company focused
on redefining its innovation strategy and signifi-
cantly improving one of the most critical innovation
capabilities: effective new product portfolio man-
agement. These efforts resulted in improved
decision-making discipline, substantial reduction
in time to market and a lower average project cost.
The company kept the innovation pipeline full of
fresh ideas closely linked to the overall growth strat-
egy. Within a year, the number of new initiatives
more than doubled, from 20 to 45. Meanwhile, 22
projects that did not meet decision criteria in the
stage-gate process were killed. In the past, projects
had very rarely been canceled; they limped along
for years, consuming scarce resources.
The results of Pfizer CHCs innovation overhaul
were striking. Over the relatively short period from
2003 to 2005, average time to market decreased
from 39 months to 24 months, while the return
from new initiatives increased by more than 50%.
Ultimately, rigorous analysis of the innovation
capability can allow almost any company to solve
for growth. Understanding the effectiveness curve
and innovation type lets an organization start with
the low hanging fruit, reallocating resources that
are underperforming to areas that have more po-
tential. Longer-term results require a more
thorough understanding and reworking of the
areas of innovation capability that are holding the
organization back.
The Top Habits of Highly
Effective Innovators
Although every organization has its own challenges,
the research on ROI
2
has uncovered some patterns of
behavior among the top innovators that qualify as best
practices. To start, the best innovators had a clear, well-
defined strategy, a set of performance metrics and
goals. They also had a clear cross-functional process
with specific steps and transparent decision criteria.
Many corporations that did not make this group had
decision-making standards and governance proce-
dures that could charitably be described as ad hoc.
We pulled together those internal disciplines
that most effective innovation organizations had in
common and that the ROI
2
approach tends to im-
prove. Consider them the top habits of highly
effective innovators:
Align Growth and Innovation Strategy The
best companies aligned their innovation strategy
with their corporate strategy.
7
For example, in con-
sumer health care, a high performer would have a
significant number of projects against specific dis-
ease states or categories that were corporate priorities.
We found that focusing on growth imperatives and
investing in innovative products did tend to increase
ROI
2
, but only if those investments were made in
categories that were of explicit strategic importance
to the company. Higher-risk projects that fell outside
of priority areas tended to diminish returns. We also
learned that leading innovators simultaneously pur-
sued several alternative growth platforms.
Practice Portfolio Management Portfolio man-
agement is a cross-functional capability that enables a
holistic view of the entire project portfolio, with an em-
phasis on selection criteria, assessment, decision making
and governance, as well as the balance among projects.
The better-performing portfolios tended to have a bal-
ance of projects across multiple criteria, among them
More effective innovation
can make complex products
more profitable, as evi-
denced by Volkswagens
innovative glass production.
size, segment, category, launch time and risk. Worse
performers were less likely to include resource con-
straints among their evaluation considerations,
alongside net present value, strategic fit and balance.
Keep Managing After a Project Enters the
Pipeline Good innovators are voracious consum-
ers of ideas: They take ideas from anywhere and
everywhere. The most effective companies let more
ideas into the pipeline at the beginning and have a
higher proportion of their total portfolio in the pre-
development stage. However, when it came time for
significant investment, best-in-class innovators did
some ruthless pruning and advanced fewer projects to
the later stages. Because they had fewer costly later-
stage ideas in their pipelines that didnt work out, better
innovators also had a faster average time to market.
Let the Market Help You Innovate Successful
innovators often allow more products to be launched
and tested by the market. Traditional market re-
search is often not a good predictor of success.
Excessive focus on market research can increase time
to market and lead to unnecessarily small and incre-
mental innovations. Some successful innovators
launch a greater number of new products and let the
marketplace and consumers dictate the portfolio of
winners and losers. This strategy relies on effectively
evaluating the early market response to a new prod-
uct launch with the intent of quickly killing bad ideas
and amplifying the impact of successful ones.
