A clever piece of research was published recently by a professor at INSEAD. They ranked companies on their innovation capability by using a very unique measure. Specifically, the calculation assesses each company’s market cap versus the net present value of its cash flows. In essence, they are seeing what kind of innovation premium is built into the price of their stock. There were two companies that really demonstrated how in some cases, clearly the innovation is dependent on a single person. Two years ago Apple’s innovation premium was fifty percent, ranking it fifth of all corporations on INSEAD’s 2011 list of most innovative companies. This year its innovation premium is twenty-two percent knocking its rating down to seventy-ninth. Clearly the company is missing Steve Jobs.
Similarly, when Howard Schultz left Starbucks in 2001, the company’s innovation premium hovered around fifty percent. By 2007 it was down to eleven percent. Schultz returned in 2008 and restored Starbucks creative luster and today its innovation premium stands at a strong forty-one percent, making it one of the top twenty most innovative companies. INSEAD refers to Steve Jobs and Howard Schultz as leaders who “hog” innovation. Clearly without their presence the companies are not that innovative.
This year Amazon has an innovation premium of sixty percent. While it may be due heavily to Jeff Bezos, one thing the INSEAD researcher stresses is that Bezos is working hard to make innovation part of everyone’s job. They point out three principles which Bezos demands that constitute why they believe the company has really made innovation a key component of its culture.
1.) Surround yourself with people who have a creative track record. Bezos asks all job candidates to tell him something they have invented.
2.) Look for a combination of stubbornness and flexibility. Bezos claims that “I want people who are stubborn about their vision of creating something new and valuable. I want them to be relentless in the pursuit of their vision but very, very flexible on the details of how to get there.”
3.) Radically decentralize the work of coming up with new products or services. The majority of Amazon employees feel it is expected of them. In fact, most employees are given an innovation challenge by being part of one of Amazon’s many small, independent innovation teams.
While leaders can never be certain that their company’s ability to bring new ideas to the marketplace is totally wired into the culture and would be effective even without them, it is important that each leader have total commitment to honing each employee’s skills to continually challenge the status quo.