Managing Director & Senior Partner
This article is an excerpt from The Most Innovative Companies 2015: Four Factors that Differentiate Leaders (BCG report, December 2015).
Innovation continues to rise in importance. In The Boston Consulting Group’s tenth annual global survey of the state of innovation, 79% of respondents ranked innovation as either the top-most priority or a top-three priority at their company, the highest percentage since we began asking the question in 2005, when 66% said innovation was their top or among their three top priorities. (See Exhibit 1.) At the same time, science and technology continue to be seen as increasingly important underpinnings of innovation, enabling four attributes that many executives identify as critical: an emphasis on speed, well-run (and very often lean) R&D processes, the use of technological platforms, and the systematic exploration of adjacent markets.
The importance of these four attributes—and of science and technology in general—is not new. Looking back over our surveys of the last ten years, we see that the companies that made the list of the 50 most innovative companies in at least nine out of ten of them—Apple, Google, Microsoft, Samsung, Toyota, BMW, Amazon, IBM, Hewlett-Packard, General Electric, Cisco Systems, Nike, Sony, Intel, Procter & Gamble, and Walmart—are all strongly associated with many of those capabilities.
The importance of these attributes can also be seen in this year’s list. (See Exhibit 2.) Apple and Google again hold the top two spots. Tesla Motors, which has been moving up the list at the speed of one of its Model S sedans, reached number three. Fast-tech companies, tech-savvy automakers, and a company that exemplifies scientific expertise combined with lean R&D in the pharmaceutical industry round out the top ten.
Given the strong impact of technological developments such as mobile technology and social media in the last decade, one might expect technology companies to have shoved aside their more traditional counterparts. Yet we still see plenty of traditional companies on the list. They, too, have used technological advances to their own innovative ends. Five of the top ten companies in 2015 are nontech companies (although one, Tesla Motors, bridges a couple of sectors)—the same number as in our first survey ten years ago. On the larger list of the 50 most innovative companies, 38 (76%) are nontech companies.
The top 50 list is a global group: 29 companies from the US, 11 from Europe, and 10 from Asia. Emerging markets also make their presence felt: there are three companies from China and one from India.
The four attributes that fuel innovation are interrelated, of course, so it’s hard to examine one in any depth without running into another. Speed has long been a priority and is one of the major sources of differentiation for true breakthrough innovators, as we discussed last year. In fact, the percentage of respondents in 2015 citing the importance of quickly adopting new technologies jumped 22% over 2014.
Lean R&D processes have a major effect on speed—as well as on multiple other areas. No surprise, then, that the percentage of respondents citing improvements in operating processes as crucial to innovation increased this year. Lean methodologies that were originally developed for manufacturing are now being applied in a sophisticated manner to R&D and new-product development, and they are having a big and growing impact in such industries as industrial goods, health care, and high tech.
In most companies, technology used to live in its own silo—the IT department. Today, digital, mobile, big data, and other technologies are used to support and enable innovation across the organization, from new-product development to manufacturing to go-to-market strategies in multiple industries.
Finally, many companies facing slow growth in their core businesses are looking to expand into adjacent markets. To do so, they frequently leverage existing capabilities in lean, speed, and technology platforms to enable innovations, whether next door or further afield.
Innovation is one of a handful of growth strategies that companies employ. At a few companies, it’s the primary strategy. One of these is Gilead Sciences, which joins the 50 most innovative companies list this year at number eight. Gilead has developed a cure for one major disease, hepatitis C (HCV), while significantly advancing treatment of another, HIV infection.
Gilead exemplifies the attributes we examine in this year’s report. As its annual sales approach $30 billion, the company is determined to keep its innovation processes efficient and not slow down. Gilead has shown it is not afraid to pursue adjacent openings when it sees a high-value opportunity—as evidenced by its shift into HCV. John Milligan, Gilead’s president and COO, put it this way in an interview with BCG: “I don’t think of Gilead as having a growth agenda; we have an innovation agenda—we spend a lot of time thinking about how to make better medicines for tomorrow, and that innovation then drives growth.”
Gilead’s innovative capabilities stem from a management team that combines exceptionally deep scientific and technical expertise in its area of focus with an equally deep knowledge of market needs. The result is a remarkable ability to identify major potential advances in treating serious illnesses and the conviction to pursue them, regardless of whether the essential science has been developed internally or externally. Gilead couples scientific rigor with strong senior-management cohesion and the courage to pursue high-risk, high-return initiatives. The company’s 2011 acquisition of Pharmasset for $11 billion (almost one-third of Gilead’s market value at the time) was pivotal in the development of Sovaldi and Harvoni, treatments for hepatitis C that cure more than nine out of ten patients with the most common type of the disease, leaving them with no detectable virus. At the same time, the company has pioneered innovative R&D and manufacturing models, such as licensing agreements with India-based manufacturers of generic drugs, to expand access to its drugs in developing markets.
Over the years, we have from time to time improved our survey methodology. This year, we made two modifications. One is predicated on the belief that the experts in an industry often spot an innovative company before it becomes widely known. So in addition to asking about innovation generally, this year we also asked our 1,500 survey respondents to rank innovators within their own industries. We assigned this “internal” ranking an overall weighting of 30%, the same given to all other industry responses. The second change was to increase the weighting of three-year TSR to 40% in order to better balance objective and subjective measures. The result, as we expected, is a more diverse list that includes more companies that don’t market widely to the public but are nevertheless seen as highly innovative within their industries—and that are reaping the rewards of this capability.
Innovation remains a top priority, and it doesn’t get any easier. In the companion articles in this series, we look at each of the four attributes that can make innovation more successful. Some companies are already good at some; some are better at others. Taken together, these four capabilities provide a series of practical steps that any company can take if it wants to raise its innovation game.
ABOUT BOSTON CONSULTING GROUP
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.
© Boston Consulting Group 2023. All rights reserved.
For information or permission to reprint, please contact BCG at email@example.com. To find the latest BCG content and register to receive e-alerts on this topic or others, please visit bcg.com. Follow Boston Consulting Group on Facebook and X (formerly Twitter).