Amazon isn’t an easy place to work. Its managers set steep goals, scrimp on budgets and expect long hours. But there aren’t many better places to be employed if you like the messy work of coming up with new ideas, because its billionaire-founder, Jeff Bezos, has made that a priority for everyone and in so doing has avoided the usual curse of having a dynamic and creative founder at the helm.
“I encourage our employees to go down blind alleys and experiment,” says Bezos. “We’ve tried to create tools to reduce the cost of doing experiments so that we can do more of them. If you can increase the number of experiments you try from a hundred to a thousand, you dramatically increase the number of innovations you produce.”
In our work over the last 10 years with business leaders, we’ve identified an interesting pattern. On average, creative leaders can increase a company’s innovation capacity, but having someone at the top who is too much of a genius can be dangerous for the organisation because that may squelch others’ skills and ideas.
According to more than 1,000 assessments we gave, we’ve noticed that 10 percent to 15 percent of the most innovative leaders in the world (based on others’ evaluations of their skills) don’t bother to encourage the people around them to innovate as well. These leaders often believe their ideas are so much better than their colleagues’ that they see little value in building talent around them. Many also lack the patience required to give others the chance to develop and deliver their ideas, so they do the work alone. This can be okay in the short run but disastrous over time. Employees stop coming up with ideas; their creative muscles atrophy. This can pose a serious threat to a company’s performance if and when a highly innovative leader leaves, especially if that person is famous.
Investors started fretting about Apple’s ability to come up with big new ideas even before Steve Jobs died in October 2011. In the last two years Apple’s innovation premium (market capitalisation less the net present value of future revenue from existing products and services) fell from 50 percent to 22 percent. The company dropped from No 5 on our list in 2011 to No 79 this year. Apple might continue to change the game without Jobs, but investors have voted with their feet.
The same scenario happened at Starbucks. Its CEO, Howard Schultz, left that job in 2000. The company’s innovation premium remained a healthy 45 percent through the next year, but several years later that was down to 11 percent. Schultz’s return in 2008 restored the coffee chain’s creative lustre, and today its premium stands strong at 41 percent, making it one of the top 20 on the list. Schultz’s presence makes a difference to investors’ expectations of Starbucks’s ability to innovate and grow.
The more enlightened leaders know the importance of building creative capabilities in others. As Salesforce founder Marc Benioff emphatically put it during a recent conversation with us: “I can’t do it all. I don’t have all the ideas. That isn’t my job. My job is to build a culture of innovation. That’s something that we try to enforce. We encourage it. We value it. We notice it. We compensate for it. We require it.” Salesforce, by the way, has been No. 1 on the Innovative Companies list three years running.
Lately Benioff has been acquiring innovators as well training them from within. He has spent close to $4 billion since 2011 buying smaller software firms. “I’m willing to acquire a company that might not have a lot of revenue but has a lot of innovation.” He added, “We’ll take innovation any way you can give it to us… I don’t care if it’s my idea, an employee’s idea, a competitor’s idea, a partner’s idea or some other associate’s idea.”
How We Measure Innovation
Most innovation rankings are popularity contests based on past performance or editorial whims. Our method relies on investors’ ability to identify firms they expect to be innovative now and in the future. Companies are ranked by their innovation premium: The difference between their market capitalisation and a net present value of future cash flows from existing businesses (based on a proprietary formula from HOLT/Credit Suisse). To be included, firms need seven years of public financial data and $10 billion in market cap. (Facebook, for example, would be in the top 10 if we used only 2012 data.) We require a certain threshold for R&D spending, so banks don’t make the list. Nor do energy and mining firms, whose market value is tied more to commodity prices than it is to innovation. Big caveat: Our picks do not correlate with subsequent investor returns. To the extent that today’s share price embeds high-growth expectations, one might even anticipate returns to investors to be low, as these expectations may be difficult to meet.
LATEST 12-MONTH SALES ($MLN) $3,247
3- TO 5-YEAR EARNINGS GROWTH (EST) 27%
The cloud computing pioneer in sales software has been using its richly valued shares to snap up startups that do the same thing for marketing teams. In June, CEO Marc Benioff made his biggest buy to date, paying $2.5 billion for ExactTarget. “We’ll take innovation any way you can give it to us,” says Benioff.
2. Alexion Pharmaceuticals
EARNINGS GROWTH 25%
Other companies imitate Alexion’s focus on the
rarest of rare diseases, but its shares are up only
10 percent this year after quadrupling over the
previous four. Investors worry that governments
and insurers are starting to resist paying for its $440,000 drug, Soliris. Rumours have swirled over a takeover by Roche. Big hope: A drug for children born with severely damaged bones.
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(This story appears in the 20 September, 2013 issue of Forbes India. To visit our Archives, click here.)
Pls follow up and reasearch on the 100 companies see how yu can link with themon Oct 20, 2013
Experiment leads to innovation; great lines by Jeff Bezos, he is great example of world-class leader. inspirational article and words by him.on Sep 19, 2013
Excellent post on World\'s Most Innovative Companies. Dr.A.Jagadeesh Nellore(AP),Indiaon Sep 19, 2013