The World's Most Innovative Companies

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This online event brought together 150,000 IBM employees, business partners, and even customers to bat around new areas where IBM's technologies could be put to good use. Chief Executive Samuel J. Palmisano later funded the 10 best ideas.

But InnovationJam only lasted a few days. The rest of the year, the company concentrates on innovating in more sustainable ways. It operates a 3,000-person research division whose scientists lend a hand with everyday product development and even interact with customers to help them solve their most difficult problems. Plus, the company has set up four different programs designed to incubate new ideas that don't fit neatly into a single business unit. Each is designed to nurture ideas according to their time horizons and revenue potential, from billion-dollar businesses to smaller technologies that help IBM work smarter.

One of the most important lessons executives have learned about innovation in the past few years is that companies shouldn't go it alone. Increasingly, companies are drawing business partners and suppliers into innovation networks. That brings more minds to bear and speeds up product development. Once seen as novel and risky, such external collaborations are now accepted as necessary and even routine ways of doing business.

Boeing provides one of the best models. Its 787 Dreamliner, which is expected to roll out of the factory in July, is a technological marvel. Made of composites and other lightweight materials, it promises to use 20% less fuel than current jetliners and improve passenger comfort, including cabin air quality.

But Boeing couldn't have accomplished all of this on its own. Traditionally, the aerospace giant micromanaged design and production of a jet's components—a pricey approach that helped cause the budget of its previous plane, the 777, to double in cost, from $6 billion to $12 billion. This time, Boeing realized that real technological innovation would only be possible at a reasonable cost if it shared the risk with partners. Many of the details of the plane's design are being handled by suppliers in Japan, Italy, and the U.S. Tokyo-based Mitsubishi Motors Corp. is creating the wing, while Italy's Alenia Aeronautica is producing the rear fuselage and the horizontal stabilizer (the small wing on the plane's tail).

Such a massive change to its approach was hardly easy. "Were we comfortable looking for better ideas outside of the company? No," says Mike Bair, vice-president of the 787 program. "To a lot of people inside the company, it was perceived as a loss of control."

One of the keys to pulling this off was the company's careful attention to managing culture change. To help reassure Boeing managers of their suppliers' progress, the company formed a global "partner council," a team of senior leaders from each company who met face-to-face every six weeks to help resolve new problems. Once production of the plane got going, Boeing sent teams of engineers from one supplier to the next, acting as roving in-house consultants who share best practices. The collaborative bet appears to be paying off. Development time has shrunk by about a year. That's helping to keep costs down, both for Boeing, which will spend an estimated $6 billion to $8 billion on the plane, and its customers, which will pay about $130 million apiece. That's around the same price as a 1980s-era airplane. Carriers are lining up for the new jets; in April, Boeing topped 500 orders in record time.

Chances are, retooling a company's approach to innovation won't get traction unless the CEO throws all of his or her weight behind it. That may mean plunging into the messy details to get things on the right track. For instance, the first thing Robert Iger did after being named Disney (DIS) CEO in 2005 was to abolish the company's central strategic-planning office, which had been run by a close ally of outgoing CEO Michael D. Eisner. The office's head was seen by some insiders as a bottleneck to getting innovative ideas to the chief. Iger opted instead to keep a smaller central group while transferring many of the people on the team to the business units, where they could be closer to the action.

Almost immediately, new ideas began bubbling up. In its video game operation, Disney expanded its spending on new game production and acquisitions of game studios to $350 million, up from $130 million.

But Iger didn't stop there. To show how serious he was about innovation, he personally got involved in the process of creating new games. When Disney's Buena Vista Games unit began bringing its far-flung developers to its Burbank (Calif.) headquarters for half-day summits, Iger attended as often as he could. And he didn't just observe from the back of the room. Developers pitched him ideas for games, and he gave them feedback. "You can't imagine how energizing it is for developers to get some one-on-one time with the CEO," says Graham Hopper, senior vice-president and general manager of Buena Vista Games. "They go back to wherever they're from with a whole new sense of purpose."

Since Iger took over, the entertainment giant has asserted itself as one of the fastest-moving studios. Within weeks of his appointment, Iger announced Disney would be the first studio to offer its TV shows on the new video iPod. The deal was hammered out in a few days, a departure from Disney's slow-motion decision-making process. The more aggressive Disney has impressed Wall Street. Disney's stock price has risen by 48% since Iger became CEO.

The lesson: There are no shortcuts when it comes to innovation, and little magic involved. Putting the right structures, processes, and people in place should occur as a matter of course—not as an exception. Innovation also requires inspired leadership. Executives must free up resources to execute new ideas and have the courage to take risks rather than just talk about their importance. "Look at how often you as a person in charge jumped out ahead and gave your blessing to an idea that was truly different, or complimented the person who took that first step," says Intel's Grove. "Then, you're catalyzing change. And it costs nothing."

Click here to return to the May 14, 2007 BusinessWeek magazine Table of Contents.

With Aili McConnon and Arlene Weintraub in New York, Stanley Holmes in Seattle, and Ron Grover in Los Angeles.