Year after year, certain companies succeed in producing innovative new products and services, and in so doing generate superior financial results. As our annual Global Innovation 1000 study, now in its sixth year, has consistently demonstrated, the success of these companies is not a matter of how much these companies spend on research and development, but rather how they spend it. This year, we took under consideration the particular sets of innovation capabilities — the specific talents, knowledge, teams, tools and processes—that truly innovative companies have put in place that allow them to outperform the competition.
Every company among the Innovation 1000 follows one of three innovation strategies — need seeker, market reader, or technology driver. While no one or another of these strategies offers superior results, companies within each strategic category perform at very different levels. And it turns out that the top 25 percent of performers in each category focuses tightly on a very narrow, consistent set of capabilities across the R&D value chain that are quite different from those on which their weaker rivals depend.
Putting together the necessary innovation capabilities, however, will not ensure superior financial results. Companies must also match up those capabilities with an equally consistent set of overall company-wide capabilities related to such functions as manufacturing, logistics, sales and marketing, and human resources. Companies whose innovation strategy are closely aligned with their corporate strategy can be said to be “coherent.” This year, we found that such companies do indeed gain a “coherence premium” over others in their industry. The top third of companies in terms of coherence had 22 percent higher profit margins, on average, than companies in the bottom two-thirds, and they achieved 18 percent greater market capitalization growth as well.
These results demonstrate the importance of approaching innovation in terms of creating the capabilities needed for success, focusing tightly on them, and coherently aligning them with corporate strategy.
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