The World's Most Innovative Companies

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If you want an innovative environment, hire innovative people, listen to them tell you what they want, and do it."

How did so many early efforts miss the mark? Many companies opted for shortcuts in their haste to respond to tectonic shifts in the business climate. Managers who had made deep cuts to research and development following the dot-com crash were suddenly wringing their hands over empty product pipelines. New Asian rivals were beating them over the head with aggressive pricing. And the disruptions from new Internet business models—from Google's (GOOG) search advertising to Apple's (AAPL) iTunes—only sped up the cycle of change. The message seemed clear: Innovate quickly or die. As a result, many leaders sprang for snazzy programs that promised to stimulate billion-dollar ideas. Others gave it lip service but didn't follow up all that talk with real investment.

There's probably not much harm in all that ideating and wearing of capes. Getting people to step out of their comfort zones can do a lot to spark new ideas. But if they're not paired with more fundamental changes, all those efforts will go nowhere. Fortunately, some companies have been waking up to that fact. "Hard work is less sexy than kooshballs," says Innosight's Anthony. "But the companies that are really thinking about this smartly are putting in place structures and making investments that will make this not a yearlong fad but a decade-long effort."

Even some of the most reality-rooted companies have dabbled in innovation alchemy. As part of its many efforts to nurture breakthroughs, General Electric Co. (GE) invited in consultants of various stripes—including choreographer Twyla Tharp, who has run creativity workshops with businesses. Some of these, such as improvisation exercises, can be "good yuks," says GE Chief Marketing Officer Dan Henson, "but I'm not sure we've come away with any insight into how to change our product mix or innovate."

Now, GE's outside experts are more involved in helping to identify customer needs. The company is also giving its higher-ups innovation training that seems more true to form. For years, its executive education programs have helped provide the company with a seemingly endless supply of capable leaders. Last year innovation became part of the curriculum for senior managers at GE's famed Crotonville (N.Y.) training hub. The idea is to give top managers at its 50 largest units the chance to discuss and learn techniques that will stimulate growth deep in their organizations. Up until recently, GE's innovation efforts had been run primarily by the corporate marketing team.

It's too early to tell if GE's program will work. As Genentech shows, the proper care and feeding of employees in creative cultures takes much more than training. The commitment to innovation has to be underscored at every turn. Since its founding in 1976, Genentech has allowed its researchers to publish their findings in academic journals, an important career status marker for scientists. That's different from most pharma companies, which tightly guard their research secrets. As a result, Genentech can compete with the Harvard and Stanford universities of the world when recruiting top scientists. That has helped lead Genentech to recent hits, such as Lucentis, which treats the leading cause of blindness. Approved in mid-2006, the drug had sales of $380 million for the year, making it one of Genentech's most successful launches ever.

The best companies seem to be managing a balance of a few high-profile programs aimed at getting employees to think differently and more fundamental processes that make sure the work actually gets done. IBM (IBM), for instance, made a splash last year with its InnovationJam.