Innovative Companies

Stephen DeAngelis

July 5, 2007

Every year BusinessWeek in association with Boston Consulting Group publishes a list of what they consider to be the world’s most innovative companies. The 2007 list was published earlier this year. The results are more opinion poll than anything else. Here is how BusinessWeek describes its methodology:

“The BusinessWeek-Boston Consulting Group 2007 list of the World’s Most Innovative Companies is based on a senior management survey about innovation and was distributed electronically to executives worldwide in late 2006. In October, surveys were sent to the 1,500 largest global corporations, determined by market capitalization in U.S. dollars, with instructions to send the survey to their top 10 executives in charge of innovation. We also distributed the survey to senior management members of the BusinessWeek Market Advisory Board, an online panel consisting of BusinessWeek readers, and via the Knowledge@Wharton e-mail newsletter. Survey participation was voluntary and anonymous, and the survey closed in March, 2007. The survey consisted of 20 general questions on innovation and an optional 12 questions focused on innovation metrics.”

The fact is that most of the respondents were from North America.

“A total of 2,468 executives answered the survey. Of those indicating their location, 77% were from North America, 12% were from Europe, and 9% were from Asia or the Pacific region. A larger share of North American voters this year may explain some movement in the rankings of some companies on our list.”

It turns out that 8 of the top 10 (and 35 of the 50) companies named are headquartered in the United States. I’m reminded of the British comic who, thinking about events like baseball’s World Series, remarked, “The difference between the United States and Europe is that when Europe hosts a world championship it actually invites the world!” Other regions (besides North America — there was one Canadian firm) that made the list are Europe with 8 companies, and Asia with 6 companies (4 from Japan and 2 from South Korea).

 

Despite the surveys shortcomings, its web site is nice because the results can be sorted by various metrics. One of those metrics is a patent citations index. As described by BusinessWeek, the “patent citation index reflects how often the company’s patents filed over the past five years have been cited as a basis for other innovation. The number is calculated by adding, for all patents filed between 2001 and 2005, the number of times each patent or application has been cited or mentioned by other patents up until December 31, 2006. We then adjusted the citation counts for patent age, since older patents have a greater likelihood of being cited than more recent ones. The age-adjusted counts were then indexed to a linear scale.” I found this index interesting because some studies have shown that companies with an active patent history (especially patents that others cite often in their patent applications) are generally valued higher than those with few such patents. I agree with BusinessWeek that it also shows how innovative a company is. When you sort the list using that index, things really change. American companies no longer dominate the top 10, with only 4 companies making the list. Five of the possible 6 Asian firms make the top 10 and only 1 European firm makes the list.

 

That result shatters the perception that Asian firms simply build on others innovations. The caveat again is that this is a poll. Success in polls relies on being famous. Of the 50 companies on the list, there are only 3 that probably don’t have broad name recognition (Genentech, Inc., a biotechnology firm that engages in the discovery, development, manufacture, and commercialization of biotherapeutics in the United States; IDEO, Inc., a design firm that provides design, engineering, social science, and business strategy services; and Amgen Inc., another biotechnology company that engages in the discovery, development, manufacture, and marketing of human therapeutics based on advances in cellular and molecular biology.) I could have added Research in Motion to that list, but if you mention its product — the Blackberry — it suddenly becomes as well known as Samsung. The point is that BusinessWeek‘s list is as much about perception as reality. There are likely innovative (but less well known) companies that didn’t make the list that should have. That said, lists like this are important.

 

The lists release coincided with a BusinessWeek article on 3M, which I discussed in a previous post [The Tension Between Creativity and Efficiency]. The editors admitted that some of the selections were a surprise:

“There are some surprises this year, including four new companies in the top 25—Disney, Boeing, Genentech, and Cisco Systems. In other cases, the resilience of corporate reputation was surprising. Wal-Mart Stores suffers from slow growth, but still commands respect for its supply-chain innovations. Dell wears the brand halo of an innovator for its efficient direct-to-consumer model, though it suffered through a management shakeup and fell from No. 14 to No. 22. And what of 3M? It fell too, from No. 3 in 2006 to No. 7 this year.”

Whether or not the methodology is perfect is or whether or not all of the most innovative companies make such a list does not really matter — after all, like Time magazine or People magazine, both of whom publish their own “top” or “most” lists, the purpose of such lists is to sell magazines. At least BusinessWeek‘s list provides some insights into innovation and permits some lessons to be drawn from it.