The World's Most Innovative Companies
At some point over the past few years you've probably been invited to join your colleagues at some hip off-site locale to brainstorm "out-of-the-box" ideas. You may have been persuaded by creativity consultants to play with Lego blocks to help free your mind or to "ideate" new products. But as silly as these exercises might have felt, things could have been far worse: You might have found yourself dressed up as Innovation Man.
That peculiar fate befell a poor schmo who works for a large consumer health outfit. At the behest of an "ideation" consultant, he donned a blue superhero costume—cape, tights, and all—to put a little extra oomph behind the company's innovation-boosting campaign. "I guess the thinking was that if you free people from the norm, you'll unleash a torrent of creativity," says Scott Anthony, president of Innosight, a consulting firm co-founded by Harvard Business School professor Clayton Christensen. Anthony refused to name the company because it was a client. "Innovation Man led to a lot of laughs," he quips, "but it didn't lead to a lot of innovation."
The same might be said for many gimmicks that companies have tried over the past few years in their attempts to boost growth. Suddenly trendy, innovation took on the flavor of an elixir, as companies raced to hire "chief innovation officers" and build innovation centers complete with purple-painted walls and conference rooms with funny names. Ford Motor Co. (F) boasted in a press release about its new Innovation Acceleration Center in Dearborn, Mich.: "It's amazing what a room filled with radio-controlled cars, a 3-ft. Statue of Liberty made of Legos, and some comfy couches can do to stir the imagination." Others proudly hailed extensions to their product lines—limited editions! extra-crunchy versions!—as evidence of their inventiveness, when all they were doing was cannibalizing sales.
It's enough to make true innovators cringe. Take Andy Grove, former chairman of semiconductor giant Intel Corp. (INTC), whose nervy ideas helped save the U.S. chip industry from the onslaught of Japanese competition in the 1980s. "In my view, the word innovation has become overused, clichéd, and meaningless," says Grove. "I detest the mechanism that spits [such fads] up because they are so much easier to talk about than to do."
Not surprisingly, given all the hype, a period of disillusionment about innovation appears to be setting in. According to the 2007 BusinessWeek-Boston Consulting Group annual survey of senior executives, just 46% of respondents said they were satisfied with their return on innovation spending, down from 52% last year. Perhaps due to their disappointments, executives are making innovation less of a priority: Just 23% of respondents called it their top concern in this year's survey, down significantly from 32% last year. James P. Andrew, a senior vice-president at BCG who leads the firm's innovation practice, believes the results reflect what he calls innovation fatigue. "When you talk with people who have been at this a while," says Andrew, "they'll tell you it takes years. It's rewiring the company."
The leaders of companies on this year's BusinessWeek-BCG list of the World's Most Innovative Companies recognize that developing breakthrough products, revamping operational processes, and coming up with new business models doesn't happen overnight. Instead of relying on gimmicks or incremental line extensions, they're working to build organizations that are capable of sustained innovation. They understand that requires taking risks and investing for the long term. And they focus on the things that really matter, such as hiring the most talented employees and providing them with the environment they need to thrive. "You can make it really complicated or really simple," says Arthur D. Levinson, chairman and chief executive of Genentech Inc. (DNA), the world's foremost biotechnology company. "
If you want an innovative environment, hire innovative people, listen to them tell you what they want, and do it."
How did so many early efforts miss the mark? Many companies opted for shortcuts in their haste to respond to tectonic shifts in the business climate. Managers who had made deep cuts to research and development following the dot-com crash were suddenly wringing their hands over empty product pipelines. New Asian rivals were beating them over the head with aggressive pricing. And the disruptions from new Internet business models—from Google's (GOOG) search advertising to Apple's (AAPL) iTunes—only sped up the cycle of change. The message seemed clear: Innovate quickly or die. As a result, many leaders sprang for snazzy programs that promised to stimulate billion-dollar ideas. Others gave it lip service but didn't follow up all that talk with real investment.
There's probably not much harm in all that ideating and wearing of capes. Getting people to step out of their comfort zones can do a lot to spark new ideas. But if they're not paired with more fundamental changes, all those efforts will go nowhere. Fortunately, some companies have been waking up to that fact. "Hard work is less sexy than kooshballs," says Innosight's Anthony. "But the companies that are really thinking about this smartly are putting in place structures and making investments that will make this not a yearlong fad but a decade-long effort."
Even some of the most reality-rooted companies have dabbled in innovation alchemy. As part of its many efforts to nurture breakthroughs, General Electric Co. (GE) invited in consultants of various stripes—including choreographer Twyla Tharp, who has run creativity workshops with businesses. Some of these, such as improvisation exercises, can be "good yuks," says GE Chief Marketing Officer Dan Henson, "but I'm not sure we've come away with any insight into how to change our product mix or innovate."
Now, GE's outside experts are more involved in helping to identify customer needs. The company is also giving its higher-ups innovation training that seems more true to form. For years, its executive education programs have helped provide the company with a seemingly endless supply of capable leaders. Last year innovation became part of the curriculum for senior managers at GE's famed Crotonville (N.Y.) training hub. The idea is to give top managers at its 50 largest units the chance to discuss and learn techniques that will stimulate growth deep in their organizations. Up until recently, GE's innovation efforts had been run primarily by the corporate marketing team.