Insist on Organizational Discipline Finally,
the best performers had a healthy organizational and
process discipline. In line with defined strategies and
evaluation criteria, they took the pet project syn-
drome out of the equation. They tended to have
dispassionate new product portfolio management
that was not controlled by any single function.
Energizing any important internal capability is
almost never quick or easy. But in the case of inno-
vation, it is an effort well worth making. As we saw
in the case of both Pfizer and Bayer, making sys-
temic improvements in innovation capability truly
raises the curve, resulting in an increase in organic
growth rates that can be persistent over time.
Alexander Kandybin is a partner with the consul-
tancy Booz & Co. who works with clients in the
health care, consumer products and chemicals in-
dustries. Comment on this article or contact the
author at smrfeedback@mit.edu.
REFERENCES
1. B. Jaruzelski, K. Dehoff and R. Bordia, Money Isnt
Everything: The Global Innovation 1000, Strategy + Busi-
ness (winter 2005). Also see G. McWilliams, In R&D,
Brains Beat Spending in Boosting Profits, Wall Street
Journal, Oct. 11, 2005, sec. A, pp. 2, 13: The finding flies
in the face of academic studies and accepted wisdom on
the value of corporate research.
2. See R.M. Kanter, Innovation: The Classic Traps,
Harvard Business Review 84 (November 2006): 73-83.
Kanter writes, Too often grand declarations about in-
novation are followed by mediocre execution that
produces anemic results. A similar point is made in T. A.
Stewart, The Great Wheel of Innovation, Harvard Busi-
ness Review 84 (November 2006): 14: Companies have
been rushing to find new ways to make old mistakes.
(Approximately the same number of scholarly articles
with innovation in the title were published in 2007 as
during the entire decade of the 1980s.)
3. The concept of ROI
2
and the effectiveness curve came
out of two comprehensive studies of the consumer health
care industry conducted by Booz & Co. in 2002 and 2006.
All but one of the major companies in the industry agreed
to participate in the process in exchange for a detailed read-
out of the results. The first step was a comprehensive
questionnaire that asked for specific metrics on compa-
nies product portfolios, including numbers of projects,
types, time to market, level of investment, resources re-
quired, projected sales and so on. Each company then
submitted to a series of in-depth interviews with key per-
sonnel in the R&D and marketing organizations, where we
probed into areas of corporate strategy and decision mak-
ing. Additional information about portfolio management
and best practices was gathered during subsequent en-
gagements with two of the participants.
4. The ROI
2
concept is based on the analysis of innova-
tion portfolio. Given that the projects in the portfolio
have not been launched, the projected IRR is the only
measure of return available. We found that many, even
early-stage, projects have relatively poor projected re-
turns. The IRR data and the effectiveness curve built
based in these data establish a pattern an innovation
footprint of a company that tends to be very stable
unless strategy changes.
5. A well-known exception is Procter & Gamble Co.,
where CEO Alan Lafley has committed to realizing 20%-
30% of revenues from new products. See S.D. Anthony
and C.M. Christensen, Disruption, One Step at a Time,
Forbes, Oct. 27, 2008, 97-102.
6. For a discussion of the importance of focusing on the
innovation process as a whole rather than in discrete
pieces, see L. Fleming, Breakthroughs and the Long
Tail of Innovation, MIT Sloan Management Review 49,
no. 1 (fall 2007): 69-74.
7. This was also a finding of the Booz & Co. Global Innova-
tion 1000 study cited above.
Reprint 51115.
