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Innovative Companies - Most, Best, or Managed

| On 06, Dec 2007

Praveen Gupta

The list of Most Innovative companies in Business Week interests me a lot. I do not know what to do with the list. What can one learn from the companies listed on the list? They all look good companies, so are many more companies off the list. I recognize the criteria for ranking most innovative companies included stock performance, revenue growth, profit growth, and patents. My experience shows that patent and stock performance are not very effective measures given that only about 5% of patents are gainfully deployed.


I tried to answer the question. Why should a company be innovative? How does innovation help a company? Was innovation systemically utilized or the company hit the home run? What was the return on investment in innovation, or simply return on innovation?


Answering these questions I came up with variety of classification, such as Most Innovative, Best Innovation, Innovation Managed, and Return on Innovation. To me the company is most innovative that grows its revenue the most. The company that sold more has to be innovative given the primary purpose of innovation is growth. A company is best innovative when its revenue growth is profitable. The company that manages innovation means its R&D process contributes to its profitable growth. Finally, the return on innovation, where R&D is the major component of a company’s innovation, has to be the profit earned from the revenue growth per its R&D dollar.


The following table consisting of the top 25 and a few more using the Business Week data for 2003-2006 period, shows top five companies for the above four categories. I hope it makes sense to you as it does to me. If not, post your thoughts. Love to read your comments:





































Most Innovative ($)


Best
Innovative
(Ratio)


Innovation Managed
(Ratio)


Return on Innovation ($)
2003-2006


Walmart (92B)


Google


Google


Google (2.85)


GE (48B)


Apple


Apple


Dell (2.83)


PnG (24B)


Genentech


Dell


Apple (2.0)


Dell (20B)


Amazon


eBay


eBay (1.74)


Motorola (20B)


eBay


Genentech


Nokia (.84)


* Companies using the Business Week’s list of Most Innovative Companies 2007


Most Innovative          – Revenue Growth Volume ($)


Best Innovative           – % Revenue Growth * % Profit Growth


Innovation Managed   – % Revenue Growth * % Profit Growth/ % of Sales R&D Expense  


Return on Innovation – Revenue Growth * % Profit/ R&D Expense ($)


It is interesting to note that return on innovation for Nokia ($ 0.84) that is twice that of Motorola ($ 0.41).