Innovation Strategy

Innovate or perish!

The motto of a rapidly changing business environment has never been more accurate.

Companies – and countries for that matter – that fail to prioritise innovation are likely to lose the market battle. This is more so the case during massive crises such is the Covid-19 pandemic.

How can we be sure of this?

Let’s look at this.

At the end of August 2020, a landmark business event happened. The U.S. technology stocks have exceeded $9.1 trillion USD, while Europe’s entire stock market was valued at $8.9 trillion USD.

As an illustration, in 2016 Europe’s market cap was four times the size of the U.S. tech sector.

Apple, Microsoft, Alphabet, Amazon and Facebook combined are worth $7.5 trillion.

It’s all about the tech industry. On top of this, six out of eight companies that ranked in the top 50 most innovative companies since 2005 are in tech. Cut Amazon and add to the list above IBM and Hewlett-Packard.

Now comes the interesting part.

More targeted innovation, more profits

Annual surveys of Boston Consulting Group (BCG) offer insights on the top 50 most innovative companies in the world. Though the 2020 survey shows major reshuffling at the top ten innovation frontrunners, one finding is striking.

Compared to 2019 when Google (Alphabet) ranked first, followed by Amazon, Apple, Microsoft and Samsung, the top five list in 2020 looks pretty similar: Apple ranks 1st, Google 2nd, Amazon 3rd, Microsoft 4th, and Samsung 5th.

Remember the $7.5 trillion above?

Trillions attract other players seeking their cut of the cake. The result?

A possible major reshuffling among the world’s most innovative companies in the near future. The Chinese companies lead the charge.

The Chinese tech giant Huawei jumped unbelievable 42 spots to rank just below the top five. This tremendous achievement is most likely due to an increase of $19 billion investment in research & innovation (R&I).

Considering that the return on innovation investment (ROI2) is calculated as the ratio of R&I expenditures and profits generated through sales of new products or services, Huawei’s investments paid off big time. Huawei shipped in the second quarter of 2020 more smartphones than Apple and Samsung.

This has not happened since 2011.

The Chinese eCommerce behemoth Alibaba is another big surprise. Alibaba that scored at 7th place following the 16 positions jump.

Six out of the ten most innovative companies are the U.S. technology/consumer goods giants, with two Chinese, one Japanese and South Korean companies. Out of the top 50 twelve companies are based in Europe.

However, in ten years the list is going to be dominated by the Chinese including Tencent (ranks 14) or Xiaomi that returned to the list and jumped immediately to 24th place.

What can we learn from such rankings?

Saying “We are committed to innovating!” means nothing to companies’ business performance unless they actually do something about it. Two third of all surveyed companies fail to implement their strategies, which affects their performance.

The best performers stick to their strategies and grow bigger.

Among the 50 most innovative companies on BCG’s 2020 list a typical “small” company is worth $30 billion, 170% more compared to 2005 $11 billion. Innovation does pay off.

More importantly, the top performers are continuously committed to innovation.

That’s why out of the 162 companies that have been on BCG’s top 50 list since 2005, less than one third appeared just once and 57% appeared three times or fewer. The only eight companies that made it to the list each time are also the best-performing companies overall: Alphabet, Amazon, Apple, HP, IBM, Microsoft, Samsung, and Toyota.

Top innovative companies embrace the benefits of scale.

During the Covid-19 crisis, it became apparent that serial innovation is more relevant than ever. Companies need to find ways to adapt to the technological exponential changes, broken value and supply chains, new and business models.

The Covid-19 – or similar major crises – are the challenging times for all organisations and a perfect justification to invest more in innovation. Organisations that invest more in R&I are more likely to benefit in the long run. It is also a perfect window of opportunity to leverage quick adaptations that can give us edge against competitors, regardless of the type of industry.

Can the Western Balkans leverage on these experiences?

Yes!

The recent developments offer some grounds for optimism. All the Western Balkans countries managed to improve the digitalisation of public services, but targeted investments in digital infrastructures as the key ingredient for smart solutions need be much more vigorous.

Some regional players made breakthroughs by investing, but the region overall needs to speed up its innovation efforts.

If the region truly wants to come close to the most developed parts of the world, some lessons can be extremely valuable.

Yet, this is possible only if there is a clear political commitment that often fails to materialise.

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