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Mikel Navarro Arancegui (Director), Juan Jos Gibaja Martns,
Susana Franco Rodrguez, Asier Murciego Alonso, Josune Senz Martnez
Indicadores de innovacin
y benchmarking
Refexin y propuesta para el Pas Vasco
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Este libro surge de la perplejidad que suscit la comparacin de
la posicin relativa que la Comunidad Autnoma del Pas Vasco
(Pas Vasco en lo sucesivo, por abreviar) mostraba en trminos
de desempeo econmico (tradicionalmente medida por el PIB
per cpita) con la que presentaba en los indicadores tradicionales
de innovacin (bsicamente, gasto en I+D, patentes y publicacio-
nes), en una fase de desarrollo de la economa en la que, supues-
tamente, la competitividad y desempeo econmico dependen de
la innovacin. Ciertamente, hay diversos factores que, si se toman
en cuenta en la comparacin, hacen que tal discrepancia no sea
tan grande (vase un repaso de tales factores en el II Informe de
Competitividad de Orkestra). Pero, aun as, cierta divergencia
persista difcil de explicar, que condujo a hablar de la paradoja
de la competitividad del Pas Vasco.
Cuando con objeto de buscar elementos que pudieran expli-
car tal hecho se dirigi la mirada a las experiencias internacio-
nales en ese mbito, se observ que el Pas Vasco no constitua
una isla a ese respecto y que haba muchos otros pases o lugares
en que tambin se haban detectado paradojas competitivas (o
paradojas de innovacin, como tambin se han solido denomi-
nar). En algunos casos, como en el Pas Vasco, porque a la vista de
su desempeo econmico cabra esperar que tuvieran una mejor
posicin relativa en los rankings de innovacin (por ejemplo, Di-
namarca o Reino Unido); en otros casos, justo por lo contrario
(por ejemplo, Suecia).
La explicacin que generalmente se sola manejar para expli-
car tales paradojas era que los indicadores de innovacin disponi-
bles, adems de estar centrados exclusivamente en la innovacin
de mercado (ignorando la innovacin que tena lugar en el sector
pblico y la innovacin social), respondan a un modo de innova-
cin basado en la ciencia y en la I+D; pero que haba otros modos
de innovar que no necesitaban descansar tanto en la ciencia. Estos
otros modos de innovar, que por simplicar podramos decir que
se basan en la experiencia o en la prctica, son menos vistosos y
ms difciles de cuanticar. Por eso, a pesar de que todava, en su
conjunto, la innovacin basada en la prctica o en la experiencia
afecta ms al crecimiento y desempeo econmico que la basada
Introduccin
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en la ciencia (especialmente en los servicios y en las manufacturas
que no son de alta tecnologa), como esta segunda es ms fcil de
medir y como de ella disponemos de ms indicadores, es la que
habitualmente se suele considerar para medir el grado de innova-
cin de un territorio.
Con objeto de ampliar el conocimiento sobre esos tipos de
innovacin de mercado no basadas en la ciencia, han surgido di-
ferentes corrientes o reas de trabajo en la literatura de la inno-
vacin. En los pases nrdicos, fundamentalmente, se ha desarro-
llado la distincin de los modos de innovacin y aprendizaje STI
y DUI: el primero estara basado en la ciencia; y el segundo, en
el aprendizaje derivado del hacer, del usar y del interactuar. Este
segundo modo de innovacin y aprendizaje sera, en principio,
particularmente aplicable en el Pas Vasco, por el tipo de industria
(muy basada en la metal-mecnica) y empresas que posee (mu-
chas pymes y pocas grandes), en las que la innovacin ms que
en la I+D y las relaciones con la universidad, descansan en la in-
geniera y el diseo, en las interrelaciones con los proveedores y
clientes, en la organizacin del lugar de trabajo, etc.
En Inglaterra, en cambio, la exploracin acadmica de los
modos de innovacin de mercado que no estn basados en la I+D
estuvo, inicialmente, ms orientada a analizar la innovacin en el
sector servicios, en el diseo, en las industrias creativas y llev
a la acuacin del trmino innovacin oculta (hidden innovation)
para referirse a todas esas innovaciones que no se registran en las
estadsticas de I+D.
