Managing Director & Partner
Innovation is more important than ever in today’s uncertain business environment. With recovery from the COVID pandemic, war in Ukraine, and continued supply chain and labour difficulties, companies need to respond quickly to the rapidly changing environment. Innovation allows companies to take advantage of change, anticipate opportunity, and maintain relevance. For companies to be successful at innovation, they need to make it a priority, commit to investment and talent, and be ready to transform that investment into results.
BCG recently surveyed 100 New Zealand executives to identify New Zealand’s most innovative companies. We also set out to understand what New Zealand companies care about when it comes to innovation, who they admire, and how these priorities are translating into action.
BCG’s global Most Innovative Companies survey has been running since 2005. This is the survey’s inaugural year for New Zealand as we celebrate the opening of our Auckland office. We surveyed 100 innovation executives in New Zealand who run companies with revenue of over $10m. We have also drawn comparisons with our global research from 2020 and 2021.
The ranking of New Zealand’s Most Innovative Companies is based on an assessment of company performance in the four dimensions also used in BCG’s global study (see Methodology.)
So, how are New Zealand companies faring when it comes to innovation?
Half of the companies we spoke to report that innovation is one of their Company’s top three priorities. This is lower than our global survey result in which 75% of companies say that innovation is one of their top 3 priorities (Exhibit 1).
However, companies still prioritise innovation, even when it’s outside their top 3, with plans to increase investment to support their ambitions in the next year. 74% of New Zealand companies say that they are committed to increasing investment in innovation.
Companies that are committed to innovation, and ready to translate those commitments into action, drive value creation and resilience. Looking back over the results of BCG’s global innovation index, the 50 most innovative companies of 2007 outperformed the market during the Great Financial Crisis – delivering total shareholder returns that were 4 percentage points higher per year than the overall market between 2007 and 2012.
Global results during COVID-19 are similar. Pre-pandemic, the global 50 most innovative companies of 2020 outperformed the market by 17 percentage points in the last year.
Most New Zealand companies experienced growth during the COVID-19 pandemic and are confident in their growth trajectory for 2022.
Our study focused on companies with New Zealand-based management teams and annual revenues of over $10m.
The 10 most innovative New Zealand companies have average total shareholder return1 Notes: 1 Total shareholder return reflects the true bottom line for a company’s shareholders. It is calculated as the sum of overall appreciate in the stock’s price per share and any dividends paid by the company during a particular measured interval, divided by the initial purchase price of the stock. 2degrees was excluded from this analysis as it is a privately held company. 16% compared to 12% for the overall market, including Air New Zealand which was negatively affected by COVID-19 related travel disruptions. This total shareholder return growth is largely driven by revenue growth.
The Most Innovative Companies tend to have greater gender equity in their leadership teams. At Spark, over half the executive team and board are women. 40% of the companies listed as Most Innovative Companies are chaired by women (Air New Zealand, Mercury Energy, Spark, and The Warehouse Group), compared to 22% of the NZX50. And 20% of the companies on the Most Innovative Companies list have women CEOs (ANZ and Spark) compared to 12% of the NZX50.
How does the causality run? Looking at the global Most Innovative Companies list since 2005, companies that enter the top list each year had more diverse leadership teams before they made the list when compared to a broader index of the largest companies. However, we don’t see robust evidence that the top innovators become even more diverse after making the global list. This suggests that while gender equity helps companies to foster innovation, being more innovative does not lead to companies becoming more diverse.
A closer look at New Zealand’s inaugural list of most innovative companies underscores the power of commitment to innovation and readiness to act.
Companies with digital focus and strong customer experience – such as Air New Zealand, Countdown/Woolworths, Spark, and Xero – lead the list.
Spark launched an innovation studio to help Kiwi businesses harness the power of emerging technologies such as 5G and IoT. Woolworths / Countdown and The Warehouse Group benefitted from investments in e-commerce to handle spiking demand and different ways of reaching consumers during COVID-19 lockdowns.
Digital leaders are outperforming and out-innovating their competitors by disrupting existing business models and delivering what customers and investors want. To continue to stay ahead, these companies recognise that they need to keep investing in innovation to capture the benefits and capitalise on them.
Companies that don’t have strong innovation priorities and investment plans need to act quickly – or they risk losing their existing scale, scope, customer relationships and data to innovative disruptors.
Most importantly, successful digital transformations are not one-and-done events. Staying competitive and relevant requires continuous innovation – and companies that combine human and technological capability, and embrace diversity, are more likely to be resilient to adversity and market conditions in today’s ever-changing world.
Based on the study results from New Zealand and globally, we have identified the top five areas of innovation readiness that companies need to focus on to deliver the greatest returns.
The authors are grateful to a number of colleagues for their support and assistance. They include Gabriel Wang for ranking analytics, Sharon Ng and David Kim for TSR analytics, Eliza Spring for editing and storylining, Paul Sutherland, Chris Wheeler and Janelle Cook for marketing, and Bec Diepenheim and Matthew Santos for visual services. In addition, BCG thanks research partner Grail Insights for fielding the survey and assistance in collecting data.