The Most Innovative Companies of 2014

I can see clearly now.

For the ninth year in a row, Boston Consulting Group (BCG) has published its ranking of the 50 most innovative companies in the world. In 2012, the big news was that companies were recovering from the recession and starting to invest in innovation again.

Last year, the big news was that automotive companies were moving onto and up the list. Nine of the top 20 were automotive companies as were three of the top ten – Toyota, Ford, and BMW. Alas, the automotive innovation trend seems to have been short lived. The number of automakers on the list dropped from 14 in 2013 to nine in 2014. Of these nine, only two had moved up from the previous year: Tesla and Fiat. We learned from Rita Gunther McGrath that you can’t just turn on the innovation engine when you need it and turn it off when you don’t – but that seems to be exactly what the automakers are doing.

Software, computer, and social media companies continue to dominate the top end of the list. The top three remain Apple, Google, and Samsung though the order has changed slightly. Apple remains number one but Google has leapfrogged Samsung into the second slot.

What can we learn from this year’s list? First, the importance of culture. Second, an appreciation for three specific behaviors that promote innovation and coincide nicely with academic research on innovation.

Creating a culture of innovation requires consistency, discipline, investment, and leadership. As we learned last year, Samsung’s cultural mantra seems to be, “Change everything but your spouse and your children.” That’s a commitment that few companies are willing to make. As BCG points out, even the “breakthrough” companies that lead the innovation wave assess themselves as being little better than average.

Creating an innovation culture also requires some tolerance for failure. Not every good idea is going to pan out. Strong innovative cultures typically have the willpower to pull the plug quickly and learn from their mistakes. When failures happen, most companies will investigate the immediate problem. Innovative companies will also investigate the process that led to the problem.

Innovative cultures also tend to have a strong customer focus. They understand how customers behave and why. As BCG points out, they release “…products that customers will embrace rather than pushing new technologies simply because they are novel.”

On three points, breakthrough innovators differ significantly from strong (but not breakthrough) innovators:

• They cast a wide net for ideas – this corresponds nicely to the “W” in the Heath brothers WRAP process: widen your options. BCG investigated a dozen different sources for innovative idea. Breakthrough innovators lead other companies in using ten of the twelve.

• They use business model innovation more – when we speak of innovation, we’re often talking about products. The breakthrough companies also innovate the way they do business. It’s a new wine if old bottles concept; it’s hard to take something radically new and sell it the same old way. It appears that breakthrough companies are also more likely to use ambidextrous organization models.

• They have cultures geared to breakthrough success — as Rosabeth Moss Kanter points out, it’s hard to measure the impact of a radical innovation with old tools like ROI and NPV. Breakthrough innovators use different metrics, like proportion of sales derived from recent products. They also pay more attention to hiring the right people and less to move product through the pipeline.

So what can we learn? Innovation requires tenacity and consistent commitment. Professional athletes used to go fishing during the offseason. Now they work out relentlessly to stay in shape. So do innovative companies.