Paralelamente, especialmente en los EEUU, persistan los in-
tentos de las escuelas de economistas ms tradicionales de mejo-
rar los intentos de medir la innovacin a travs de la contabilidad
del crecimiento. Como es bien sabido, desde que en 1957 Solow
llev a cabo su estimacin de los factores de crecimiento de la eco-
noma norteamericana y descubri que la mayor parte del mismo
no se explicaba por meros aumentos del trabajo y del capital, a ese
residuo inexplicado se le denomin innovacin. Desde entonces
los economistas estaban tratando de reducir el tamao de ese re-
siduo, incorporando nuevos factores (por ejemplo, la mejora en
el nivel educativo de la poblacin o el gasto en I+D efectuado) en
Introduccin
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la funcin de crecimiento, adems de hacer que la tecnologa, en
lugar de ser una variable exgena del modelo, tuviera una explica-
cin endgena. Dentro de tales intentos son de particular inters
los que a mediados de la primera dcada del nuevo milenio efec-
tan una serie de economistas estadounidenses, que desarrollan
una estimacin de los activos intangibles del pas y que, a partir
de ella, recalculan tanto los crecimientos del PIB y de la producti-
vidad y estiman la contribucin que a los mismos han efectuado
esos activos intangibles.
Pues bien, la corriente inglesa que estaba trabajando en el
desarrollo de un indicador de innovacin que permitiera captar
toda esa innovacin escondida enlaza con los desarrollos habidos
en EEUU en torno a la contabilizacin de los activos intangibles a
nivel nacional y su contribucin al crecimiento de la productivi-
dad. En tales activos intangibles estn incluidos buena parte de los
temas que en la literatura inglesa venan incluyndose dentro de
la hidden innovation: el diseo (incluyendo arquitectura e inge-
niera), las mejoras organizativas, el marketing e investigacin de
mercados, el gasto en formacin De modo que, cuando aquellos
se cuantican y se propone tomar su contribucin al incremento
de la productividad como indicador ltimo de la innovacin del
pas, gran parte de esas actividades ligadas a la hidden innovation
son tomadas en cuenta en tal estimacin.
Otra importante corriente que mostraba su insatisfaccin con
los indicadores existentes de innovacin era la ligada a la econo-
ma del desarrollo. En efecto, al estar tan basados los indicadores
de innovacin existentes en la ciencia o la I+D, tales indicadores
recogan muy insatisfactoriamente los procesos de innovacin
que tenan lugar en los pases en vas de desarrollo. Si bien las me-
nores disponibilidades de datos estadsticos limitan claramente
las posibilidades de medicin de las capacidades tecnolgicas en
los estudios que abarcan a tales pases (ms an cuando los estu-
dios se reeren a conjuntos amplios de pases e incluyen tambin
a los pases ms atrasados y pequeos), los anlisis que intentan
explicar esas capacidades tecnolgicas y el desarrollo de tales pa-
ses incorporan elementos institucionales, locacionales y de otro
tipo, que suponen un notable enriquecimiento de los elementos
Introduccin
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que deben ser tomados en cuenta a la hora de explicar el desem-
peo innovador y econmico.
Esa preocupacin por los elementos institucionales y loca-
cionales que muestra la economa del desarrollo se encuentra
tambin en los estudios que en los pases desarrollados intentan
determinar la inuencia que el territorio posee en los procesos de
innovacin. Son mltiples los enfoques que al respecto se desa-
rrollan. Unos trabajando ms en un plano nacional, pero otros,
desde una pluralidad muy grande de planteamientos (unos ms
ortodoxos, como la literatura de la funcin de produccin del
conocimiento; otros ms heterodoxos, como todas las corrientes
que Moulart y Sequiat engloban bajo el epgrafe modelos de in-
novacin territorial: sistemas regionales de innovacin, clsteres,
distritos industriales), en el plano subnacional. En todas las
citadas corrientes se observa que los analistas comienzan a in-
cluir entre los factores explicativos del xito innovador, no slo
las actividades innovadoras que a tal efecto se llevan a cabo, sino
un conjunto muy amplio de otros factores de contexto. De modo
que, si se desea entender el xito en innovacin de un territorio
determinado, no cabe ignorar esos elementos de contexto tanto
en los modelos que tratan de explicar el output innovador como
en las polticas pblicas que tratan de incidir en ste.
