Assessing innovation performance accurately is a challenge that many have tried to meet. Some have attempted to look solely at one particular element of the innovation portfolio, while others have tried to gain a cross-sector view.
The problem with both of these approaches is that the flavours and importance of the different innovation ingredients often vary significantly from one sector to the next. While R&D investment and patent activity are good indicators of innovation performance in, say, the pharmaceuticals sector, the world of retail innovation is all about new product launches, average margin and increased revenue per store.
Equally, underneath such top-level views there are a number of internal innovation drivers such as culture, organisational structure and investment, which all underpin long-term innovation capability. In order to gain a deep, insightful and validated perspective on who are the true innovation leaders on a sector-by-sector basis, the annual Innovation Leadership analysis assesses the performance of 1,500 of the world’s top companies against eight key parameters.
The individual innovation and growth performance of the top companies within each sector are compared against each other and additional research around the differences between the leading five companies is undertaken to ensure that the perspectives gained are fully up to date. From this, the Innovation Leader in each of 25 major sectors is identified and profiled. These profiles are the basis of this book and are widely used to inform opinion.
The eight key areas that we research and input into the assessments are:
- Organisational culture and supporting structure;
- Strategic focus on innovation and its role in driving corporate growth;
- Number of major new product launches and relative success ratios;
- Growth in revenues, profits and market capitalisation;
- Average revenue and margin per product or customer;
- Investment in innovation-related activities such as R&D and marketing;
- Brand value and human capital growth; and
- Peer review from within the sector.
In addition, where appropriate, we look at recent intellectual property performance focused on US patents and trademarks since these are the best independent objective guide in this area. Together these are used in sector-specific algorithms which calculate a ratio of innovation effectiveness – essentially identifying which companies gain the most innovation impact in relationship to the investments they make. This provides what we believe to be the most accurate picture of the companies which are the most effective innovators in each sector, and allows us to highlight the respective key competitive strengths.
Over the past decade, a portfolio of stocks based on the innovation leaders analysis would have outperformed all major indexes and in recent years the margin of difference has increased significantly.
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