Should you take Forbes list of 100 innovative companies seriously?

Should you take Forbes list of 100 most innovative companies seriously?

Sometime not too long ago Forbes released a list of 100 companies which they believed were the most innovative companies around today. This list is publicly available and can be found on their site here. The list has salesforce.com pinned as the highest ranking in innovation while Apple and Google also fall into the top ten at number 5 and number 7 respectively. A few other points of interest is the fact that there are a large number of companies you wouldn’t expect to find and in some cases ones that you would have barely heard of being included in it. As you dig deeper into the list one can find that Microsoft is 87^th on the list of innovative companies which paints the company in a bad way given especially its current position in the tech field where it is competing directly with Google and Apple in an attempt to outmaneuver them through innovation. One thing that piqued my interest further in this report was the reasoning behind redoing the list of 100 top innovative companies. It turns out that the individuals involved were going through the list and they “felt that some companies shouldn’t be there” and thus they changed the methodology of rating innovation. In the past they would collect the opinions of CEOs and form a list but for a newer ranking they felt this method to be more of a popularity contest amongst evangelists and therefore deemed this method unsuitable

 

Methodology for measuring innovation

You might need a little bit of knowledge of terms to understand this process but to put it in a nutshell I shall use the term given by Forbes themselves which is, “instead of a popularity contest we let the investors vote with their wallets”. Still seems like a popularity contest to me.

 

“The Innovation Premium

 

How is it calculated? We first project a company’s income (cash flows, in this case) from existing businesses, plus anticipated growth from those businesses, and look at the net present value (NPV) of those cash flows. We compare the NPV of cash flows from existing businesses with a current market capitalization: Companies with a current market cap above the NPV of cash flows have an innovation premium built into their stock.”

 

The five skills of disruptive innovators

In their article, Forbes makes reference to what they have discovered to be the five skills of a disruptive entrepreneur. They are,

·        Questioning. Questioning allows innovators to challenge the status quo and consider new possibilities

·        Observinghelps innovators detect small details—in the activities of customers, suppliers and other companies—that suggest new ways of doing things

·        Networkingpermits innovators to gain radically different perspectives from individuals with diverse backgrounds

·        Experimenting prompts innovators to relentlessly try out new experiences, take things apart and test new ideas

·        Associational thinking—drawing connections among questions, problems or ideas from unrelated fields—is triggered by questioning, observing, networking and experimenting and is the catalyst for creative ideas.

 

This list is an excellent one and does indeed define the thinking behind innovation. To sum it up, innovation can be caused only by those who refuse to stand still with an existing product and instead choose to push ahead aggressively into new spaces which they intuitively sense will be a success based on the observations made through various methods and the connections made in an assessment of these observations. This gives birth to a question of how is an investor, voting with his wallet, an indication of any of these attributes?

 

A second observation that can be made from this list is that invention itself has not been given its place. Invention drives innovation and therefore invention is of a higher level than innovation. Inventors must possess all these qualities as well as what I would call “inventive thinking” wherein they connect the dots to discover solutions which no one else has chanced upon as opposed to iterating on existing solutions to create a better product.

 

Questionable results

Before delving into the apparent flaws of the method it would be more interesting to first question the results that have been presented in this list based on what we know already. Looking at the list we see that the rankings to put Apple over Google with Oracle and Microsoft showing up towards the latter part of the list where Microsoft is below Oracle. If some of you read my article on Apple’s lack of innovation I should say that I made a mistake. The choice of words were poor and what I ought to have said is that while Apple innovates heavily through iterations on existing products their capability for invention does not rank anywhere near as high. That said, their place above Google, Oracle, and Microsoft is understandable. Looking at the list however one could question as to why Microsoft ranks below Google and Oracle. This is by no means an insinuation that Microsoft should rank higher but it still begs the question as to WHY they are ranked lower.

 

Looking at innovations, Microsoft currently has in Kinect, the fastest selling consumer electronics product in history. While many of their new products such as Windows Phone 7 and the upcoming Windows 8 for tablets could be described as catch up attempts they still rank as innovative products. Even though Google has captured 50% of the smartphone market and currently has 550,000 activations per day the level of innovation itself on their platform can be and has been questioned.

