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Wednesday, 16 June 2010

The Innovation Olympics

It's time for another set of company rankings. This time the purveyor is Bloomberg Business Week (April 29th issue) and the ranking is "The 50 Most Innovative Companies." At a macro level, innovation can clearly be seen going hand in hand with IP. While the two are not identical, it is difficult to imagine a vibrant IP position without innovation to drive the inventions and creations that underpin these rights.

From an economic vantage-point, economists (at least when they are not fretting about the financial crisis and problem of unemployment), such as the Nobel laureate Edmund Phelps here, warn us that innovation is a principal, if not the principal driver, of economic growth. When one considers these macro considerations, innovation is clearly a big thing. So what does this Business Week report add to the public discussion on innovation?

First, the rankings themselves. Here are the 50 companies, in order of ranking: Apple, Google, Microsoft, IBM, Toyota Motor, Amazon.com, LG Electronics, BYD, GE, Sony, Samsung Electronics, Intel, Ford Motor, Research in Motion, Volkswagen, Hewlett-Packard, Tata, BMW, Coca-Cola, Nintendo, Wal-Mart Stores, Hyundai Motor, Nokia, Virgin Group, Proctor & Gamble, Honda Motor, Fast Retailing, Haier Electronics, McDonald's, Lenovo, Cisco Systems, Walt Disney, Reliance Industries, Siemens, Dell, Nestle, Britsh Sky Broadcasting, Vodafone, JP Morgan Chase, Oracle, Petrobras, Banco Santander, Fiat, China Mobile, Goldman Sachs, Nike, HTC, Facebook, HSBC and Verizon Communications.

For each company, there is a percentage, either plus or minus, concerning the company's relative performance over a fixed period of time based on three parameters: stock return, revenue growth and margin growth. As with nearly all such company rankings, however, there is only a general description of the metholodgy used and no apparent link to any more detailed report where the supporting these results can be considered.

The methodology is described as follows:

"Bloomberg Business Week's Most Innovative Companies special report is based on data from longtime partner Boston Consulting Group (BCG). Last December the consultancy e-mailed a 21-question poll to senior executives around the globe. The 1,590 respondents, who answered anonymously, were asked to name the most innovative companies from outside their own industry for 2009. BCG then factored in the financial performance of the top vote-getters. The final list weights the survey results 80%, stock returns 10%, and three-year revenue and margin growth 5% each.

For the 2010 report, BCG changed the survey's distribution so that responses better reflected each country's share in the world economy. That meant fewer questionnaires to India, Italy, Spain and the U.S. and more to Germany, Japan, and other countries in Asia. To improve the response rate, BCG also translated the poll into Japanese and Chinese. BCG found that the recalibrated sample may have altered the rankings of individual companies by a few places, but it did not account for the tilt away from the U.S. and toward the rest of the world. Performance and reputation did."
Pay special attention to the last two sentences. While the rankings are nominally about companies, they are really a platform for the magazine to engage in a bit of "Innovation Olympics." Thus, we have the following two sub-headlines for the piece, taken from the text of the article:
1. "Fifteen of the top 50 are Asian--and for the first time since the rankings began in 2005, the majority in the top 25 are based outside the U.S."

2. "We're starting to see the beginning of a new world order. The developed world's hammerlock on innovation leadership is starting to break."
All we are missing here is a virtual podium for these national innovation champions.

My view about this national, World-Cup focus for the survey results, together with a bias towards large multi-national comporations, is simple--what a pity, what a waste. What I would really want to know about innovation are such matters as (i) What do we mean by innovation?(ii) do we have more or less innovation now than, say, 10 years ago? (iii) has the face of innovation changed? (iv) if so, how? (v) how does innovation fare, and in what settings, if any, does it fare, during an economic downturn? (vi) does more innovation come from large companies or small companies, or is there an interdynamic relationship between the two? (vii) how does cross-border collaboration impact on innovation? (viii) in a collaborative world, does it make much sense to talk about innovation at a national level? (ix) how can IP metrics improve our understanding of innovation?

While interesting, these questions will not likely sell many magazines. And I guess that, in a world where the print media is threatened like never before, that is ultimately the most important consideration.

3 comments:

Anonymous said...

How about Bavaria? Get people in an orange crowd to wear orange clothes virtually indistinguishable from every other piece of orange clothing, don't use any identifying logos, don't tell anyone what you're doing and still get billions of people aware of your product with the unwitting (or is that unwitted?) help of FIFA?

Surely a perfect case of innovation but not using any IP (you achieve it anonymously or target others IP by ambush marketing).

Neil Wilof said...

Anonymous,

There is the "next big thing" is management-speak, namely "reverse engineering", which roughly is innovation moving from the so-called developing world to the so-called developed world. A good example are certain healthcare clinics in India that are drawing a lot of attention in Western countries.

We agree--Innovation is certainly not equivalent to IP.

Anonymous said...

Aren't Philips and Panasonic two of the world's top patent applicants, according to other statistics? Yet they don't appear in this list.

An easy bit of research would be to correlate those two datasets, and see how Bloomberg's survey (which is not quantitative but just looks at people's 'perceptions of innovation') compares to 'hard innovation' (well, patent applications). My feeling is, no correlation. What does that tell us?

Perceptions are probably more important than reality (for raising capital, making sales etc) so maybe companies should be spending their money on branding not patents...

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