The state of the innovation and R&D landscape in 6 charts

25 October 2021 6 min. read
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Global management consulting firm Ayming has released the latest edition of its Innovation Barometer, providing an in-depth insight into the state of the innovation and research & development landscape in fourteen major economies. A roundup of the report’s main findings in six charts. 

Spending on innovation

The immediate organisational and financial challenges posed by the Covid-19 pandemic have had an impact on innovation spend. The number of respondents who feel their organisation undertakes enough innovation has fallen from 85 per cent in 2020 to 71 per cent this year. 

Does your organisation undertake enough R&D

“Given that the past year has put health risks – to us as individuals and as societies – under the spotlight, we perhaps shouldn’t be too surprised that focus on innovation strategies and spending has dropped across the board,” said Fabien Mathieu, a Partner and Managing Director at Ayming in France.

Who is driving R&D?

When it comes to the resources organisations rely on for innovation, the overall picture is one of growing dependence on internal R&D resources, as firms stuck with the trusted and familiar over the past twelve months. 

The share of companies turning to internal resources has grown from 58 per cent to 67 per cent, while the share using external private resources (R&D from other companies, service providers or subcontractors) has decreased dramatically from 47 per cent to just 29 per cent.

What resources do you rely on for your innovation/R&D

The number of firms looking to external public resources, such as universities and public research laboratories for their innovation work, has seen a drop over the past year, from 42 per cent to 35 per cent. Collaboration and alliances as a strategy for innovation has remained steady, at 44 per cent this year compared to 43 per cent last year. 

An international strategy?

There has been a subtle retraction from internationalism in the past year. Local-only innovation has increased from 42 per cent to 47 per cent, while international-only has dropped from 11 per cent to a mere two per cent. For those who do opt to innovate internationally, the United States is the top choice, followed by Germany and the UK.

Do you carry out your innovation locally, internally, or both

“Given the pandemic mitigation measures that have made travel more difficult and logistics even more challenging, it is perhaps not surprising that companies have looked closer to home for their innovation sites. But there is also a more atavistic reason behind it: the urge to ‘buy local’ is still strong, and a local anchor is a key strength for many marketing campaigns,” explained Mark Smith, a Partner at Ayming in the UK.

How is innovation funded?

Most innovation remains self-funded. Half of all respondents to the Ayming study finance their innovation this way, slightly up from last year. National or regional grants remain the second most common source, and the choice of a steady 38 per cent.

What types of funding does your organisation use for R&D projects

R&D tax credits are in third place, but here there has been a substantial shift. A year ago, 46 per cent saw tax credits as a source of funding: that has fallen to 34 per cent. “Tax credits are normally counter-cyclical: when the economy shrinks, the appeal of ‘free’ money goes up,” said Smith.

As for private funding, equity and debt funding, previously relied on by 33 per cent, are now a funding source for only 23 per cent of firms.

The innovation outlook

Looking ahead, 57 per cent of respondents believe that their innovation and R&D budget will increase, although the number who say it will be a significant increase is down five points from last year. The increase follows from the growing need for future-proofing business models and staying ahead of (potentially disruptive) competition.

According to Ayming’s survey, 82 per cent of respondents agreed that the pandemic has accelerated innovation in most markets, with a quarter of respondents saying that this acceleration has been drastic.

In the next 3 years, will your organisation’s R&D budget

Notably, the share of respondents who say they simply don’t know how their R&D budget will develop has risen by four points to 10 per cent. “Covid-19, climate uncertainty and a changing regulatory regime in specific sectors appear to be taking their toll,” suggested Smith.

Most respondents (69 per cent) believe they are innovating enough to keep pace with the changes in their market, with a quarter of respondents saying they strongly believe this.

But according to Smith, this raises the danger of complacency. “Businesses must be wary of disruption. They may not be fully aware of the innovation that is due to come to market, both from peers and startups.”

Do you believe your business’s current level of innovation is keeping pace with the level of innovation in your market?

Not only are markets more open to disruption, but R&D departments face a growing number of challenges. There are, for example, growing concerns about a talent shortage, which is a key factor that contributes to the success of innovation. Mathieu: “Talent is the big one. Most people think that companies innovate. They don’t. People do.”

Smith concluded, “As we move into the post-Covid economy, innovation will be vital. The problem is the pandemic has created a conflicting paradigm wherein innovation is more essential, but also more difficult. Those who successfully pivot to new opportunities will flourish, while those who don’t will be left behind. It’s no exaggeration to say that what businesses are doing now is shaping the future.”

About the Innovation Barometer

The International Innovation Barometer 2021 is based on a survey of 585 senior executives from 14 countries.