Friday, May 29, 2009

Pass the envelopes, please

Businessweek's annual Innovation Tamasha is out on the newsstands. And for a second (third?) year in a row, there's a shiny fruit at the head of the pack (applause!). Once again, as a Mac fanboy, my faith in the company has been reinforced. I haven't read up on the methodology used in the survey and I am sure there will be much cause for most people to find fault with it. Lists like this are primarily for entertainment purposes because there is no way in which one can definitively judge an attribute as complex as 'innovativeness', besides ensuring that no organization has been left out of the survey.


But I am not unhappy with the list -- after all, Apple is one of my favorite organizations; certainly much more than 'one of'. Of the Top 10, 8 are information technology related, one automotive (Toyota) and one retail (Wal-mart). It appears that it's easier (and perhaps far more essential) to be innovative in the field of information technologies than in other areas. Information technology related companies are richly represented in the Top 50. Scanning the first 50, I don't see one corporation that is not heavily dependent on information and communication (as well as other) technologies either as its main product or service offerings, or in order to run more efficient and effective operations. This is, after all, the Age of High Technology.

There is, however, a danger here, of a conflation of innovation with technology: innovation and technology are not synonymous. Innovation is a human process, the product of human ingenuity -- thought -- and human efforts. Technology is itself a product of human ingenuity and also assists the process of innovation. In the case of innovative corporations whose business is not technology but who use technology to be effective and efficient, the mere use of technology, however advanced, cannot be considered advanced -- unless their use stands in stark contrast to the competition, and thereby suggesting that it was innovative thinking that led to the use of such technologies. Unfortunately, a lot of people do conflate technology (and its use) with innovation, because technology remains distinct from human society, even if it aids, and sometimes intrudes into the conduct of human affairs. Technology is familiar, but I doubt that its fundamental strangeness will go away, no matter how accustomed we become to them. Dogs have been human companions for thousands of years, and however much we pour affection on them, they remain dogs. The most caring and compassionate of dog owners will agree to euthanize their dogs if deemed necessary but rarely, if ever, consider doing the same with humans.

Methodology: Businessweek reports on the methodology used for generating their list:
BusinessWeek's 2009 ranking of the World's 25 Most Innovative Companies is based mostly on a Boston Consulting Group survey. In December 2008, BCG sent its 20-question poll to senior executives around the globe. The 2,700 respondents, who answered anonymously, were asked to name corporations that consistently offer inventive products, customer experiences, business models, or processes. The votes of executives who chose their own employers were disqualified.

BCG then factored in the financial performance of the top vote-getters. The final list weighted the survey results 80%, stock returns 10%, and three-year revenue and margin growth 5% each. In the case of privately held companies, BusinessWeek used metrics equal to industry performance to compare financial data.

Apple (AAPL) again tops the roster, as it has since BusinessWeek and BCG presented the first list in 2005, but there was plenty of movement below. There are six newcomers to the top 25—Samsung (No. 16), Volkswagen (No. 18), McDonald's (MCD) (No. 19), AT&T (T) (No. 23), Coca-Cola (KO) (No. 24), and Vodafone (VOD) (No. 25). They replaced General Motors (GM), Boeing (BA), Goldman Sachs (GS), 3M (MMM), Target (TGT), and Facebook.

The extended list of the top 50 includes new members from Asia and Europe as well, including India's Infosys (INFY) (No. 26), LG of South Korea (No. 27), Spain's Telefónica (No. 28), and Lenovo of China (No. 46).
Senior executives often are in a better position to see what's going on inside corporations that may not appear innovative to consumers but employ innovation in their internal processes. But to rely exclusively on the opinions of senior executives is problematic. In the end, a corporation's innovations ought to have tangible meaning for consumers and make a significant, if not dramatic difference from what prevailed before the innovations occurred.

I like the four criteria used to determine innovativeness:
  • products
  • customer experiences
  • business models
  • processes
although in some cases, the differences among these criteria may be blurred.

Three Indian corporations or conglomerates -- Tatas, Reliance, and Infosys -- show up in the Top 50. Interestingly, Tatas were ranked at 6 last year but have slipped to 13 this year. To me, this illustrates at least one fundamental flaw in the methodology. Almost certainly, it was Tata's announcement of the Nano car that propelled it to No. 6. That single, highly vivid event, caused 'senior executives' who probably had never heard of the Tata group earlier to rank it as high as that. With nothing to follow the Nano, the entire group -- not just Tata Motors -- drops down to 13.

