Daily Archives: November 28, 2006

What makes an innovative company?

This summer, Boston Consulting Group released their Innovation 2006 study where they determined that innovation remains a top strategic focus for many companies, with 72% of the 1,070 executives in 63 countries and all major industries ranking it a top-three strategic priority. Furthermore, they demonstrated that innovation does translate into superior long-term stock-market performance: the 25 most innovative companies (as defined by the survey respondents) had a median annualized return of 14.3% from 1996 through 2005, a full 300 basis points better than that of the S&P Global 1200 median. Furthermore, innovators increased median profit margins by an annualized 3.4 percentage points per year over the ten year period, vs. 0.4 percentage points for the median Standard & Poor’s Global 1200 company. In addition, they maintained revenue growth on pace – 9% per annum – with the index median.

There were a number of interesting results and insights in this study, which I’ll discuss further in a later post, but the insights I’m going to focus on are the attributes of an innovative company. The survey the report is based on asked respondents to rank the most innovative companies, and the results, in order were:

  1. Apple Computer
  2. Google
  3. 3M
  4. Toyota Motor
  5. Microsoft
  6. General Electric
  7. Procter & Gamble
  8. Nokia
  9. Starbucks Coffee
  10. IBM

In addition, it asked the executives why they thought the company was innovative, and summarized the results for the top five. The following commonalities shine through:

  1. Innovative Culture
  2. Deep Customer Understanding and Focus
  3. Market Focused

One of the statements about Apple quoted in the article was “every single person in the company contributes to Apple’s innovation success every day“. One of the statements about Google that was quoted stated “Google has built reinvention and creativity into the core values of the company.” And one of the statements about 3M was “3M gives its employees time to work on, develop, and test their ideas” and “has a high tolerance for error“.

Quotes about Apple included “Apple is very focused on the user experience and how design impacts that experience.” One of the quotes about Microsoft was “They’re not always first, but they listen to customers or they wouldn’t have the market share they have.”

Quotes about Apple also included “Apple is telling its customers what’s next. It’s not following the classic ‘market-led’ innovation path that inevitably leads to incrementalism and ‘me-too’ innovation … Customers trust Apple and view it as a lighthouse guiding them on what to adopt next. If Apple has it, it must be useful.” Quotes about Microsoft also included “Microsoft has a complete and total ability to capture and retain an immense customer base.”

These quotes demonstrate the prevalence of an innovative culture, deep customer understanding and focus, and (core) market focus of innovative companies, since even their peers pick up on it.

However, what’s even more substantial, in my view, is the commonality all these traits posses – they are all people focused. Innovative companies focus on their employees, their customers, and the people who constitute the market in which they operate. They realize that innovation comes from people, that these people need to be supported, and everyone with an idea should be heard. They encourage creativity and free-thinking, even if it means that company employees will wander down the wrong path now and again. After all, the harsh reality is that experience is one of our greatest teachers, and learning from (small, contained) mistakes is a heck-of-a-lot better than not learning at all.

So what makes an innovative company? The answer should be clear now – innovative people supported by innovative leaders in an innovative culture that promotes creativity, learning, research, and development. That looks for answers within and without. That listens to its customers, its partners, market analysts, and works with them to define tomorrow’s product and tomorrow’s market.

Thus, the first step to becoming innovative is to decide you want to be innovative and develop an open, collaborative, and supportive culture. If this is beyond you, then I’d start questioning your ability to succeed in the marketplace of tomorrow, especially considering that over 90% of survey respondents indicated that they consider organic growth through innovation necessary for success in their industry. (And if this goes against every grain in your being, then maybe you should consider nominating your company for a Weasel Award next year, after all, you just might be weaseling your employees, customers, and shareholders out of an opportunity for future success.)