THE WORLD'S MOST INNOVATIVE COMPANIES 2006

US weekly magazine BusinessWeek teamed up with The Boston Consulting Group to produce the second annual ranking of the world's 100 most innovative companies. More than 1,000 senior managers responded to the global survey, making it the deepest management survey to date on this critical issue.

The new ranking has companies involved in all types of innovation; technology innovators, such as BlackBerry maker and newcomer Research In Motion Ltd., which makes its debut on the list at No. 24; business model innovators, such as No. 11 Virgin Group Ltd., which applies its hip lifestyle brand to ho-hum operations such as airlines, financial services, and even health insurance and, process innovators such as Southwest Airlines Co. at No. 25.

Apple Computer Inc. heads the rankings.
BusinessWeek reports innovation consultant Larry Keeley of Doblin Inc., as saying that Apple used no fewer than seven types of innovation. They included networking (a novel agreement among music companies to sell their songs online), business model (songs sold for a 99 cents each online), and branding (how cool are those white ear buds and wires?). Consumers love the ease and feel of the iPod, but it is the simplicity of the iTunes software platform that turned a great MP3 player into a revenue-gushing phenomenon.

Ireland's Ryanair gets a 12th place rank from European respondents and 33rd ranking overall.

The BusinessWeek-BCG survey also focuses on the major obstacles to innovation that executives face today. While 72% of the senior executives in the survey named innovation as one of their top three priorities, almost half said they were dissatisfied with the returns on their investments in that area.

BusinessWeek reports that the No. 1 obstacle, according to the survey takers, is slow development times. Fast-changing consumer demands, global outsourcing, and open-source software make speed to market paramount today. Yet companies often can't organize themselves to move faster, says George Stalk Jr., a senior vice-president with BCG who has studied time-based competition for 25 years. Fast cycle times require taking bets even when huge payoffs aren't a certainty. "Some organizations are nearly immobilized by the notion that [they] can't do anything unless it moves the needle," says Stalk. In addition, he says, speed requires coordination from the hub: "Fast innovators organize the corporate center to drive growth. They don't wait for [it] to come up through the business units."

A lack of coordination is the second-biggest barrier to innovation, according to the survey's findings. But collaboration requires much more than paying lip service to breaking down silos. The best innovators reroute reporting lines and create physical spaces for collaboration. They team up people from across the org chart and link rewards to innovation. Innovative companies build innovation cultures. "You have to be willing to get down into the plumbing of the organization and align the nervous system of the company," says James P. Andrew, who heads the innovation practice at BCG.

BusinessWeek says that
Procter & Gamble Co. PG (No. 7) has done just that in transforming its traditional in-house research and development process into an open-source innovation strategy it calls "connect and develop." The new method? Embrace the collective brains of the world. Make it a goal that 50% of the company's new products come from outside P&G's labs. Tap networks of inventors, scientists, and suppliers for new products that can be developed in-house.

The magazine says that the radically different approach couldn't be shoehorned into managers' existing responsibilities. Rather, P&G had to tear apart and restitch much of its research organization. It created new job classifications, such as 70 worldwide "technology entrepreneurs," or TEs, who act as scouts, looking for the latest breakthroughs from places such as university labs. TEs also develop "technology game boards" that map out where technology opportunities lie and help P&Gers get inside the minds of its competitors.

BusinessWeek says that India and China are growing sources of innovation for companies, too. The BusinessWeek-BCG survey shows that they are nearly as popular as Europe among innovation-focused executives. When asked where their company planned to increase R&D spending, 44% answered India, 44% said China, and 48% said Western Europe. Managers tended to look to the U.S. and Canada for idea generation, while a lower percentage looked to Europe for the same tasks. India and China, though, are still seen as centers for product development.