Para nalizar, no basta con tener en cuenta el contexto en que
se mueven las empresas para innovar. Los gobiernos pueden desa-
rrollar una excelente infraestructura de I+D+i para apoyar la in-
novacin empresarial, tener un rgimen scal y de regulacin de
la propiedad intelectual favorable a la innovacin pero, en ltima
instancia, quienes llevan a cabo las innovaciones de mercado son
las empresas. Como se suele decir, se puede llevar al burro al agua,
pero si el burro no quiere beber, no beber. A pesar de todos los
avances realizados en el estudio de la innovacin, todava persiste
una gran caja negra sobre qu sucede dentro de las empresas
y cmo tienen lugar los procesos concretos innovacin. En gran
medida, los analistas que se han estado ocupando de estudiar la
relacin entre territorio e innovacin, han descuidado el anlisis
de cmo tiene lugar la innovacin dentro de la empresa. Ese ha
sido un mbito del que, ms que la Economa o Geografa, se ha
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ocupado la Direccin estratgica o la literatura del Management.
Es desde todos estos antecedentes como se puede explicar la
estructura, de obra en construccin, que presenta este libro.
La intencin inicial era, tras haber topado con la paradoja de
la competitividad en el Pas Vasco, intentar explicarla a partir de
los desarrollos que en los pases nrdicos estaban teniendo lugar
y, en particular, tratar de desarrollar una serie de indicadores para
medir el tipo de innovacin DUI (esto es, la innovacin deriva-
da del aprender haciendo, usando e interactuando) que estuviera
teniendo lugar en las empresas vascas. Los autores nrdicos im-
pulsores de tales estudios haban sido conectados por Orkestra,
haban venido al Pas Vasco donde, en colaboracin con Innobas-
que, se haban organizado diversos actos (talleres, conferencias )
de estudio y divulgacin de sus teoras. Todo ello culmin en el
libro Innovacin y aprendizaje publicado por Innobasque, que re-
coga los frutos de tales actos y de los recientes avances estaban
teniendo lugar en esa literatura DUI.
Sin embargo, los intentos de avance y profundizacin en
materia de indicadores basados en la literatura desarrollada por
dicha corriente mostraron enseguida sus limitaciones. Si bien
conceptualmente el planteamiento de los modos de innovacin
STI y DUI resulta muy atractivo y sugerente, su nivel de avance
hasta el presente ha sido mucho menor a la hora de desarrollar
indicadores para medir uno y otro modo y de realizar estudios
empricos. Por eso, aunque un investigador de Orkestra, Davide
Parrilli, se encarg de proseguir el seguimiento de los avances que
hubiera en tal literatura y de intentar concretar una serie de in-
dicadores de innovacin a partir de la misma (trabajos que sern
recogidos en una prxima publicacin de Orkestra), se consider
que el anlisis de y propuesta de indicadores de innovacin para
el Pas Vasco debera realizarse desde una perspectiva ms amplia,
que contemplara los mltiples avances que en el mundo estaban
teniendo lugar en la medicin de la innovacin.
De esa revisin general de la literatura de innovacin se ocup
Mikel Navarro. El objetivo era, no ya ceirse a la investigacin de
indicadores de innovacin no tradicionales, sino tratar de ofrecer
un marco general de cuadro de indicadores en el que estuvieran
Introduccin
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integrados indicadores tanto tradicionales (por simplicar, liga-
dos a la I+D) como no tradicionales (de innovacin tecnolgica
no basada en I+D y de otros tipos de innovacin no tecnolgica).
