Toyota jumped three places to top the R&D leaderboard this year [download "Spectrum's Top R&D Spenders," PDF], just as it was passing General Motors to become the biggest automaker in the world. The coincidence raises a question: Are Toyota's sales so high because of its lavish R&D spending, or is its R&D spending lavish because its sales are so high?

Of course, R&D spending today will affect sales only some years from now, so we must look to the past to understand the present--and history in fact shows that R&D cannot have been the key determinant of success in this case. Five years ago, Toyota ranked fourth among the 12 leading carmakers in R&D spending. It laid out just two-thirds as much as top-ranked Ford--a company that had been the industry's leading R&D spender for five years running while at the same time struggling mightily with declining sales and near bankruptcy.

But let's not jump to conclusions. Could it be that Ford outspends Toyota in absolute terms, but not relative to sales? Nope. Even this metric, which we call R&D Intensity, shows that though Ford has consistently outspent Toyota, with an R&D Intensity that has long been on the high end for automakers, its performance has been subpar. Meanwhile, Toyota's 9.6 percent bump in R&D spending was dwarfed by a 13.8 percent increase in sales, which meant that its R&D Intensity actually fell a bit. No matter how you look at it, Toyota has been consistently on the low end of R&D Intensity for years. You can't make the case that R&D spending accounts for Toyota's edge.

Is this finding just an anomaly? Apple, the one company perhaps most closely associated with innovation, doesn't even show up on the R&D leaderboard this year. In fact, it hasn't appeared there since Standard & Poor's and IEEE Spectrum began this series five years ago. (To run the numbers yourself, try our interactive calculator at http://spectrum.ieee.org/dec07/rndcalc.) Its absence can't be attributed to size, because Apple's sales of US $19.3 billion surpassed those of 30 of the list's 100 firms. Comparing those sales to the relatively meager $712 million Apple spent on R&D in 2006 yields an R&D Intensity of just 3.7 percent, a fraction of Nokia's 9.5 percent.

Then there's Google, another firm most people would call innovative. Yet it cracked the top 100 for the first time only this year, coming in 79th. Although it more than doubled its R&D spending, its R&D Intensity still came to just 11.5 percent, lower than that of most software firms.

These examples are part of a larger pattern, identified in a recent study by Booz Allen Hamilton, a consulting firm. The study found that firms whose R&D spending put them in the top 10 percent of their peer group did not outperform those peers in any financial metric. On the other hand, the Booz Allen study found that being a scrooge with R&D is also a bad idea: companies in the bottom 10 percent underperformed their peers.

It isn't clear what the findings mean. It could be that R&D spending is necessary but only up to some ill-defined point. It could also be that unusually low R&D spending is a symptom of larger problems. After all, a company may spend little simply because it is strapped for cash. Finally, a company may so dominate its market that it feels little pressure to come up with new ideas.

Investors' only source on R&D spending is the quarterly and annual reports that publicly traded companies must submit to the agencies that regulate the various stock exchanges, as the Securities and Exchange Commission does in the United States. However, the quality of information in those reports varies greatly.

Toyota's filing provides a lot of detail on the company's R&D strategy. The company goes out of its way to declare that maintaining leadership in R&D is a key to improving overall performance. The argument, however, avoids any acknowledgement of the company's low R&D Intensity relative to that of other carmakers. Toyota's filing asserts that its R&D priorities are to develop such environmentally friendly technologies as hybrid gas-electric drive, fuel cells, and recyclable materials. But it gives little information on the scale of those investments. Of course, Toyota is well known for its Prius hybrid, an iconic symbol for green-conscious drivers. So it has already received large dividends from its R&D in environmental technologies.