Monday, May 12, 2008

What's Innovative? Who is Innovative?

I read Ellen Domb's article on the BusinessWeek list of innovative firms, and her thoughts struck me as basically correct. I'm not sure that this list of firms represents anything other than a list of well known firms that have been reasonably successful lately. You can see the BusinessWeek list for yourself here. Click on the link labeled interactive scoreboard to see the list.

I think there are probably several reasons why this list fails to satisfy. One reason is that it is often difficult for people to arrive a a standard, common definition of innovation, since it means different things to different people. I doubt there was a good definition of innovation used, and used consistently, as people recommended firms for the list. Some of these firms are just very good at customer service or other aspects of business, but that does not make them innovative.

Another point is that some firms on this list are there because of what they MAY do in the future, not based on innovative skills they've demonstrated in the past. Likewise, some firms on this list are resting on old laurels and haven't been innovative in quite a while.

GM is a good example of a firm that is on this list because of what it says it will do - will create hybrid cars, will change the way designers and engineers work together. Is GM an innovative company? I don't think the American car buying public thinks so. Could GM become an innovative company? That's possible, but I don't think they've demonstrated that yet. Likewise, 3M is on the BusinessWeek list, but anyone who has followed 3M closely knows that innovation at 3M took a real hit when the board brought in a Six Sigma aficionado who clamped down on research freedom. Only lately has that been reversed, so 3M is on this list based on its innovation reputation from five to ten years ago.

Thanks to the interactive scoreboard that BusinessWeek provides with more details on the top 50 companies in their estimation, we can dig a little deeper. Certainly, being an innovative firm will enable your company to drive margin growth? Well, of the firms on the list, only 10 have had margin growth of double digits over the last 3 years, and 20 firms on the list have no margin growth or negative margin growth over that same period. If these firms are innovative, why can't they command a margin premium?

The problem with a survey approach like the one used by BusinessWeek is that it has a lot of bias built in for companies that are "known" innovators, or that are simply well known. Some of the firms on this list are innovative - Apple, Google, etc - and some aren't (Wal-Mart???) Some of these firms had a focus on innovation, but have recently shifted direction. BP is probably the best example - John Browne, the former CEO was very enthusiastic about innovation, but the new CEO is not.

When we deign to make a list of innovative firms, let's be sure to use more specific definitions, and identify firms that are actively innovating and able to demonstrate what innovation has meant in terms of new products, services, business models and the returns that the innovation has delivered.
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posted by Jeffrey Phillips at 6:43 AM


Blogger Karl said...

The vague definition of innovation has been making it hard to really even have a dialogue about it. It seems like the word strategy at least in business settings has the same problem. I don't know if it would help, but addressing the sub-concepts and how we can evaluate them may be worthwhile. You have been doing this throughout your discussions.

The Business Week list only works in terms of equating innovation with successful new product introduction. Ellen's response "seems" to use the lens of incremental improvement as an underlying piece of innovation (maybe I misunderstood). I make the mistake of trying to focus on disruptive innovation all the time. The term innovation means something different to everyone who uses it, so maybe it is time to step back and determine what we really are trying to understand.

1:51 PM  
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