THE WORLD'S MOST INNOVATIVE COMPANIES

2006 Rank Company Margin Growth
1995-2005
%
Stock Returns
1995-
2005
%
1 Apple 7.1 24.6
2 Google NA** NA**
3 3M 3.4 11.2
4 Toyota 10.7 11.8
5 Microsoft 2.0 18.5
6 General Electric 5.7 13.4
7 Procter & Gamble 4.4 12.6
8 Nokia 0.0 34.6
9 Starbucks 2.2 27.6
10 IBM -0.7 14.4
11 Virgin NA** NA**
12 Samsung -4.5*** 22.7
13 Sony -11.0 5.1
14 Dell 2.0 39.4
15 IDEO NA** NA**
16 BMW 9.1 14.2
17 Intel -0.3 13.8
18 eBay 13.0*** NA**
19 IKEA NA** NA**
20 Wal-Mart 1.9 16.2
21 Amazon 25.0*** NA**
22 Target 7.4 25.2
23 Honda 8.0 12.9
24 Research In Motion 57.0*** NA**
25 Southwest -0.1 13.9
26 Porsche NA** 33.1
27 Genentech 5.7 29.3
28 Cisco -2.2 15.2
29 Nike 0.0 10.7
30 Motorola 0.7 3.8
31 DaimlerChrysler 4.8*** -1.8
32 Infosys 3.0*** 73.6
33 Ryanair 2.7 28.4
34 Pixar 24.2 13.8
35 SonyEricsson NA** NA**
36 Whole Foods 4.1 36.6
37 Capital One -2.1 27.4
38 Tesco -0.3 16.2
39 Danone 4.7 13.3
40 BP -0.2 12.3
41 PepsiCo 4.9 10.2
42 Hewlett Packard -6.6 7.1
43 Disney -3.7 2.9
44 jetBlue NA** 0.9
45 W.L. Gore & Associates NA** NA**
46 Skype Technologies NA** NA**
47 FedEx 4.3 18.9
48 Bang & Olufsen 2.4 16.3
49 Renault 23.7 14.8
50 L'Oreal 2.3 14.2
51 ExxonMobil 5.8 13.6
52 Siemens 2.0*** 12.6
53 Johnson & Johnson 3.6 12.6
54 Shell 2.4 11.0
55 Pfizer 1.8 9.9
56 Singapore Airlines -5.8 7.7
57 Nissan 30.2 5.4
58 DuPont -1.8 4.9
59 Zara NA** NA**
60 TiVo NA** -24.6
61 Yahoo! NA** 42.9
62 Macquarie Bank NA** 35.0
63 Audi 9.2 30.1
64 Harley Davidson 7.1 22.3
65 Progressive Insur 1.1 22.0
66 Volvo -2.7 17.1
67 Philips Electronics 3*** 16.2
68 ING Bank 3.0 15.7
69 Nestle 1.2*** 13.9
70 Boeing 0.1 7.6
71 Matsushita Electric Industrial -1.4 3.9
72 easyJet 0.0*** 3.7
73 UPS 3.4 3.6
74 Coca-Cola 1.3 2.4
75 Cirque du Soleil (tied) NA** NA**
75 McKinsey (tied) NA** NA**
75 Woolworths (tied) 5.6*** NA**
78 Hutchison Telecommunications NA** 88.1
79 Salesforce.com NA** 58.4
80 ACS NA** 35.1
81 ITC NA** 25.4
82 Time Warner 8.1 22.3
83 Danaher 2.7 21.7
84 Costco Wholesale 1.7 20.7
85 LG Electronics NA** 19.1
86 bankinter NA** 18.3
87 Amgen -0.3 18.2
88 Caterpillar 0.3 17.5
89 Accenture NA** 16.3
90 SAP 1.3 15.7
91 SK Telecom 1.5 15.7
92 Home Depot 4.3 14.9
93 LVMH -2.6*** 12.3
94 Gap -1.7 11.6
95 Unilever 5.0*** 11.2
96 Goldman Sachs -4.9*** 10.9
97 John Deere & Co. -1.1 8.9
98 Whirlpool 2.0 7.2
99 Entel NA** 6.2
100 McDonald's -2.4 5.2
Source: BusinessWeek April 24, 2006 Issue
* Insufficient data
** Based on fewer than 10 years of data
2006 RANK: In the 2006 rankings, ties were broken by comparing 10-year annualized total shareholder returns between 1995 and 2005. In ties between a public and a private company, the public company was favored.
MARGIN GROWTH: Annualized based on 1995-2005 fiscal year earnings before interest and taxes as percent of revenues.
STOCK RETURNS: Annualized, Dec. 29, 1995 to Dec. 30, 2005, price appreciation and dividends.
DATA: Analysis and data provided in collaboration with the innovation practice of The Boston Consulting Group. Also, Standard & Poor’s Compustat® data and company reports.
 

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