Are big tech firms better than small ones?

Is big necessarily better? Are a large vendor’s products always superior to a small vendor’s thanks to its ability to invest more in R&D? It’s an interesting question, particularly in this age of rapid vendor consolidation.

Of course the simple answer is that it depends on which vendors you are talking about. But some research just out from management consulting firm Booz Allen helps to confirm this view, as it found no statistical relationship between R&D spending and sales growth, earnings, or shareholder returns.

The firm analysed the world’s top 1,000 corporate research and development spenders using seven performance measures, from 2000 through 2005. It found that although R&D spending of these 1,000 companies rose last year by more than $20bn, “money simply can’t buy effective innovation”, as it puts it.

It found that 94 of the 1,000 companies consistently outperformed their industry rivals across a broad set of performance measures despite actually spending less on R&D than their competitors. These firms include some familiar names: Toyota, Apple, Christian Dior, Google and Caterpillar among them.

While the firm found no link between spending on R&D and financial performance, it noted that those 94 firms are generally noted for their distinctive skill in at least one element of what it calls the innovation process, and are adept across all of the stages. “Google is known for generating new ideas with blistering speed…. Apple is noted for its well-honed capabilities in project selection and customer understanding,” the company said.

The message is that bigger is not necessarily better — it’s what you do with your R&D budget that makes the difference, whatever size it might be.

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