The 50 Most Innovative Companies

What Executives Make of Innovation


Editor's Note: An earlier version of this story incorrectly identified Andrew as chief executive of Boston Consulting Group.

As executives breathe out after surviving the Great Recession, they find they're gazing on a New Reality. The meltdown accelerated many trends that had been merely budding pre-crisis. There has been no time for slow and steady adaptation to the pressures and challenges of a new business landscape. The world changed in a flash. Perhaps the single best tool to negotiate the new environment successfully? Innovation.

Eighty-three percent of respondents in this year's Bloomberg/BusinessWeek/Boston Consulting Group (BCG) annual survey of top executives said innovation will be a key part of their strategy to benefit from the economic recovery.

That's great. The problem? If every company says it's working very, very hard to become more innovative, that means all of its competitors are, too. Consider these statistics from this year's survey: 72% of companies see innovation as a "top three" strategic priority, and 61% of respondents are planning to increase the amount they spend on innovation.

We're seeing this in the marketplace. In January 2009, Intel (INTC) (No. 12 on this year's list) announced it would invest $7 billion to bring new innovations to market, and the results are already helping to power increased earnings and market gains. But I fear many companies will fail to turn intention into action.

MAKE INNOVATION A TOP PRIORITY

For while most executives know (at least intellectually) that innovation is important, not all have actively committed to making it a top priority. The difference between a company whose CEO and leadership team have an "all-in" mentality regarding innovation, and one whose leadership supports innovation merely at an abstract level, is unmistakable—and so is the impact on the company's culture and results.

The best C-level executives understand this and act on it. Tata Group (No. 17), for example, recognized the determining role top leadership plays. In 2007 it established the Tata Group Innovation Forum, a panel of the company's senior executives and selected CEOs of its independently run businesses. Its purpose is cultural transformation, inspiring its employees to be more innovative.

Honda Motor (HMC) (No. 26), which has remained solidly in the black during the recession, promoted its former head of research and development to the CEO spot last year. And Samsung Electronics (005930) (No. 11), which instituted a fundamental shift toward innovation over a decade ago, reiterated innovation's priority in Vision 2020, its plan to reach $400 billion in revenue over the next 10 years. If you are a senior leader and think your company can win at innovation without your being truly committed, think again. Too many of your competitors are led by fully engaged leadership teams that have linked innovation to the company's business strategy and are investing to see the results.

THE RISE OF THE REST

Increasingly, rapidly developing economies (and their companies), led by China, India, and Brazil, are beginning to seize the leadership reins from more-mature countries, such as the U.S. and much of Europe. This is not a new story, but innovation will likely be the best, and perhaps only, lever for staying ahead of this new wave of advantaged, motivated competitors.

Yet only 41% of respondents in our survey said they are planning to increase their innovation investments in these countries—down from 45% in 2009. These countries will represent an increasingly formidable source of competition. But they also offer major advantages now in the pursuit of more successful innovation, namely skilled talent, low input costs, and proximity to some of the world's fastest growing markets and most demanding consumers. Greater emphasis on these markets also raises a company's exposure to some of the world's most innovative and dynamic companies—and potential partners.

Executives need to make these markets a major part of innovation strategy. And if such markets are already a focus, commitments should be raised still further. Witness the recent Brazilian investments of IBM (IBM) (No. 4), which opened an innovation center in São Paulo and is creating a major innovation forum to bring together venture capitalists and entrepreneurs. Ford (F) (No. 13) earlier this month announced it will invest an additional $2.4 billion in Brazil by 2015 and have it serve as the global development center for a new vehicle with advanced technology. Other companies are investing aggressively around the globe. Follow their lead—or fall behind.

At BCG we saw a significant increase in innovation work starting in the middle of 2009. That was when the first wave of companies realized the world wasn't going to end, they were going to survive, and large parts of the world were not going to grow much soon. As a result, these companies turned their attention to improving their innovation productivity. If you don't know if that's you or not, that means you are about a year behind. It is time to move.

James_andrew
James P. Andrew is Senior Partner and Managing Director at the Boston Consulting Group.

Steve Ballmer, Power Forward
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus