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Developing a culture of innovation

The $550 billion spent on research and development globally can’t buy success, as a consultant reports in its seventh annual analysis. There are some encouraging numbers for those concerned that U.S. companies aren’t spending enough on research and development.

Booz & Co.’s latest annual study on corporate R&D spending shows that North American firms increased such outlays by 10.5 percent in 2010 after having cut R&D by about 4 percent the previous year.

The management consulting firm said the increase beat the overall global growth rate of R&D spending of 9.3 percent, as well as increases of 5.8 percent in Europe and 1.8 percent in Japan.

However, the $550 billion spent on R&D globally can’t buy success, as Booz consultants report in their seventh annual analysis of the 1,000 public companies that spent the most on R&D.

This conclusion should come as no surprise to anyone familiar with Philadelphia’s sprawling lifesciences business. Pharmaceutical companies are always among the biggest spenders on R&D but have been criticized for their lack of success as innovators.

Four of the top five companies on Booz’s list of biggest R&D spenders are drug companies, headed by Roche Holding Ltd., which spent $9.65 billion on R&D in 2010. Pfizer Inc. spent $9.41 billion, followed by Novartis.

AG at $9.07 billion, Microsoft Corp. at $8.71 billion, and Merck & Co. Inc. at $8.59 billion. Of those, Merck & Pfizer employ a total of more than 15,000 people in the Philadelphia region. Other companies with significant operations in the Philadelphia region in the top 20 on that list are: Johnson & Johnson (No. 10) with $6.84 billion in R&D expenses, Glaxosmithkline P.L.C. (No. 13) with $6.13 billion, Astrazeneca P.L.C. (No. 18) with $5.32 billion, and Siemens AG (No. 20) with $5.22 billion. However, as the Booz report makes crystal clear: There is “no statistically significant relationship between financial performance and innovation spending.”

The firm also conducted a survey of 600 executives to identify the most innovative firms, and no drugmaker made the top 10. If you guessed that Apple Inc. won that beauty contest, give yourself an apple.

Booz says that a corporate culture that encourages innovation is more crucial than a large R&D budget. Not surprising, corporate executives say they know this, but they struggle with how to change their organizational culture to become more innovative.

Media Contact:

Kristen Fitch

Kristen Fitch

Senior Director, Marketing