According to a new study by management consultants Booz Allen Hamilton, Ford and DaimlerChrysler spend the third and fourth most funds on research and development, behind Microsoft and Pfizer.
However, the firm finds there is no direct relationship between R&D spending and significant measures of corporate success such as growth, profitability, and shareholder return.
However, the pace of corporate R&D spending is continuing to accelerate, as many executives continue to believe that enhanced innovation is required to fuel their future growth.
R&D spending appears to yield better gross margins, the percentage of revenue left over after subtracting the direct costs incurred in making the products or services sold. This narrow departmental success, however, is not generally translated into overall corporate performance. In a separate analysis, Booz Allen found no relationship between the number of patents issued to an organization and its performance.
The 2004 Global Innovation 1,000 companies featured in the study spent $384 billion on R&D in 2004, representing 6.5% annual growth since 1999, and the pace is accelerating - measured from 2002, the annual growth rate jumps to 11.0%.
Among other findings, larger organisations are said to be able to spend a smaller proportion of revenue on R&D than smaller organizations with no discernable impact on performance.
Companies in the bottom 10% of R&D spending as a percentage of sales under-perform competitors on gross margins, gross profit, operating profit, and total shareholder returns. However, companies in the top 10% showed no consistent performance differences compared to companies that spend less on R&D.
R&D spending by companies in developing nations is relatively small, but growing rapidly. While companies headquartered in North America, Europe, and Japan account for 96.8% of the Global Innovation 1,000's R&D spending, and are likely to remain dominant players for the foreseeable future, the annual growth rate for R&D spending from 1999 to 2004 in China and India was 21.1%, significantly higher than in North America (6.6%), Europe (6.2%), and Japan (4.8%).
However, the developed economies show a higher ratio of R&D spending to sales. Here China and India lag, spending only 1% of revenue on R&D, compared with 4.9% for firms in North America, 4% in Europe, and 3.8% in Japan. The differences among the three main spend regions are partially explained by differences in industry mix.
R&D spending levels vary substantially, even within industries.
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