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Which Companies Are The Most Innovative?

Change Is Coming

Change Is Coming

Last week, I wrote about which countries are the most innovative. (Hint: Switzerland and Sweden topped the list). This week, let’s discuss which companies are the most innovative.

Boston Consulting Group (BCG) just published their eighth annual compilation of the most innovative companies in the world. BCG collected data from 1,500 executives and rated and ranked the 50 companies that are deemed the most innovative.

Innovation continues to be a very high profile objective. Over three-fourths (77%) of the respondents noted that innovation was among the top three strategic imperatives for their respective companies. This is a steady upward trend since a low point of 64% in 2009, when companies presumably had other things on their mind. This trend seems to match a similar “return to innovation” trend at the national level.

So which companies are the most innovative? Apple continues to claim the top spot but Samsung has leapfrogged over Google to stake a strong number two position. Samsung has built an innovation culture around the slogan, “Change everything but your spouse and your children.” As BCG reports, building a culture that emphasizes and accepts change is one of the keys to success.

High tech companies take six of the top ten positions. In addition to Apple, Samsung, and Google in the top three slots, Microsoft is fourth, IBM is sixth, and Amazon is seventh.

The presence of top tech companies is not a big surprise. The bigger surprise for me was that three car companies vaulted into the top 10: Toyota is fifth, Ford is eighth, and BMW is ninth. Perhaps even more impressive is that car companies  accounted for nine of the top 20 slots. GM is 13th, VW is 14th, and Hyundai, Honda, Audi, and Daimler take positions 17 through 20.

BCG suggests that three major factors are pushing the car companies towards greater innovation. First, “…manufacturers are racing to meet higher fuel-efficiency standards”. Second, many companies are investigating and experimenting with electric vehicles. Third, “…safety standards continue to rise”.

What causes companies to be innovative? Based on this year’s crop of leaders, BCG notes that there are five critical factors. I’ll write more about these in the future but here’s a first take:

  1. Top management is committed to – and fosters a culture of – innovation as a competitive advantage. Like Samsung, the leaders of the leading companies push hard for innovation.
  2. They leverage their intellectual property. They understand the rules of the IP game and they manage – sometimes buying, sometimes selling – complex portfolios of patents and other intellectual property.
  3. They manage a portfolio of innovative projects. They generally guide multiple projects simultaneously. Some are world changers; others are incremental enhancements. Management understands the project process and has a good sense of when to fish and when to cut bait.
  4. They have a strong customer focus. They continually ask the question, “What’s good for the customer?”
  5. They develop “strong processes, which lead to strong performance”. They often have standardized processes that require inter-disciplinary leaders to make conscious decisions about where to invest (and where not to).

 

False Smile, Real Purchase

Is that a real smile?

Is that a real smile?

As we’ve discussed before, your body influences your mood. If you want to improve your mood, all you really have to do is force yourself to smile. It’s hard to stay mad or blue or shiftless when your face is smiling.

I can’t prove this but I think that smiling can also improve your performance on a wide variety of tasks. I suspect that you make better decisions when you’re smiling. I bet you make better golf shots, too.

It’s not just my face that influences my mood. It’s also the faces of those around me. If they’re smiling, it’s harder for me to stay mad. There’s a lot written about the influence of groups on individual behavior.

Retailers seem to understand this intuitively. I occasionally go to jewelry stores to buy something for Suellen. I notice two things: 1) I’m always waited on by a woman; 2) she smiles a lot. I assume that she smiles to influence my mood (positively) to increase the chance of making a sale. It often works.

I understand the reason behind a false smile on another person (and, most often, I can defend against it). But what if the salesperson uses my own smile to influence my mood and propensity to buy?

It could happen soon. As reported in New Scientist, the Emotion Evoking System developed at the University of Tokyo, can manipulate your image so you see a smiling (or frowning) version of yourself. The system takes a webcam image of you and manipulates it to put a smile on your face. It then displays the image to you. It’s like looking in the mirror but the image isn’t a faithful replication.

In preliminary tests, volunteers were divided into two groups and asked to perform mundane tasks. Both groups could see themselves in a webcam image. One group saw a plain image. The other group saw a manipulated image that enhanced their smile. Afterwards, the volunteers in each group were asked to rate their happiness while performing the task. The group that saw the manipulated image reported themselves to be happier.

