Who innovates?
by Miki Saxon
When I lived in San Francisco I always found it a point of hilarity that the those in tech assumed that everybody everywhere were as tech-centric as they were and I know from friends that that attitude hasn’t changed.
It was/is also a given that innovation is hottest in the Bay Area/Silicon Valley closely followed by places like Silicon Alley in New York City and similar areas around the world.
And the greatest myth of all is that innovation is hottest in startups; especially those started in a college dorm.
Large public companies must innovate or lose the faith of their investors and the tech-centric world always points with pride to giants like Google, Apple and Amazon as innovation leaders.
But are they?
Not according to Hal Gregersen, Senior Affiliate Professor of Leadership and Innovation at INSEAD, and Jeff Dyer, Professor of Strategy at Brigham Young University, co-authors (with Clayton Christensen at Harvard Business School) of the bestseller The Innovator’s DNA.
To compile the list, we use what we call the “Innovation Premium,” which is calculated by:
- Projecting a company’s income as expressed in cash flows from existing businesses;
- Determining anticipated growth from those businesses;
- Comparing the net present value (NPV) of those cash flows with the firm’s current market capitalisation.
We require at least seven years of financial data – a feature that for the moment excludes companies such as Facebook Inc. – and only consider firms with a market value greater than $10 billion. We also use a “research and development” screen, which requires qualified companies to make some investment in R&D.
Using those criteria to compile a list of the 100 Most Innovative Companies, Google is number 47, while Apple is in 79th place, both well below number 30 P&G; Amazon is number seven and Salesforce.com is first for the third year in a row.
Facebook hasn’t been around long enough to qualify and there’s no telling if it will be.
Our list illustrates investors’ appreciation of these companies’ potential as innovators for the long term.
That’s the same reason VCs and angels invest in startups for the short term.
Image credit: Insead