 

Leaving Google out of the picture for a moment, how does Oracle rank over Microsoft in terms of innovation? Looking through all of Oracle’s news in the pasts they are mostly embroiled in patent wars and litigations which by no means rank as innovation. Furthermore, the company itself does not even come close in terms of innovation and risk taking compared to that of Microsoft as the only other side of news for them comes in the form of acquisitions. Thus, the fact that they rank over Microsoft immediately begins to make the list questionable.

 

As a final example, the research firm PARC doesn’t even show up on the list. This company was responsible for almost everything we take for granted in today’s tech world including the GUI, the Ethernet cable, laser printers and many other inventionsthat continue to impact our lives every day. The company is now involved in research for military operations on tracking technologies as well as creating a technology stack with the aim of reinventing the internet. This technology stack is not only far beyond what we have today but has also been open sourced by the company allowing anyone to build on top of it and experience it right now. As mentioned before this is invention and invention ranks higher than innovation. So where is PARC on this list?

Amidst question after question coming out of this list I suspect there would be even more questions if all details of each of these companies were known. The common link that seems to run between all these companies and the questions of level of innovation is that money has been made a deciding factor in innovation.

 

The problem with monopolies

Going deeper into the issues that cause seemingly odd results in the list of innovators a common thread begins to emerge where due to the nature of the methodology which depends on investors “voting with their wallets” the companies which are monopolies or who have a stable stock worth investing in are being mistaken for innovators. Companies such as Oracle which again, are embroiled in litigation battles currently enjoy the benefits of products which captured the market and have since become the market standard thus creating a stable brand which investors are willing to put their money into. Nintendo a global monopoly which has a single focus and a higher profit margin has in the recent past failed to question their strategy and has thus far failed to innovate by bringing their games to the mobile platform. The strains of this will show only a little later, maybe in the next quarter, as their profits from the newest Nintendo unit have been slashed by 80% in order to make the product more appealing to consumers. Yet despite this absolute lack of foresight they rank 20^th on the list of innovators simply due to a monopolistic ownership of the market share.

 

The real issue here is that few investors actually invest in innovation. They invest in sizable returns and stability. Investors who called for Steve Ballmer to be removed from Microsoft failed to realize that Steve Ballmer was not only responsible for cleaning up the mess that was Windows Vista which was left behind by Bill Gates but for also unifying several product strategies into one that in turn paved the way for their mobile strategy (late as it may have been). Point is, investors are fickle and the moment they sense a hint of instability, which may in fact be caused by a company attempting to diversify their strategies through innovation, they jump ship and put their money into stable companies that may in fact not be doing anything in innovation.

 

The concept of measuring innovation through money is utterly flawed

Everything leads to this. Companies like PARC which work as pure research firms, Microsoft which has innovated heavily within its own sphere but failed to market products properly are either skewed to the bottom of this list or right out of it. To name one final example, Microsoft created what users believe to have been a superior product to the iPod touch when they manufactured the ZuneHD. Poor marketing and lackluster promotion caused this project to wither away and many treated it as a joke. The only thing that stopped the joke from spreading further was that most people simply hadn’t heard of the product. There are so many other examples of companies that innovate and invent but due to poor marketing or lack of resources to play against the monopolies their innovation goes to waste on a list like this. Marketing was never part of the 5 attributes of disruptive innovators and therefore shouldn’t even be taken into consideration. Yet with this method it inherently becomes part of the measure.

 

These results are in no ways an adequate measure of innovation. Innovation cannot be measured by money and these results are flawed in so many ways where companies that enjoy the benefits of markets being captured a long time ago due to lack of competition are allowed to sit on this list while having brought little or no significant change to their own thinking process. Adding to the problem is the speed of change in industries where due to some being slower to change by nature, the companies in the lead can enjoy large profits for a long time to come. Each vertical introduces nuances and variations to how innovation can be measured and to simply leave it to the “investors who vote with their wallets” means that this list is in no way an actual indicator of who really does belong to the top 100 innovating companies.

 

To learn more about Adnan Issadeen you can follow him on @area51research, or find out more via http://identyme.com/adnanissadeen. If you wish to discuss your company’s tech product, release or any other tech related venture OR if you have an inside scoop send a mail to adnan.issadeen@live.com. All material will be treated anonymously if required by you. To keep up with the latest discussions, questions and sneak peeks join the Techrumble page on Facebook @ http://www.facebook.com/techrumble