In 2001, Fortune Magazine named Enron the “most innovative company” in the world. Shortly thereafter, the firm erupted in a financial scandal, its leaders were marched off to prison, and the company collapsed. All to say that readers of this newsletter are cautioned to review our inaugural list with a grain of salt. We were motivated to compile this list because we believe the criteria of existing lists too narrow, and therefore incomplete. Some focus solely on patents (Thompson Reuters), R&D spend (Booz and Co.), 3 year financial performance (BCG), “innovation premium” (Forbes) and in one case a popularity poll amongst the magazine’s editorial staff (Fast Company). Fair enough on the subjectivity, but we believe additional criteria are also important: visionary leadership, innovation culture, customer delight, corporate reputation (sorry Amazon, but you dropped quite badly here in 2014), unique business model, and sustainable process for innovation. Click on each company to read more about these winners, and please let us know how we did.
Contributing to this article were: researchers Patrick Sonsteng, Tim Michaelis, and Caley Thomas.
Reviewing our handiwork: Bart Tucker, Sam Dolan and Dr. Gary Byrne.
1. Alibaba: Pulling Off Biggest IPO in History Was Only the Beginning
Talk about visionary leadership. Alibaba founder Jack Ma was told repeatedly “e-commerce will never work in China, people here simply do not trust the internet.” But Ma pressed ahead anyway, and today this Hangzhou, China-based company sells twice as much merchandise as Amazon, and eight percent of everything sold in China. More than just another e-commerce site, Alibaba is often described as E-Bay, Google, and Amazon combined. To build trust with Chinese consumers, Ma created Alipay (similar to PayPal), and adopted a liberal returns policy to fulfill its mission “to make it easy to do business anywhere.” The priorities of the company that Jack built are: customers come first, employees second, and shareholders third. Coming off the successful IPO, Alibaba is on a tear, announcing plans to launch a Chinese version of Netflix and new ventures in consumer finance, insurance and mobile aps. Alibaba can de-prioritize investors, but over the long term it will be under pressure to deliver ever-greater profits, become more transparent to Westerners while staying in the good graces of China’s authoritarian government – not the easiest of tasks!
2. Nike: Running Like a Hungry Startup
Although this Beaverton, Oregon athletic maker already owns 92 percent of the basketball shoe market, and over 50 percent of the running shoe market, it still acts like a hungry startup. CEO Mark Palmer’s “category offense” strategy calls for growth not just from selling more shoes or apparel, but by dominating entire sports: football, soccer, golf or tennis. Nike’s culture has been about innovation ever since cofounder Bill Bowerman used a waffle iron to make the first modern running shoe, and Phil Knight sold them out of the trunk of his car. These days, through its Nike-ID website, customers can design their own shoes in extreme detail, right down to the color of the eyelets. While innovation is everybody’s responsibility at Nike, the company’s Innovation Kitchen is where a legion of “swoosh scientists” cook up game-changing concepts. Example: Flyknit Racers are feather-light shoes that feel “like a sock atop a sole.” They rely upon a proprietary Nike technology that uses a single spool of thread to produce the entire shoe. Result: growth was up 10% for the year, and Nike is expected to continue sprinting toward future growth.
3. Tesla: Taking Innovation to the Streets
How’s this for counter-intuitive? Instead of pursuing competitors who might try to encroach on its many patents, Tesla Motors actually encourages other auto manufacturers to adopt them in order to build electric vehicles faster into a mass market. While other car companies sell through dealers, Tesla sells through its own showrooms in shopping malls and other high traffic areas to build a direct relationship with customers. All software used in its vehicles is developed in-house, a model closer to Apple than to conventional automakers. Such bold moves exemplify how this Silicon Valley-based company is rethinking the car business from top to bottom. The fastest way to lose an argument at Tesla is to say “such and such [auto] company does it this way,” according to insiders. Not failing often or fast enough gets noticed in this hard-charging culture. “If things are not failing, you are not innovating enough,” says CEO Elon Musk, Tesla’s South Africa born founder. Tesla may be a pioneering company, but it coddles customers with old fashioned roadside assistance, and Musk often responds directly to customers when issues arise. 2014 was a good year for Tesla, which opened its 300th supercharger station in North America, and announced its intention to build a huge battery manufacturing plant near Reno, Nevada. Stay tuned as Tesla continues taking innovation on the road.
