strategy+business Winter 2013 : Page 43

devices and equipment almost as crowd-pleasing as Apple’s. Amazon, meanwhile, leaped from number 10 last year to number four. The com-pany’s skill as an innovator no longer rests solely on the new ideas it brings to online retailing; its cloud service offerings are, by some accounts, more successful than those of the company’s many rivals. The same companies as last year round out the next few spots, with some shifts in the order. But surprise entrant Tesla Motors shows up at number nine, having spent fully two-thirds of its $413 million in revenue on R&D, typical for a company that’s essentially still in startup mode. Facebook rejoined the list at number 10, probably attributable to its quickly evolving mobile strategy. Continuing a now four-year trend, no healthcare company made the list. The 10 companies deemed most innovative again had a much bet-ter year financially than the top 10 spenders on R&D, surpassing them in terms of both five-year revenue and market cap growth averages ( see Exhibit G ). The top 10 spenders man-aged only to keep up with the 10 most innovative companies in the five-year average of the earnings margin, and failed even to match their industry peers in terms of growth in both rev-enue and market cap. The list of top spenders is still dominated by auto and healthcare companies. From these sectors, only one company, tiny Tesla, appears on the list of top in-novators—demonstrating once again that innovation success isn’t about how much money companies spend, but how they spend it. Exhibit G: Top 10 Innovators vs. Top 10 R&D Spenders The top innovators led on all three financial metrics, and in fact, the top spenders underperformed their industry peers on both market cap and revenue growth. HIGHEST POSSIBLE SCORE: 100 NORMALIZED PERFORMANCE OF INDUSTRY PEERS: 50 71 69 66 54 45 45 INNOVATORS LOWEST POSSIBLE SCORE: 0 SPENDERS Revenue Growth 5-yr. CAGR EBITDA as % of Revenue 5-yr. Avg. Market Cap Growth 5-yr. CAGR feature innovation Source: Bloomberg data, Capital IQ, Booz & Company The Implementation Challenge Clearly, many companies have had considerable success with the full range of digital enablers. Implementing and using them, however, can be challenging. Who should lead the process? According to our survey, a quarter of companies turn to their business units to lead the effort, followed by product development teams at 22 percent, and CIOs at 20 percent. Just 16 percent of companies turn to their CTOs to lead the process of choosing and implementing digital tools. But almost half of respondents who let the CTO lead said their companies outperform their competitors, suggesting that uniting one’s innovation efforts under a single ex-ecutive can be very effective. Of course, working with the R&D and engineer-ing teams is also important at this stage, not least be-cause of the need to thoroughly train everyone who will be using the tools. When respondents were asked to name the key element for success in using digital tools, 39 percent said training programs. “It’s all about the engagement,” says Catalent’s Cohen. “For example, over the past couple of years we have implemented tools for portfolio management, [for] project management, and to manage our stage-gate process for enhancing col-laboration. We chose these tools for several reasons— because they were economical, because the output was simple to understand and apply, and because the train-ing process went smoothly.… It’s great to have the tools, but you must get everyone to apply them in the right way and to the right projects. Everyone must under-stand how to extract what they need to know to man-age projects along the critical path to completion.” Perhaps even more important is to ensure that ev-eryone involved in using the tools and interpreting their results is on the same page—which doesn’t always hap-pen when tools are adopted rapidly across various teams. James Fairweather, vice president of product architec-ture and technology development at Pitney Bowes, notes that at times, “the tool itself seems to be mature enough, but it may be that not everybody in the orga-nization understands the output. Different stakehold-ers will have different expectations about what they’re going to see based on past experiences with larger pro-grams that were run in more of a traditional format.” It is thus critical, he says, to make sure to set the context for expectations. 43

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