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Big Bucks does not equal big returns for Microsoft et al

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Microsoft out-gunned Google on R&D in 2005 in dollar terms but was out-innovated by its rival and got less value for its money, according to a new study.

The Booz Allen Hamilton Global Innovation 1000 report places Microsoft in the top 10 of all R&D spenders, the company failed to make a list of 94 so-called "high leverage innovators" - defined as companies that spent "a lot less" on R&D, but whose businesses still out-performed rivals.

Booz Allen highlights SanDisk and Symantec for getting results on less money - both made the top 94, with R&D of $195m and $665m respectively. According to Booz Allen, these companies have focused engineering and management decision making, which are limited to relatively few people with an ability to act fast.

None of the top R&D spenders - which each spent in excess of $4.7bn annually - made the top 94 list. The high-rollers include Siemens, IBM, Samsung, Intel, Nokia and Sony.

This year Microsoft will spend a record $9bn on R&D - $3bn more than it had initially planned - with much of the money directed into technology that will enable it to better compete against Google.

Google last year spent much less on R&D than Microsoft - $599m versus $6.5bn respectively. But Booz Allen highlights Google's 70-20-10 rule to encourage innovation among its engineers. They spend 70 per cent of time on the core business, 20 per cent on related businesses and 10 per cent on areas of their choosing - to produce new services that helped drive the main search ads businesses.

"High-leverage companies are often famous for their skill in one particular stage, but a close look shows that they reinforce that skill with competence at all stages of the value chain," Booz Allen said.

Over all, there was bad news for IT companies putting a premium on billion-dollar R&D. Assessing the impact of Global 1000 spending over five years, Booz Allen found: "Money is wasted 're-inventing wheels' that others have already rolled out. Good ideas get stuck in development bottlenecks. And promising innovations never get to market because of flawed understanding of customers' needs, and poor marketing and investment planning."

In news that will dismay proud research fellows from IBM to Sun Microsystems, patents derived from R&D have not added a single cent to their companies' income. Comparing financial performance with information from a patents database operated by ipIQ, the report concluded: "R&D spending does relate statistically to the number of patents granted, across all the industries we studies.... [however] we found no statistical relationship between financial performance and either patent counts or patent quality." ®

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