Thursday, February 21, 2008

Most Innovative companies

Well, it's happened again. A magazine has taken it upon itself to identify the most "innovative" companies in the US. This time its Fast Company. It's March 2008 edition has a list of the most innovative companies as chosen by the writers and editors of Fast Company. The criteria used are not identified, and this points out just one of my concerns about these types of lists. Beyond a lack of criteria, there are a number of other concerns with this list.

First, if we are going to establish a list of innovators, it would be nice to know how "innovation" is being defined. Does this mean constantly generating radical, disruptive innovation, or demonstrating consistent incremental innovation, or both? Innovation in services, business models or products, or all of the above? Using a defined innovation method or model, or at best an ad hoc innovation?

Second, does it "count" if you acquire innovation? Several of the firms on the list acquired a lot of their innovation skill through acquisitions of other companies. Does the fact that they have a team that innovates make them an innovative company? Or will the larger firm kill the innovation goose?

Third, any list like this identifies firms that are probably past their prime in terms of innovation. Sure, some of the firms on the list are still innovating, but most likely a fair number of these firms are resting on their laurels. It would be hard to identify the most innovative firms, since the innovation work they are doing RIGHT NOW won't be apparent for another year or two at best. This list is the most innovative firms from 2005. To a certain extent this is like the French thinking that the Maginot line was going to protect them from the Germans in WWII.

Fourth, this is a hodge-podge list of usual suspects. What I'd prefer to see is what the experts thought were the most innovative firms by industry. It's easy to say that Google and Apple are innovative. But what's the most innovative automobile manufacturer? Strangely enough, none are on the list. Is there no innovative in the automobile industry? How about the most innovative financial services firm? Is Fidelity more innovative than Vanguard? OK, Toyota and Prosper on the list for automotive and financial services, respectively. Does this mean that Toyota is really the most innovative automotive firm? The argument for Toyota seems to rest on the fact that Toyota has a 16% market share in the US and sold a significant amount of Tundra pickup trucks. Toyota clearly has the lead in hybrid vehicles, but could Tata be more innovative after introducing a $3000 car? How about other automotive firms?

A slightly more interesting way to consider this would be to look at the firms that are innovating in a particular industry. For example, the traditional consumer banking industry is being innovated from within - by Bank of America and Wachovia and Wells Fargo, and from without, by financial services firms like Charles Schwab and by less traditional competitors like Prosper, Paypal and Google. Which firms are creating the most innovation and change?

The magazine does a disservice (I think) by not being more specific with its criteria or unveiling its definition of innovation. To many firms we work with, getting the definition right is an effort. Then, it identifies a usual suspects list without really telling us why Toyota for example is considered more innovative than other automobile firms, and the short text in the article seems to use market share as a selection criteria. Having worked in the industry and seen behind the curtain at several of these firms, I can tell you that there are strengths and weaknesses in these selections. Some of the larger firms are very uneven in their application or capability for innovation, varying from business unit to business unit. Some of these firms are resting on their laurels. And some firms, like WL Gore for example, were left off the list.

Here's my recommendation: take a snapshot of this list and look at these firms and their competitors in two or three years. That's when we'll know for sure who is the most innovative right now - it will take a couple of years to demonstrate which firms are consistently innovating and doing it well right now.
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posted by Jeffrey Phillips at 2:32 PM


Blogger Unknown said...

By any chance...are any of the companies on the "best" list advertisers in the magazine? Just wondering?

3:24 PM  
Blogger Mario Vellandi said...

Innovation is such a complex and subjective term by itself; since it's a buzzword, it makes for good print. But does that do it any service, or just perpetuate a magical fuzzy feeling around it? I think the latter.

Excellent points Jeff. Thanks!

1:02 PM  
Anonymous Anonymous said...

I know of a firm in Boston that's creating a very thorough methodology for measuring a business's innovation, in a variety of dimensions. In my book, also, I define innovation in a very simple and generic way, such that it does not necessarily even apply to a business or techology domain. In general, I agree with much of what you say, Jeff...although, I believe it would be an incorrect correlation between any given company's future success and its current innovation capacity/execution. Its results can be affected by a wide range of factors that have nothing to do with innovation at all. Make sense?

4:41 PM  
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