Esa revisin general de la literatura debera abarcar,
1. los diversos enfoques o escuelas, anteriormente mencionados,
que intentan explicar el desempeo econmico e innovador
de los territorios;
2. la literatura especca de indicadores de innovacin:
a. la de aquellos trabajos que estudian los pros y contras
de indicadores o fuentes determinados (por ejemplo, los
pros y contras de las patentes, como indicador; o de la
encuesta de innovacin, como fuente),
b. las propias fuentes estadsticas y los informes que reco-
pilaban multitud de indicadores (por ejemplo, Eurostat
como fuente estadstica, y el OECD Science, Technology
and Industry Scoreboard como recopilacin de indicado-
res)
c. la problemtica de los indicadores compuestos y los tra-
tamientos a que han de someterse los datos
A partir de ella, se elaboraron los tres primeros captulos del
presente libro. En el primer captulo, adems de hacer un breve
repaso de la historia de la medicin de la ciencia, tecnologa e
innovacin y un balance de la situacin en que la medicin se
encuentra en la actualidad, se exponen las dos grandes lneas en
que los economistas se estn aproximando actualmente a tal me-
dicin: la basada en la contabilidad del crecimiento y la basada en
los cuadros de indicadores (scoreboards) e indicadores compues-
tos. Tras defender la conveniencia de disponer en el Pas Vasco de
un indicador de innovacin basado en la estimacin de los activos
intangibles y su contribucin al crecimiento de la productividad,
se insta a la creacin de un grupo de trabajo que, basndose en
la literatura mencionada en el captulo, lleve a cabo tales estima-
ciones.
El segundo captulo del libro trata de avanzar en la segunda
aproximacin a la medicin de la innovacin: la que busca de-
sarrollar cuadros de indicadores e indicadores compuestos de
innovacin. Para eso, se hace una revisin de los marcos de orde-
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nacin empleados por la literatura a estos efectos. Entre ellos, se
opta por el marco ordenador de los indicadores desarrollado por
el European Cluster Observatory, dado que, adems de su consis-
tencia conceptual, facilitar la disponibilidad de datos para todas
las regiones europeas (ya que dicha tarea ser asumida por di-
cho proyecto europeo), as como que la propuesta de indicadores
desarrollada desde el Pas Vasco sea compartida y aplicada por
otras regiones europeas. Igualmente en el captulo segundo se
identican las dimensiones o grupos de factores que la literatura
ha ligado con la innovacin y, en consecuencia, que no deben ser
ignorados por la propuesta que para el Pas Vasco se realice.
Una vez jado el marco ordenador y las dimensiones que no
se deben olvidar a la hora de elegir los indicadores, en el captulo
tercero se procede a la identicacin de los indicadores. Estos va-
ran segn con qu se desee comparar el Pas Vasco: con s mismo
(bien en el pasado o con objetivos para l establecidos), con unas
regiones con las que comparte unas condiciones de partida se-
mejantes y en las que se dispone de una encuesta de innovacin,
con el conjunto de regiones de la Unin Europea, o con pases de
la OCDE. En efecto, las disponibilidades de indicadores son cla-
ramente distintas de unos casos a otros: son ms numerosas en el
caso de que el estudio se centre en exclusiva en el Pas Vasco; y, por
el contrario, son ms escasas cuando se quiere comparar el Pas
Vasco con todas las regiones de la Unin Europea. Por otro lado,
las propuestas de indicadores anteriores estn diseadas a partir
de un anlisis de las disponibilidades de datos actualmente exis-
tentes para el Pas Vasco. Pero de la revisin de los posibles indi-
cadores de innovacin y de su contraste con los que actualmente
estn disponibles se desprenden asimismo las carencias existentes
y, en consecuencia, las reas en que deberan mejorarse las fuentes
estadsticas actualmente existentes.
Toda la literatura y fuentes manejadas en esos tres captulos
del libro, a pesar de su extensin, presentan una notable caren-
cia: no penetran sucientemente en lo que anteriormente he-
mos denominado caja negra de la innovacin, es decir, en la
innovacin dentro de la empresa. En efecto, la literatura que ha
tratado de medir la innovacin en un plano territorial ha sido
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desarrollada principalmente por economistas, y en ella se ha des-
cuidado un tanto el anlisis de cmo tiene lugar la innovacin
dentro de las empresas. De esto ltimo se han ocupado, ms que
los economistas puros, los estudiosos del Management. Por eso,
con objeto de tener una idea de cmo medir la innovacin dentro
de las empresas, Josune Senz, en el captulo cuarto de ttulo La
innovacin desde el punto de vista de la administracin y direc-
cin de empresas, ha hecho una revisin de cmo tal literatura
se ha aproximado a la medicin de la innovacin, ha incluido una
propuesta de nuevo sistema medicin de la innovacin y ha rea-
lizado unas sugerencias sobre cmo mejorar la medicin de la
innovacin empresarial desde una perspectiva territorial.
Finalmente, hay una cuestin que desde un principio planea-
ba en el proyecto de estudio de indicadores de innovacin: el que
no hay indicadores buenos o malos en s, sino que los indicadores
sern acertados o no en funcin de su adecuacin a la estrategia
y al contexto del territorio. Como en ms de una ocasin se ha
sealado, el Pas Vasco no puede aspirar a ser la regin europea
lder en I+D, pues ni estamos especializados en los sectores en
que la I+D resulta ms decisiva, ni tenemos una estructura em-
presarial en que primen las grandes empresas, ni somos una re-
gin en que se sita la capital del estado (con todo lo que ello im-
plica de concentracin de organismos pblicos de investigacin,
universidades, sedes de multinacionales ). En tal sentido, cara al
empleo de indicadores, resulta fundamental tomar en cuenta las
enseanzas que se derivan de la literatura sobre benchmarking
territorial. Entre ellas, quiz la ms importante, se encuentra la
de que la principal ventaja que se deriva de las comparaciones
inter-territoriales (a saber, el aprendizaje a partir de la experien-
cia de los dems y de la adaptacin de sus buenas prcticas) tiene
lugar cuando uno se compara con territorios que comparten una
problemtica similar.
Eso nos impuls a tratar, en el quinto y ltimo captulo, por
un equipo de investigadores liderado por Mikel Navarro, las eta-
pas que deberan distinguirse en un anlisis de benchmarking
territorial. La primera de tales etapas pasa por identicar a las
regiones con condiciones de partida similares a las de la propia
Introduccin
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regin. Para eso no existe un procedimiento establecido en la li-
teratura, y en el captulo se propone uno al respecto y se aplica al
caso del Pas Vasco, de modo que se identican aquellas regiones
(NUTS, en la terminologa empleada por Eurostat) de la UE-27
que, conforme a los criterios considerados para caracterizar las
condiciones de partida de una regin, resultan ms similares al
Pas Vasco. Tras ello, se mide el desempeo econmico e innova-
dor de todas las regiones de la Unin Europea y, en particular, se
compara el desempeo del Pas Vasco tanto con el de las regiones
que, por compartir similares condiciones de partida, denomina-
mos de referencia, como con el promedio de las regiones europeas.
En principio, las NUTS de referencia con mejor desempeo son
aquellas que deberan ser objeto prioritario de comparacin, pues
de ellas habra ms que aprender. Finalmente, nuestra propuesta
de anlisis de benchmarking atiende a las actividades o input de
las NUTS que pueden estar detrs del output o xito innovador
anterior, y nuevamente se compara el comportamiento del Pas
Vasco con el de las regiones de referencia y con el del promedio
de todas las NUTS.
Introduccin

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ISSUE 61 WINTER 2010

A partir de estas dos aproximaciones, se extraen las siguientes conclusiones:

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