While companies continue to focus on in-house innovation, they understand that good ideas can come from anywhere. With technology quickening the pace of business change, research and development is taking on new meaning as it goes increasingly outside company walls.
Businesses are creating venture capital arms to mine for on-the-rise companies or new technologies that can be integrated into their operations.
In the first half of 2016, 53 new corporate venture capital units made their first investment, according to CB Insights data, the most recent available. That was on pace to continue a full-year growth trend that started in 2011.
And some investment in innovation is through acquisition. Microsoft bought LinkedIn for $26 billion, and Facebook bought Instagram.
Some lesser-known deals also help companies advance strategic efforts. For instance, Under Armour, a US-based athletic apparel company, has branched out into technology through the purchase of personal fitness applications Endomondo and MyFitnessPal. The acquisitions, combined with the company’s existing app MapMyFitness, give Under Armour data on the exercise habits of about 120 million users from around the world. That sort of insight can help the company tailor products to everyday athletes.
The Boston Consulting Group (BCG) annually ranks top corporate innovators, and more and more of those innovators are looking far afield. General Motors’ investment in tech start-ups such as Cruise Automation, which GM said in March would add “deep software talent and rapid development capability” to the company’s development of self-driving vehicles, was listed as an example in the group’s report.
Under Armour is ranked No. 22 and GM No. 27 in the BCG report, which bases its list on financial metrics and a survey of innovation executives (see below). The report lists three habits that separate strong innovators from their less innovative peers: They cast a wide net; they excel at using multiple data sources; and they use external data in multiple phases of the innovation process.
Innovators look inside and out for new ideas
At least two-thirds of strong innovators often used the following strategies to generate ideas: Employee idea forums (68%), customer suggestions (70%), competitive intelligence (72%), and internal sources (78%). Companies labelled as weak innovators are far less likely to use such strategies. For example, just 15% of weak innovators get ideas for new projects or growth from employees, and just 26% said they used customer suggestions.
Eighty-six per cent of strong innovators said proprietary company data were a strong part of innovation efforts, compared with 36% of weak innovators. Strong innovators also are skilled at using patent data and scientific literature to their advantage, according to the report. And another 86% of strong innovators said their ability to use data analytics was closely tied to their ability to reveal market trends; among weak innovators, just 29% thought that was the case.
It appears that thinking about the value of data collection and analysis has changed in just two years of the survey, when three-fourths of respondents said their companies were not targeting big data in innovation programmes.
In the BCG rankings, Apple maintained the top spot for the 11th consecutive year. Google was second for the ninth time in 11 surveys, followed by Tesla Motors, Microsoft, and Amazon. Eleven companies entered the rankings for the first time, led by car-hailing service Uber at No. 17.
Tesla made its first appearance in the rankings in 2013, when automobile producers dominated the list, putting nine companies in the top 20. Netflix, which was ranked No. 6 on the current list, didn’t appear in the rankings until 2015.
—Neil Amato (Neil.Amato@aicpa-cima.com) is a CGMA Magazine senior editor.
Here is the top 20 of Boston Consulting Group’s 50 most innovative companies, which is compiled through a survey of innovation executives and an analysis of financial metrics such as three-year total shareholder return. The list includes last year’s ranking in parentheses; “NR” means that a company was not ranked in the previous report:
1. Apple (1)
2. Google (2)
3. Tesla (3)
4. Microsoft (4)
5. Amazon (9)
6. Netflix (21)
7. Samsung (5)
8. Toyota (6)
9. Facebook (28)
10. IBM (13)
11. Bayer (11)
12. Southwest Airlines (NR)
13. Hewlett-Packard (23)
14. BMW (7)
15. General Electric (27)
16. Daimler (10)
17. Uber (NR)
18. DuPont (37)
19. Dow Chemical (32)
20. BASF (29)
New entrants outside the top 20:
22. Under Armour
39. NTT Docomo
47. Bristol-Myers Squibb
A full interactive list can be found here.