4. Uber: Disrupting Public Transportation Without Owning a Single Vehicle
Let’s first pause to acknowledge what this San Francisco-based startup has been able to accomplish since its 2009 founding. They delighted millions of customers worldwide with a new and superior means of getting around. They completely upended the taxi-transportation business in 270 cities worldwide. And they’ve fended off regulators and “me too” competitors using software, lawyers and guts, instead of fleets and hoards of dispatchers required by the traditional industry. Yet every day is a new battle (the main conference room at headquarters is called The War Room), and Uber CEO Travis Kalanick hired President Obama’s campaign manager, David Plouffe, to help handle regulatory battles. Meanwhile, the Uber team, under siege brought closer, is treated well, with software engineers making a reported $115,000 per year, according to website Glassdoor.com. Short term war is a great way to inspire innovation. Longer term it tends to produce paranoia, burnout, and regimentation. Thus, the jury is still out on the longer-term forecast for a company born in acrimony (Uber has been banned in India). Customers love being able to summon a car with the touch of a smartphone app, and get around on rainy days in New York City, when cabs all seem to disappear. But they are conflicted about Uber’s surge pricing, which ratchets up in periods of high demand. Overall, though, customers are raving about Uber, and the company’s ascent has become as much a social phenomenon as an economic one. Investors are ecstatic: the company’s value now exceeds $40 billion.
5. Google: Changing the World One Click at a Time
A Google engineer planning a trip to Spain found he could not get a close up view of the hotel he was to stay in since the road was too narrow for the StreetView car to photograph. Rather than shrug that it was “not my job,” the engineer used Google’s famous 20 percent free time policy to create the Google Tricycle to film narrow lanes. Such action at the grass roots level no doubt pleases Google CEO Larry Page, who wants innovation in every realm. “I feel like it’s my job to always be pushing people ahead,” Page said recently. Since taking the reins from Eric Schmidt in 2011, Google has been investing its projects in world-changing ventures. With over 96 percent of its revenue coming from AdWords, Google commands a staggering 67 percent of the U.S. search market, growing 20 percent annually for the past three years, with revenue topping $62 billion (Google has become so dominant that the European Union forced it to alter certain business practices). Innovations emerging from GoogleX, the search giant’s secretive skunkworks lab, include the now famous driverless cars, Google Glass, and a plethora of less well known projects. Examples: blood glucose monitoring contact lenses and ingestible “painted” nanoparticles that conceivably will bind to cancer cells and other biomarkers in the body and allow scientists to “read” what they find. “We’d like to have a bigger impact on the world by doing more things,” Page told the Wall Street Journal in typical understatement.
6. GE: From Old Line Behemoth to Future-Focused Tiger
Under Jack Welch, GE grew through acquisitions, used Six Sigma and cost cutting to jettison tens of thousands of employees, and cut R&D spending to the bone. Profits soared. Since 2001, Jeffrey Immelt has taken GE in a new direction. He expects “imagination breakthroughs”—game-changing ideas that create whole new markets and disrupt sleepy rivals. Welch followed a “promote from within” philosophy, but Immelt welcomes outsiders with new skillsets. He promotes women to top positions and has made innovation a more systematic, embedded discipline. GE’s latest iteration is called FastWorks. Bringing the Lean Startup movement in-house, its purpose is to decrease time to market, lower the cost of building new products, and involve the customer early and often. Each business unit has a “growth board,” which meets to allocate resources in house or deadfile potential projects. Thus far, 40,000 employees have been trained and some 300 projects have been approved.
7. IBM: Growing New Green at Big Blue
Some readers will recall IBM’s Innovation Jams back in the mid-2000’s. The company invited thousands of employees, clients, consultants and even employees’ family members to brainstorm new uses for company’s technologies. At the time it seemed like a PR move, but little more. Yet out of these sessions came IBM’s game-changing Smarter Planet initiative, as well as Watson, the artificially intelligent computer system capable of answering questions posed in natural language. Good thing it jammed as revenue and profit growth have been flat in recent years despite great effort. IBM’s challenge is clear: with the rise of cloud computing, corporate clients can largely do away with expensive data centers, and rent server capacity and processing power for far less than IBM charges to hire its consultants to run everything inhouse. CEO Ginny Rometty is pushing the troops to create new demand in Big Data, analytics and Watson. The company is starting to make headway: IBM’s overall cloud client base doubled in the past year, and Watson is starting to gain traction. If IBM can “cross the chasm” by exiting low-end hardware and monetize a new services-based business model, there is hope for other organizations struggling to grow new green in the age of nimble startups.