While Apple is undoubtedly an innovative corporation, it is the highly visible and ubiquitous nature of the iPod line of products that keeps it at the top of the list. Microsoft has numerous innovative initiatives going on within the company, but its public image is of a sloppy giant that sells mediocre -- if slick and shiny -- products.

I know of Honda being very innovative but they only merit a position way down at 22 - a steep fall from 16 last year.

Google hasn't come out with anything remarkably different from what it has offered in the past, and yet it is ranked No. 2.

Target stores was at No. 24 last year and is at 42 this time. Target is a nice store to shop at, and it has been rated highly based on 'Customer Experience'. I haven't been able to detect a very significant difference between 'customer experience' at Target and other competing stores and so I fail to understand why it's 'Customer Experience' is considered innovative.

The Top 50:
Pt = Product; Ps = Process; CE = Customer Experience; BM = Business Model

2009

Rank

2008

Rank

Corporation

HQ

in

Known

for

1

1

APPLE

U.S.

Pt (47%)

2

2

GOOGLE

U.S.

CE (26%)

3

3

TOYOTA MOTOR

Japan

Ps (35%)

4

5

MICROSOFT

U.S.

Ps (26%)

5

7

NINTENDO

Japan

Pt (48%)

6

12

IBM

U.S.

Ps (31%)

7

15

HEWLETT-PACKARD

U.S.

Ps (39%)

8

13

RESEARCH IN MOTION

Canada

Pt (53%)

9

10

NOKIA

Finland

Pt (38%)

10

23

WAL-MART STORES

U.S.

Ps (49%)

11

11

AMAZON.COM

U.S.

CE (41%)

12

8

PROCTER & GAMBLE

U.S.

Ps (27%)

13

6

TATA GROUP

India

Pt (44%)

14

9

SONY

Japan

Pt (40%)

15

19

RELIANCE INDUSTRIES

India

BM (35%)

16

26

SAMSUNG ELECTRONICS

So. Korea

Pt (41%)

17

4

GENERAL ELECTRIC

U.S.

Ps (36%)

18

NR

VOLKSWAGEN

Germany

CE (38%)

19

30

MCDONALDS

U.S.

CE (55%)

20

14

BMW

Germany

CE (37%)

21

17

WALT DISNEY

U.S.

CE (68%)

22

16

HONDA MOTOR

Japan

Pt (47%)

23

27

AT&T

U.S.

Pt (33%)

24

NR

COCA-COLA

U.S.

CE (38%)

25

47

VODAFONE

Britain

Pt (25%)

26

NR

INFOSYS

India

Ps (40%)

27

NR

LG ELECTRONICS

So. Korea

Pt (46%)

28

NR

TELEFÓNICA

Spain

BM (40%)

29

31

DAIMLER

Germany

Pt (40%)

30

34

VERIZON COMM.

U.S.

CE (38%)

31

NR

FORD MOTOR

U.S.

Pt (36%)

32

35

CISCO SYSTEMS

U.S.

Ps (27%)

33

48

INTEL

U.S.

Ps (35%)

34

28

VIRGIN GROUP

Britain

CE (45%)

35

NR

ARCELORMITTAL

Lux.

BM (63%)

36

40

HSBC HOLDINGS

Britain

Ps (32%)

37

42

EXXONMOBIL

U.S.

Ps (47%)

38

NR

NESTLÉ

Switz.

Pt (47%)

39

NR

IBERDROLA

Spain

CE (40%)

40

25

FACEBOOK

U.S.

CE (51%)

41

22

3M

U.S.

Pt (44%)

42

NR

BANCO SANTANDER

Spain

BM (37%)

43

45

NIKE

U.S.

CE, Pt (36% ea)

44

NR

JOHNSON & JOHNSON

U.S.

CE (42%)

45

49

SOUTHWEST AIRLINES

U.S.

CE (45%)

46

NR

LENOVO

China

BM (35%)

47

NR

JPMORGAN CHASE

U.S.

Ps (62%)

48

NR

FIAT

Italy

Pt (30%)

49

24

TARGET

U.S.

CE (60%)

50

NR

ROYAL DUTCH SHELL

Neth'lnd

Ps (45%)


Whether or not one agrees with this list, at least one popular journal is giving importance to the matter of innovation. Reporting the fact that some corporations do consider it essential to innovate sends a strong messages to others that they need to pay attention to this aspect of organizing their businesses. And if that goal is achieved then it more than compensates for flawed survey methodologies.

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