A New Innovation Index--The S&P/BusinessWeek Global Innovation Index.

Posted by: Bruce Nussbaum on February 8, 2008

Check out our new S&P/BusinessWeek Global Innovation Index that we launch today. It’s part of our ongoing effort to provide innovation tools and methods on the Innovation & Design site and in our Inside Innovation magazine.

Here’s the idea:

The index is made up of 25 of the most innovative public companies around the globe, based on The Most Innovative Companies rankings (BusinessWeek.com, 2007), an annual survey prepared by BusinessWeek in partnership with Boston Consulting Group. The Innovation Index’s rise or fall is calculated at the end of each trading day, and the results are posted online the next morning.

Each day you’ll see how the index has fared and the company whose stock price rose the most—and which fell the most in that 24-hour period. We expect the S&P/BusinessWeek Global Innovation Index to be a valuable resource for investors and the broader business community. Innovation is proving to be the key defining factor for the world’s most successful corporations, and the Global Innovation Index is a new measure of that success. Historical data show that the S&P/BusinessWeek Global Innovation Index companies outperformed S&P Global 100 Index companies by more than 7% in 2007 and have done 5% better since the middle of 2005. The index, which can be seen on Bloomberg as SPBWIV (in dollars) and SPBWIVE (in euros), is a vehicle for investors to participate in the growth of innovation-driven companies, as well as a means of tracking the performance of those companies.

Each May, after the Most Innovative Companies ranking is published in BusinessWeek, the 25 companies in the index will be rebalanced. Some companies will fall off; others will be added. The current index is based on the 2007 ranking of The Most Innovative Companies and features the following:

Apple (AAPL)
Amazon (AMZN)
Boeing (BA)
BMW (BMW)

Cisco Systems (CSCO)
Dell (DELL)
Genentech (DNA)
eBay (EBAY)
General Electric (GE)
Google (GOOG)
Honda Motor
IBM (IBM)
Intel (INTC)
3M (MMM)
Motorola (MOT)
Microsoft (MSFT)
Nokia
Procter & Gamble (PG)
Samsung Electronics
Starbucks (SBUX)
Sony (SNE)
Target (TGT)
Toyota Motor (TM)
Wal-Mart Stores (WMT)
Walt Disney (DIS)

Each company's weight in the index is derived from a combination of two rankings. The first is a qualitative ranking based on the company's position in the annual BusinessWeek/BCG survey. The second is a quantitative ranking based on three factors used to estimate a company's innovation—three-year earnings growth; three-year sales growth, and R&D as a percentage of sales. A composite score is calculated for each company by adding the qualitative and quantitative scores. For details, go to www.indices.standardandpoors.com.


We're going to iterate as we go along. Clearly one problem from the getgo is that we are building the index on a survey that took place nearly a year ago. We know that Motorola has blown up and that the cell phone unit is being shopped around Asia (so far no one wants it). Starbucks is in trouble and is trying to get back to the basics of aroma-experience marketing (ending its stinky breakfast fare which interfered with that wonderful coffee smell). Dell is just beginning its transformation from low-cost corporate seller of PCs to higher-priced, stylish, designed machines for individuals. And the whole tech sector is getting hammered as the recession gets nearer and nearer. Apple is down nearly 25% from its high.

S&P will be changing the index right after the next Most Innovative Companies ranking comes out and we publish it--in the next issue of Inside Innovation on April 19. That should rebalance the index to reflect current events.

One of the important lessons we can already draw from the creation of this index is what goes wrong with innovation. We have 25 of the very best global corporations using design and innovation--and a significant number of them messed up this year. Why? What mistakes were made? Design didn't save Motorola (the second rate software of the RAZR that made surfing the net and social networking a horror ultimately undermine the stylish look of the product). Dell's innovation in supply-side sourcing and web-enabled ordering didn't last forever and was disrupted by another innovation--the shift to personal, mobile computing from corporate, fixed-office computing.

What other lessons can we draw from the new innovation index?

Reader Comments

Matt Melchiori

February 10, 2008 11:43 PM

I'm not sure that "design didn't save Motorola" is entirely accurate. The concept of design goes beyond the way a product looks. It's an interaction between product and user, with aesthetic appeal being only part of the equation. You're right, the RAZR eventually failed because of its software, but that software is intertwined in the design of the product. Motorola's phones fail because the user interface is designed by engineers with no thought to the end-needs of the customer.

It'll be interesting to see how this index performs. While in the long-run the prospects of such a fund seem good, innovation and Wall Street are usually at odds with each other. Wall Street wants to see profits next quarter, and building an innovation infrastructure takes time and resources. While Apple's stock was taking a beating in the early 2000's they were developing one of the most ground-breaking products to ever hit the market.

This is a great idea, and I'm looking forward to tracking it in the future!

Sarah Haufrect

February 12, 2008 7:46 PM

First off, I agree with Michael on both his points, that: A.) this index is very exciting and B.) design is a critical part of products' and companies' successes and failures.

Design is finally being recognized as a crucial part of innovation in business. Not just in America but worldwide. I am lucky to work for a Design College (Art Center) that presents pretty amazing events (for example http://www2.artcenter.edu/designconference/ and http://www.artcenter.edu/dialogues/) about how design relates to the larger picture. I wouldn't be surprised if some of the lesser known companies at the Design Conference or the Art Center Global Dialogues don't find themselves on this index in a year or two.

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About

Want to stop talking about innovation and learn how to make it work for you? Bruce Nussbaum takes you deep into the latest thinking about innovation and design with daily scoops, provocative perspectives and case studies. Nussbaum is at the center of a global conversation on the growing discipline of innovation and the deepening field of design thinking. Read him to discover what social networking works—and what doesn’t. Discover where service innovation is going and how experience design is shaping up. Learn which schools are graduating the most creative talent and which consulting firms are the hottest. And get his take on what the smartest companies are doing in the U.S., Asia and Europe, far ahead of the pack.

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