It's too early to tell if GE's program will work. As Genentech shows, the proper care and feeding of employees in creative cultures takes much more than training. The commitment to innovation has to be underscored at every turn. Since its founding in 1976, Genentech has allowed its researchers to publish their findings in academic journals, an important career status marker for scientists. That's different from most pharma companies, which tightly guard their research secrets. As a result, Genentech can compete with the Harvard and Stanford universities of the world when recruiting top scientists. That has helped lead Genentech to recent hits, such as Lucentis, which treats the leading cause of blindness. Approved in mid-2006, the drug had sales of $380 million for the year, making it one of Genentech's most successful launches ever.
The best companies seem to be managing a balance of a few high-profile programs aimed at getting employees to think differently and more fundamental processes that make sure the work actually gets done. IBM (IBM), for instance, made a splash last year with its InnovationJam.
This online event brought together 150,000 IBM employees, business partners, and even customers to bat around new areas where IBM's technologies could be put to good use. Chief Executive Samuel J. Palmisano later funded the 10 best ideas.
But InnovationJam only lasted a few days. The rest of the year, the company concentrates on innovating in more sustainable ways. It operates a 3,000-person research division whose scientists lend a hand with everyday product development and even interact with customers to help them solve their most difficult problems. Plus, the company has set up four different programs designed to incubate new ideas that don't fit neatly into a single business unit. Each is designed to nurture ideas according to their time horizons and revenue potential, from billion-dollar businesses to smaller technologies that help IBM work smarter.
One of the most important lessons executives have learned about innovation in the past few years is that companies shouldn't go it alone. Increasingly, companies are drawing business partners and suppliers into innovation networks. That brings more minds to bear and speeds up product development. Once seen as novel and risky, such external collaborations are now accepted as necessary and even routine ways of doing business.
Boeing provides one of the best models. Its 787 Dreamliner, which is expected to roll out of the factory in July, is a technological marvel. Made of composites and other lightweight materials, it promises to use 20% less fuel than current jetliners and improve passenger comfort, including cabin air quality.
But Boeing couldn't have accomplished all of this on its own. Traditionally, the aerospace giant micromanaged design and production of a jet's components—a pricey approach that helped cause the budget of its previous plane, the 777, to double in cost, from $6 billion to $12 billion. This time, Boeing realized that real technological innovation would only be possible at a reasonable cost if it shared the risk with partners. Many of the details of the plane's design are being handled by suppliers in Japan, Italy, and the U.S. Tokyo-based Mitsubishi Motors Corp. is creating the wing, while Italy's Alenia Aeronautica is producing the rear fuselage and the horizontal stabilizer (the small wing on the plane's tail).
Such a massive change to its approach was hardly easy. "Were we comfortable looking for better ideas outside of the company? No," says Mike Bair, vice-president of the 787 program. "To a lot of people inside the company, it was perceived as a loss of control."
One of the keys to pulling this off was the company's careful attention to managing culture change. To help reassure Boeing managers of their suppliers' progress, the company formed a global "partner council," a team of senior leaders from each company who met face-to-face every six weeks to help resolve new problems. Once production of the plane got going, Boeing sent teams of engineers from one supplier to the next, acting as roving in-house consultants who share best practices. The collaborative bet appears to be paying off. Development time has shrunk by about a year. That's helping to keep costs down, both for Boeing, which will spend an estimated $6 billion to $8 billion on the plane, and its customers, which will pay about $130 million apiece. That's around the same price as a 1980s-era airplane. Carriers are lining up for the new jets; in April, Boeing topped 500 orders in record time.
Chances are, retooling a company's approach to innovation won't get traction unless the CEO throws all of his or her weight behind it. That may mean plunging into the messy details to get things on the right track. For instance, the first thing Robert Iger did after being named Disney (DIS) CEO in 2005 was to abolish the company's central strategic-planning office, which had been run by a close ally of outgoing CEO Michael D. Eisner. The office's head was seen by some insiders as a bottleneck to getting innovative ideas to the chief. Iger opted instead to keep a smaller central group while transferring many of the people on the team to the business units, where they could be closer to the action.
Almost immediately, new ideas began bubbling up. In its video game operation, Disney expanded its spending on new game production and acquisitions of game studios to $350 million, up from $130 million.
But Iger didn't stop there. To show how serious he was about innovation, he personally got involved in the process of creating new games. When Disney's Buena Vista Games unit began bringing its far-flung developers to its Burbank (Calif.) headquarters for half-day summits, Iger attended as often as he could. And he didn't just observe from the back of the room. Developers pitched him ideas for games, and he gave them feedback. "You can't imagine how energizing it is for developers to get some one-on-one time with the CEO," says Graham Hopper, senior vice-president and general manager of Buena Vista Games. "They go back to wherever they're from with a whole new sense of purpose."
Since Iger took over, the entertainment giant has asserted itself as one of the fastest-moving studios. Within weeks of his appointment, Iger announced Disney would be the first studio to offer its TV shows on the new video iPod. The deal was hammered out in a few days, a departure from Disney's slow-motion decision-making process. The more aggressive Disney has impressed Wall Street. Disney's stock price has risen by 48% since Iger became CEO.
The lesson: There are no shortcuts when it comes to innovation, and little magic involved. Putting the right structures, processes, and people in place should occur as a matter of course—not as an exception. Innovation also requires inspired leadership. Executives must free up resources to execute new ideas and have the courage to take risks rather than just talk about their importance. "Look at how often you as a person in charge jumped out ahead and gave your blessing to an idea that was truly different, or complimented the person who took that first step," says Intel's Grove. "Then, you're catalyzing change. And it costs nothing."
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