The Five Best Practices of the Global Innovation Elite

At The Economist magazine’s Ideas Conference this year, they invited me to examine the various lists of “the world’s most innovative companies,” and to give a brief presentation comparing and contrasting their approaches and the firms they ranked in the top ten.

It turned out to be an illuminating project. For one thing, there are a lot of companies out there, and lest one limit oneself to only ranking companies in a certain geography (the United States, say), you’ve got a lot of work on your plate. But the real challenge, it turns out, is deciding the criteria and the methodology by which you’ll rank the innovators, and we found some interesting criteria:

  • The Boston Consulting Group has been ranking innovative companies since 2004, as a pure popularity poll of 1500 top executives. In 2008 they changed their methodology slightly to include 20% three-year financial performance, but still, it’s mostly a beauty contest.
  • Thomson Reuters’ Top 100 Global Innovators list is heavily weighted towards patents. Even they admit that this is not the full picture, especially today, when even respectable companies buy up patent portfolios solely to prevent others from actually trying to build innovative, new products.
  •  Forbes builds their World’s Most Innovative Companies list using what they call the “innovation premium” methodology. This is a measure of how much investors have bid up the stock price of a company above the value of its existing business based on expectations of future innovative results.
  • Fast Company’s methodology can be described in one word – popularity. They survey their editorial staff, and voilà, out pops their The World’s 50 Most Innovative Companies list. Just like that. Apparently if you’re Fast Company you don’t need criteria or methodology, you just need to make your list quickly, and get it out there on the newsstands!

When you compare and contrast these four approaches – BCG’s market performance, Thomson Reuters’ patents, Forbes’ innovation premium, and Fast Company’s popularity – what jumps out at you is that their methodologies and criteria are so fundamentally different. Small wonder that their “most innovative” companies rankings are vastly different as well. Some finalists are downright weird, like Sony at number seven on BCG’s list. They’ve lost money for the last four years and just recorded their biggest loss in their 67- year history. Three companies are the exception – Apple, Google, and IBM that show up on two of the four rankings. Amazon takes the prize for showing up on three of the four lists.

My purpose here is not to label these rankings manure, as Vijay Vaitheeswaran, China business and finance editor, The Economist did, but to consider afresh what fundamental factors make a company innovative, and not just a flash in the pan. It’s just that neither recent marketplace performance, number of patents, nor trendy popularity or even stock market “premium” tell the complete story. And combining these four metrics would not necessarily be the solution either.

Over the years, I have derived my own set of criteria. If there were a way to measure a company’s accomplishments in these five areas, I believe that would take ranking the most innovative companies into more objective territory. Here they are:

Innovation Vanguard Companies drive from the top. In the nine years that A.G. Lafley was CEO of Procter & Gamble (the first time), the company tripled its innovation success rate and the stock price skyrocketed. Under a succession of CEOs who had tried to jumpstart innovation, Lafley stand out. Indeed his successor, Bob McDonald tried and failed to carry on what Lafley started and resigned under pressure earlier this year, handing the reins back to Lafley, who was chairman.

Innovation might be the buzzword of our time, but succeeding at leading it is anything but easy. If you work in an organization whose leader doesn’t understand how to effect the levers of innovation, doesn’t bother to develop an innovation strategy, or become personally involved, you’re going to face an uphill battle at every step. If you are the CEO and you try to make innovation one of seven or eight key priorities, you’re not going to move the growth needle.

Innovation Vanguard companies fortify their idea factories. Simon Spencer took on the job of innovation catalyst at Borg Warner corporation back in the late ‘90s, before innovation became the corporate rage. Asked about why BW had decided to shake up its entire approach, Simon told me “We have a process for everything else around here, why not for innovation?” But today, only about 40 percent of companies have an effective process for innovation.

A lot of people think that innovation is about the dough, the financial payoff. A lot of people think that it’s about the “grow.” And, don’t get me wrong, it certainly is. But it’s fundamentally about the flow – the input, throughput and output of fresh, new powerful ideas through your company that sustains innovation. IBM gets it. Everybody in the company can submit an idea through their Think Place program. And they host periodic “jams” to dream up game-changing ideas.

Innovation Vanguard Companies collaborate deeply with their customers. They seek to anticipate not just what their customers’ present needs are, not even what their unmet needs are, but also what their unarticulated needs are going to be in the future. Amazon does this incredibly well. At every company meeting, they have an empty chair around the table. Why? It’s purely symbolic. They want to make sure to keep the focus on the customer at all times. CEO Jeff Bezos talked about this when he said, “We innovate by starting with the customer and working backwards. That becomes the touchstone for how we invent. The other guys start with themselves and say, ‘what are we going to get out of this?’” There’s a reason Amazon shows up on three of the four lists. And maybe this is it.

Innovation Vanguard Companies cultivate a culture of risk-taking. Risk aversion is a high art in most companies, but in companies like Apple, Google, Hyundai and many others, calculated risk-taking is seen as the mother of future growth.

During the depths of the Global Economic Crisis of 2008, consumer confidence plummeted and automakers’ sales were down 30-50%. But Korea-based Hyundai was up 14%. Why? What did they do? The other automakers were asking, “How do we sell more cars?” But Hyundai asked a different question: They asked, “why aren’t people buying cars?” Out of this brainstorm came a totally unconventional offering – a one-year, no cost, return guarantee. If you lost your job, you could return the car. Risky move? You bet. But moves like that have paid off for the fast-rising firm.

Innovation Vanguard Companies make innovation everybody’s business. One of the most innovative things A.G Lafley did was he made innovation everybody’s business. “Previously, we relied on 5000 R&D people for innovation,” Lafley told BusinessWeek. “Now we make sure that everybody knows the role they play in innovation.”

Not just the folks in R&D. Not just the innovation team. Not just the new product development department. But everyone and everywhere: IT, logistics, payroll, you name it. Because in today’s world, you really don’t know where your next breakthrough idea is going to come from.

Robert B. Tucker is one of the world’s most in-demand innovation speakers, consultants and authors. President of The Innovation Resource Consulting Group, with clients in 46 countries, Tucker is the author most recently of Innovation is Everybody’s Business. For more or