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Published: October 25, 2011
 / Winter 2011 / Issue 65

 
 

The Global Innovation 1000: Why Culture Is Key

The 10 Most Innovative Companies

This year, we again asked our survey respondents to choose the companies they thought were the most innovative. And again, Apple Inc. came out on top. Seventy percent of respondents named it one of the three most innovative companies, and more than half voted it number one — no surprise, given the company’s strong performance this year. The iPad continues to define the market for tablet computers, and Apple has been vying with the Exxon Mobil Corporation as most valuable company in the U.S. by market capitalization — a testament to the innovative vision of the late Chairman and CEO Steve Jobs.

Following Apple, again, were Google and 3M, with 44 percent and 19 percent of respondents including them among the top three, respectively. (See Exhibit F.) This year, Facebook entered the list for the first time, suggesting the growing power of social media as a rich source of innovation on the Internet. (Because Facebook is still private, however, reliable financial data is not available.) Altogether, the 10 most innovative companies boasted significantly better financial results over the past five years than did the top 10 spenders on R&D, especially when results are considered in terms of earnings as a percentage of revenues. (See Exhibit G.)

 

This year, we also looked at the innovation strategies followed by the top innovators. The results are striking, especially in comparison with the results of the top spenders. The four most innovative companies, and six of the top 10, all follow the Need Seeker strategy (and Apple is the classic example). In comparison, only two of the top 10 spenders are Need Seekers. (See Exhibit H.) We rather expected these results, given our findings that companies pursuing a Need Seeker strategy have a greater likelihood of success, thanks to their advantage at assembling the optimal set of capabilities and creating the culture needed to achieve superior performance.

It is also worth noting that although six of the top 10 spenders are pharmaceutical companies, not a single pharmaceutical company was voted onto the list of the most innovative. Indeed, only three companies appear on both top 10 lists: Microsoft, Toyota, and Samsung. Overall, the results show, as we have been saying for years now, that success in innovation isn’t about how much you spend, but rather how you spend it.

— B.J., J.L., and R.H.

The Silicon Valley Advantage
by Barry Jaruzelski and Matthew Le Merle

Silicon Valley is famous for its long history of leadership in computing, semiconductors, software, biotech, and other innovation-based industries. But beyond its talent base and access to capital, what makes Silicon Valley unique? What exactly is the celebrated “West Coast culture of innovation”? In conjunction with this year’s Global Innovation 1000, we worked with the Bay Area Council, a pro-business consortium of more than 275 companies in the San Francisco Bay area, to identify the strategic, cultural, and organizational attributes that have led to the sustained success of this region. That included segmenting the survey results we received from Silicon Valley companies in hopes of better understanding what cultural and organizational elements make them different.

Silicon Valley companies do indeed stand out. We determined that they are almost twice as likely to follow a Need Seeker innovation model, compared to the general population of companies in our global survey — 46 percent versus 28 percent — whereas the proportion of Tech Drivers is almost exactly the same as in the overall population. And they are almost three times as likely to say their innovation strategies are tightly aligned with their overall corporate business strategies — 54 percent, compared with just 14 percent among all companies. When asked whether their corporate cultures supported their strategies, 46 percent of Silicon Valley companies strongly agreed that they did, compared with only 19 percent of all companies, more than double the general population. (See Exhibit I.)

It may come as something of a surprise that Silicon Valley companies are no more likely to follow a Technology Driver innovation model than other companies are. But that, in our view, only strengthens our argument: Like many other top innovators, Silicon Valley companies not only have found success in creating pathbreaking new technologies, but are almost twice as likely as average companies to have developed capabilities that provide a superior understanding of the stated and unstated needs of their end customers. It isn’t just about how many transistors you can fit on a chip, but also about how such advances can lead to products and services that gain unprecedented traction in the marketplace through superior insight into customers, as well as the development of practical value propositions that will win those customers’ business. 

  • Matthew Le Merle is a partner with Booz & Company based in San Francisco. He works with leading technology, media, and consumer companies, focusing on strategy, corporate development, marketing and sales, organization, operations, and innovation.
 
 
 
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Resources

  1. Soumitra Dutta, “The Global Innovation Index 2011: Accelerating Growth and Development,” INSEAD, 2011: A report on the conditions and qualities that allow innovation to thrive, and the role it can play in a nation’s economic and social development.
  2. Barry Jaruzelski and Kevin Dehoff, “The Global Innovation 1000: How the Top Innovators Keep Winning,” s+b, Winter 2010: Last year’s study showed how highly innovative companies outperform by focusing on critical capabilities and aligning them with their overall business strategy.
  3. Barry Jaruzelski and Kevin Dehoff, “The Customer Connection: The Global Innovation 1000,” s+b, Winter 2007: This study identified the three distinct innovation strategies: Need Seekers, Market Readers, and Technology Drivers.
  4. Barry Jaruzelski and Richard Holman, “Casting a Wide Net: Building the Capabilities for Open Innovation,” Ivey Business Journal, March/April 2011: Why many organizations are unable to make open innovation work, and what they need to do to succeed.
  5. Zia Khan and Jon Katzenbach, “Are You Killing Enough Ideas?s+b, Autumn 2009: How companies can improve their innovation performance by getting their formal and informal organizations in sync.
  6. Paul Leinwand and Cesare Mainardi, The Essential Advantage: How to Win with a Capabilities-Driven Strategy (Harvard Business Review Press, 2011): How to construct a strategically coherent company in which the pieces reinforce one another instead of working at cross-purposes.
  7. Randall Stross, “The Auteur vs. the Committee,” New York Times, July 23, 2011: Why Apple’s leadership structure, with decisions reflecting the sensibility of Steve Jobs, is more conducive to innovation than the conventional approach of companies like Google.
  8. Booz & Company’s Product and Service Innovation practice.
  9. The 2011 Global Innovation 1000 Overview Video: Barry Jaruzelski and John Loehr discuss the results of the world’s largest corporate R&D spenders, focusing on the links between culture, organization, and innovation strategy — and their impact on financial performance.
  10. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/innovation.

Online Innovation Strategy Profiler

For an assessment tool from Booz & Company designed to help evaluate your company’s R&D strategy and the capabilities required, visit: www.strategyand.pwc.com/innovation-profiler.
 
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