In theory, such a system could help people who are depressed. It could also be used to sell more. You try on something and see a smiling version of you in the mirror. As they say, buyer beware!

Relegate the State – A Modest Proposal – 2

Back on track.

Back on track.

Yesterday, I introduced the idea of relegating failed states out of the United States. So, how would the system work?

First, we’d have to develop a definition of what “success” really means. Such a definition might include a number of metrics such as educational attainment, employment, crime rates, justice system, health care, life expectancy and, perhaps, a citizen satisfaction index. It might also include some fairness metrics, aiming to understand how minorities fare within the state. It should also include a freedom index that measures how much citizens can do as they please.

There are probably many other metrics to include in the mix. Ultimately, we roll them all into a complex formula and calculate a number. Frankly, it’s not all that different from calculating a quarterback efficiency rating: a lot of stuff goes in, one number comes out.

We then rank the states and allow them to work on improvements. At the end of a decade, we relegate the bottom five – the least successful states. They are granted their independence and are no longer states within the United States.

The relegated states are, in a sense, liberated as well. They no longer need to worry about regulations emanating from Washington. They’re free to behave as they choose. Of course, they no longer receive subsidies from Washington, either.

The system allows for promotion as well as relegation. At the end of each decade, states that had been relegated could choose to apply for re-admission. We would need to develop rules and procedures to determine if they would be re-admitted and how they would be re-integrated. Fortunately, we have at least 20 years to work on the problem.

Ideally, the system would allow non-traditional states to apply for “promotion” as well. With Alaska and Hawaii, we’ve shown that states do not need to be contiguous. Let’s imagine that Wales wants to become a state within the United States. The city of Aberystwyth, Wales is actually much closer to Washington, D.C. than Honolulu is – so distance shouldn’t be a problem. If they can pass the success metrics, I’d be happy to have Wales join our union.

Like any other system, the devil is in the details. Working out the definition of success will take time. (On the other hand, identifying moocher states is quite easy). Plus, we would have to work out all the mechanisms of entry and exit. We could learn a lot from the experience of the European Union.

Despite the obstacles, I think this is a system that would appeal to many Americans precisely because it promotes American virtues, including:

Competition – states will actually have to compete with each other rather than lolling around on government welfare.

Responsibility and accountability – if you don’t do the work, you don’t get the benefits.

Incentives – states, for the first time, have the incentive to improve themselves.

Lower taxes — if giver states no longer have to support moocher states, we can significantly lower taxes.

Freedom – states are free to choose whether they stay or go. To leave the union, all they have to do is continue to fail.

It’s an all-American scheme that will reduce taxes while promoting the well being of our citizens. Let’s get started.

Relegate the State – A Modest Proposal – 1

You've been relegated.

You’ve been relegated.

I’ve always admired the European system of relegating athletic teams to lower divisions when they don’t perform well. The system creates much better competition while rewarding teams that do well and penalizing teams that fail.

Let’s say you own a soccer team in the “A” league, the highest level of competition. In addition to the “A” league, your country also has a “B” league, a “C” league, etc. Being in the “A” league provides a lot of privileges – greater attendance, television revenue, prestige, and so on. You have a lot of incentive to keep your club in the “A” league.

At the end of each season, however, the bottom three teams in the “A” league are relegated to the “B” league. At the same time, the top three teams in the “B” league are promoted to the “A” league. (The number of teams moving up or down varies from league to league). You have a very strong incentive not to let your team fall to the bottom of the standings.

In the American system, on the other hand, an “A” league team will always stay in the “A” league, no matter how poorly it performs. There’s no chance that my Colorado Rockies will be relegated to the minor leagues even though they stunk up the major leagues last year.

The American system creates a number of perverse incentives. There’s a clear incentive to lose games one year to improve your draft position the next year. Even if you have a crummy team, you still get to share in league-related income, like TV revenues. You don’t get the glory of winning a championship, but the financial penalties of failing are not very stiff. If you’re just in it for the money, there’s no real incentive to win.

The European system seems clearly superior. It creates greater competition, removes perverse incentives, and creates a system of accountability. You win, you’re in. You lose, you’re out. That seems much more American than European.

I’ve been wondering lately if we couldn’t apply a relegation system to the states of the United States. We have 50 states and some are clearly more successful than others. Even the failing states, however, reap huge rewards from remaining in the union.

In our current system, there’s no real incentive for a state to succeed. Even if a state fails, it still gets huge subsidies from other states. In fact, the greater the failure, the greater the subsidy. It’s a perverse incentive: the worse you do, the more you get.

In fact, some states – let’s call them moocher states – get a net benefit of billions of dollars from the federal government. These states pay a relatively small amount in federal taxes but get huge federal subsidies in return. There’s no incentive for such a state to invest locally. It would only reduce the federal subsidy.

The giver states, on the other hand, are penalized for their success. They see their moneys drained away to subsidize the moocher states. This reduces their incentive to continue to succeed.

So, what to do with the moocher states? Let’s set up a league table and rank states on their success. Every ten years, let’s drop the bottom five from the union. That will improve competitiveness, enhance local autonomy, emphasize responsibility and accountability, and erase perverse incentives. What could be more American than that?

Culture – Ambiguity and Anxiety

Dessert! Why wait?

Dessert! Why wait?

The future is uncertain. Eat dessert first.

If you act on this sage advice, you may well come from a culture that’s high on the Uncertainty Avoidance Index (UAI). As Geert and Gert Jan Hofstede have pointed out, the desire to avoid uncertainty varies dramatically from culture to culture and fundamentally affects how people think and behave.

The Hofstedes (father and son) study the influence of national cultures on organizational behavior. They write that there are five basic dimensions of culture: 1) power distance; 2) individualist/ collectivist; 3) masculine/feminine; 4) Uncertainty avoidance; 5) short-term/long-term orientation. I’ve written about the first three previously (herehere, and here). Today, let’s talk about uncertainty avoidance.

The Uncertainty Avoidance Index measures the degree to which a culture believes that what’s different is dangerous. Countries with high UAIs tend to be anxious about ambiguity and the future in general. They often establish laws, behavioral codes, religions, and technologies that reduce ambiguity. Countries with high UAIs include Greece (UAI = 114), Poland (93), Japan (92), France (86), South Korea (85), Israel (81), and Italy (75).

Countries with low UAIs tend to believe that what’s difference is curious. They are generally less rules-oriented and less anxious about the future. They tend to see the world as a relatively benevolent place and to give the benefit of the doubt to new ideas, situations, and people. Countries with low UAIs include the United States (46), India (40), Great Britain (35), Ireland (35), Sweden (29), and Denmark (23).

Uncertainty avoidance expresses itself in many different ways. Very generally speaking, families in affluent countries with high UAIs have fewer children than those in affluent countries with low UA indexes. People in high UAI cultures tend to be more stressed and rules for children are quite firm. People in low UAI culture tend to be more agreeable and more blasé about children’s play habits. They worry less about health and money.

Let’s say you want to market a product internationally, including both low and high UAI countries. Your message will need to be very different. In high UAI countries, consumers will want to know about the purity and cleanliness of the product. They also value expert opinion in their advertising. In low UAI countries, consumers tend to seek convenience rather than purity and prefer humorous ads.

Similarly, consumers in low UAI countries find used cars acceptable and are more likely to be do-it-yourself enthusiasts. They also tend to be early adopters of new technologies. Consumers in high UAI countries tend to prefer new cars and hire experts to do their home repairs. They’re also slower to adopt new technologies.

In the workplace, differences are equally pronounced. High UAI cultures emphasize the importance of rules – even those that are not obeyed.  They also prefer more structure, precision, and formality. Managers should be technical experts and tend to focus on daily operations.

Low UAI cultures have fewer rules in the workplace and value managers who are known more for common sense than technical expertise. Managers focus more on strategy than daily operations. Low UAI workplaces tend to be better at inventing new processes but high UAI workplaces are better at implementing them.

It’s a very interesting mix, especially when you combine uncertainty with masculinity, individualism, and power distance. To learn more, get the Hofstede’s book.

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