World Monitor Mag, Industrial Overview WM_November_2018_WEB_Version - Page 90

additional content What the top Innovators get right With careful attention to six key areas, companies can make the most of their R&D investment and outpace the competition. by Barry Jaruzelski, Robert Chwalik, and Brad Goehle A project team from Stanley Black & Decker, a US$12.7 billion diversified manufacturing firm, noticed something problematic when observing customers using the company’s products at construction sites. Tools such as miter saws and table saws needed higher voltage than the 20-volt systems commonly used for hand tools such as drills and circular saws. As a result, contractors were using extension cords or gasoline generators. But the former were inconvenient and created hazards, and the latter brought noise and pollution. After making these observations, Stanley Black & Decker developed the DeWalt line of “FlexVolt” cordless power tools and battery packs. They’ve been quickly embraced by professional contractors — generating $300 million in incremental sales since the line’s 2016 introduction. “Cords are one of the biggest pain points on a construction jobsite,” says Stephen M. Subasic, vice president of human resources at the company’s global tools and storage unit. “Our customers were telling our teams they wanted more cordless options.” But end-users had an additional constraint: They had made large investments in existing 20-volt tools and were unwilling to give them up. The FlexVolt system solved the problem. “We were able to marry some emerging technologies in motors and batteries so that the FlexVolt system automatically adjusts to the voltage of the tool,” says 88 world monitor Subasic. “It’s a single-battery platform that addresses the pain point, and spans both the next generation and the current generation of tools.” Few companies are able to bring this kind of rapid breakthrough innovation from concept to market success. But Stanley Black & Decker has consistently developed winning products for years, and has been doing so while spending its R&D dollars more efficiently than its industry peers. In this year’s Global Innovation 1000 study — our annual analysis of the 1,000 publicly held companies that spend the most on research and development (R&D) — we look at a subset of companies like Stanley that we call “high-leverage innovators.” These are companies that outperformed their industry groups on seven key measures of financial success for the previous five years, while at the same time spending less on R&D as a percentage of sales. Achieving high performance is difficult in any given year, and remarkably difficult to sustain. But the success of these high- leverage innovators reaffirms a finding of our study that has held true over time: There is no long-term correlation between the amount of money a company spends on its innovation efforts and its overall financial performance. Instead, what matters is how companies use that money and other resources to create products and services that connect with their customers. Also important is the quality of companies’ talent, processes, and decision making. R&D spending among the Global Innovation 1000 overall increased 11.4 percent in 2018, to a record high of $782 billion, reflecting R&D spending increases in all regions and nearly all industries (see “Profiling the Global Innovation 1000”). If we carve out the high-leverage innovators, we see that the 88 companies that earned that classification in 2017 had sales growth 2.6 times as high as other companies on the Global Innovation 1000 list from 2012 to 2017 and growth in market capitalization 2.9 times as high, while their R&D intensity (R&D expenditures as a percentage of sales) was lower than their industry median. These high-leverage innovators can be found in all regions and industries. They include household brands such as Apple, Adidas, and Stanley Black & Decker, and companies that may be less familiar to readers, such as Amadeus IT Group, a global provider of travel solutions and software based in Spain, and DIC Corporation, a Japan-based specialty chemicals company. Profiling the Global Innovation 1000 The companies in the Global Innovation 1000 spent US$782 billion on R&D in 2018. This represented record-high spending, and an increase of 11.4 percent over 2017. Year-on-year growth in 2018 was nearly four times as high as growth