8. Apple: Breakthrough Year for the Tech Titan
2014 was a spectacular year for Apple. The iPhone 6 model’s revenue now accounts for more than half of the company’s gross revenue and the bulk of its profit. Most important of all, CEO Tim Cook proved in 2014 that Apple without Steve Jobs can carry on with innovation, and keep the culture he spawned intact. “Steve established a set of values and he established preoccupations and tones that are completely enduring,” chief product designer Jonathan Ive told the New York Times. “Chief among them is a reliance on small creative teams whose membership remains intact to this day.” Unlike Google and Facebook, Apple sells hardware and software, and has disrupted at least eight industries. With its new Apple Pay service, and the soon to be released Apple Watch, the future looks bright. Apple watch features a fitness tracker, wireless payment functionality, text messaging, and inductive charging beneath a touchscreen display. To keep the momentum going, Apple’s circular “spaceship” campus, when completed, will accommodate 12,000 employees, who conceivably will keep pioneering insanely great products.
9. Procter & Gamble: Going Back to Basics to Restore Growth
In 1999, this Cincinnati, Ohio (USA) based company mired in bureaucracy, growth had stalled, morale was low, and lower priced store brands were eating away at margins. But under A.G. Lafley’s leadership, P&G reinvented its innovation process and tripled its innovation success rate. The company pioneered Open Innovation, and connected with outside sources for new ideas. It set innovation stretch goals for every division and department and Lafley made innovation everybody’s business. Result: the company rebounded, growth soared, the stock price increased, and Lafley became a hero of the Innovation Movement. His successor wasn’t able to keep up the momentum and a year ago, Lafley was brought back to rework his magic. But instead of focusing on innovation, Lafley has placed an emphasis on “restoring focus”, selling off scores of under-performing P&G brands, from Duracell batteries to Folgers coffee. Meanwhile, the consumer goods market is being roiled by seismic changes. The company’s heft once enabled P&G to out-research, out-market, and out-spend rivals. But today it no longer guarantees market share. New advertising media allows smaller players to reach customers and seize market share in P&G’s categories. Even P&G’s massive research and development apparatus, and its efficient manufacturing plants, can hinder flexibility and rapid response to moves by regional brands. Nevertheless, as with IBM, we are confident that P&G, with Lafley’s vision, can get its mojo back. The way forward is for P&G to reread its own playbook for breakthrough innovation success.
10. 3M: Proving that Systematic Innovation Can Be Sustainable
If you’ve ever wondered where a lot of the ideas on innovation management and innovation culture came from, one source is 3M. In contrast to Amazon, which seems to be trying to innovate everywhere (but can’t seem to make money anywhere), or even Tesla, which has yet to break even, this quiet St. Paul, Minnesota (USA) company just keeps churning out new products – and steady growth and profits. Example: the 15 Percent Rule, now used at Google, where it became the 20 Percent Rule. 3M employees were given 15 percent discretionary time to create whatever they want. If an employee believes they have a worthy creation, they inject it into the firm’s “champion” new product development system, and the idea receives a fair hearing and resources. The famous Post-it Note came out of this process. Ditto the innovation metric that 3M pioneered decades ago called the Thirty Percent Rule (30 percent of each division’s revenues must come from products introduced in the last four years). Or the way 3M screens job applicants for signs of innovation potential (which I write about in Driving Growth Through Innovation). Metrics like the 30 Percent Rule can prove invaluable over time, as when 3M came under the influence of a Six Sigma CEO (Jim McNerny, now at Boeing). McNerny slashed capital spending, laid off workers, jolted the stock back to life, and revenue and profits grew 22 percent. But the 30 Percent metric began dropping and demoralized the firm’s culture. “McNerny didn’t kill it [the Idea Culture] because he wasn’t here long enough,” Art Fry, Post-it inventor, told an interviewer. “We all came to the conclusion that under Six Sigma, the Post-it would never have seen the light of day.”
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Robert B. Tucker is the President of The Innovation Resource Consulting Group. He is a speaker, seminar leader and an expert in the management of innovation and assisting companies in accelerating ideas to market.