The World's Most Innovative Companies

The leaders in nurturing cultures of creativity

by Jena McGregor

At some point over the past few years you've probably been invited to join your colleagues at some hip off-site locale to brainstorm "out-of-the-box" ideas. You may have been persuaded by creativity consultants to play with Lego blocks to help free your mind or to "ideate" new products. But as silly as these exercises might have felt, things could have been far worse: You might have found yourself dressed up as Innovation Man.

That peculiar fate befell a poor schmo who works for a large consumer health outfit. At the behest of an "ideation" consultant, he donned a blue superhero costume—cape, tights, and all—to put a little extra oomph behind the company's innovation-boosting campaign. "I guess the thinking was that if you free people from the norm, you'll unleash a torrent of creativity," says Scott Anthony, president of Innosight, a consulting firm co-founded by Harvard Business School professor Clayton Christensen. Anthony refused to name the company because it was a client. "Innovation Man led to a lot of laughs," he quips, "but it didn't lead to a lot of innovation."

The same might be said for many gimmicks that companies have tried over the past few years in their attempts to boost growth. Suddenly trendy, innovation took on the flavor of an elixir, as companies raced to hire "chief innovation officers" and build innovation centers complete with purple-painted walls and conference rooms with funny names. Ford Motor Co. (F) boasted in a press release about its new Innovation Acceleration Center in Dearborn, Mich.: "It's amazing what a room filled with radio-controlled cars, a 3-ft. Statue of Liberty made of Legos, and some comfy couches can do to stir the imagination." Others proudly hailed extensions to their product lines—limited editions! extra-crunchy versions!—as evidence of their inventiveness, when all they were doing was cannibalizing sales.

It's enough to make true innovators cringe. Take Andy Grove, former chairman of semiconductor giant Intel Corp. (INTC), whose nervy ideas helped save the U.S. chip industry from the onslaught of Japanese competition in the 1980s. "In my view, the word innovation has become overused, clichéd, and meaningless," says Grove. "I detest the mechanism that spits [such fads] up because they are so much easier to talk about than to do."

Not surprisingly, given all the hype, a period of disillusionment about innovation appears to be setting in. According to the 2007 BusinessWeek-Boston Consulting Group annual survey of senior executives, just 46% of respondents said they were satisfied with their return on innovation spending, down from 52% last year. Perhaps due to their disappointments, executives are making innovation less of a priority: Just 23% of respondents called it their top concern in this year's survey, down significantly from 32% last year. James P. Andrew, a senior vice-president at BCG who leads the firm's innovation practice, believes the results reflect what he calls innovation fatigue. "When you talk with people who have been at this a while," says Andrew, "they'll tell you it takes years. It's rewiring the company."

The leaders of companies on this year's BusinessWeek-BCG list of the World's Most Innovative Companies recognize that developing breakthrough products, revamping operational processes, and coming up with new business models doesn't happen overnight. Instead of relying on gimmicks or incremental line extensions, they're working to build organizations that are capable of sustained innovation. They understand that requires taking risks and investing for the long term. And they focus on the things that really matter, such as hiring the most talented employees and providing them with the environment they need to thrive. "You can make it really complicated or really simple," says Arthur D. Levinson, chairman and chief executive of Genentech Inc. (DNA), the world's foremost biotechnology company. "