After the profound instability that has roiled markets since 2007, innovation is once again alive and well in most parts of the world. The list of top-50 innovators continues to be heavily weighted toward technology and telecommunications companies, including Apple, Google, Samsung, and IBM. (See Exhibit 1.) Not surprisingly for such a fast-moving industry, however, technology and telecommunications companies have also shown some of the highest volatility in the rankings, rising and falling dramatically in position and frequently dropping off the list altogether.
According to our 2012 survey, innovation is rapidly moving up the CEO agenda across regions and industries. Seventy-six percent of respondents ranked innovation as a “top-three” strategic priority—the highest level in our survey’s history. (See Exhibit 2.) Twenty-four percent said it was their top priority. CEOs felt even more strongly: 85 percent ranked innovation as a top-three priority, with 40 percent ranking it as the top priority.
This year we also found that companies are planning to put their money where their priorities are. Altogether, 69 percent of respondents said that they planned to increase their investment in innovation in 2012, up from 61 percent in 2010. (BCG did not publish a survey in 2011; see the Appendix.) That is the highest level in six years. Twenty percent of respondents plan to increase spending by more than 10 percent. There is also considerable regional variation, with companies in emerging markets ascribing higher priority to innovation and increasing their innovation spending. (See “Innovation Around the World.”) Companies that stand still will find themselves falling even further behind.
In a trend we spotlighted in 2010, the United States and Europe significantly lag emerging markets in terms of the importance that their companies place on innovation. Ninety percent of Indian companies and 89 percent of South American companies said that innovation was a top-three priority in 2012, compared with only 66 percent of U.S. companies and 80 percent of European companies. (See the exhibit “The Priority Level of Innovation Is Rising in Most Regions.”) European companies have shown a significant increase in the priority level of innovation since 2009.
Interestingly, 81 percent of Chinese companies placed innovation at a top-three priority level—a drop from 92 percent in 2010. The 11-point decline in priority level could be the result of a return to average levels after the end of the Chinese government’s 2010 innovation push at state-owned enterprises, a campaign that could have had a trickle-down effect on all Chinese companies. While innovation clearly remains a high priority for most companies in China, it appears to be a somewhat lower priority than in 2010.
Results were mixed when it came to executives’ intention to invest more money in innovation. Chinese and Indian respondents reported a greater intention to spend on innovation in 2012 than previously—89 and 95 percent, respectively. This can potentially be attributed to the relatively low historical base of innovation spending in these regions and the understanding among companies that innovation will be a key driver of new growth and business models.
Meanwhile, South American and U.S. executives reported less aggressive spending plans (79 percent and 75 percent of companies plan an increase, respectively). In a reflection of the turmoil in Europe, only 57 percent of companies there reported plans to spend more on innovation in 2012. The range of answers among countries was wide, however, with German and French executives expressing a much greater expectation of increased innovation spending than Spanish and Italian executives. (See the exhibit “Innovation Spending Plans Vary Widely in Europe.”) These country-specific effects paint a stark picture of the downturn’s impact on the primary group of nations affected at the time of the survey.
Executives’ priority levels and spending plans offer important signals. Companies that put innovation at the top of the corporate agenda have a strong tendency to generate superior shareholder returns down the road. To learn more about this effect, we compared the three-year and ten-year total shareholder returns (TSRs), including stock price appreciation and dividends, of the most innovative companies in 2012 with those of their industry peers.
The 2012 top innovators earned a 6.3 percent TSR premium over three years. (See the Appendix for details.) Over a ten-year period, they earned a somewhat lower 3.5 percent premium, in part reflecting the challenge of maintaining the advantages of innovation over a long period of time. Companies that have been on the list each year since 2004 delivered a 4 percent premium over ten years, however, indicating that when companies become consistent innovators, they achieve greater long-term returns.