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THE MOST INNOVATIVE COMPANIES 2015 FOUR FACTORS THAT DIFFERENTIATE LEADERS MICHAEL RINGEL ANDREW TAYLOR HADI ZABLIT december 2015 | The Boston Consulting Group CONTENTS 3 INNOVATION IN 2015 The 50 Most Innovative Companies High-Impact Factors “An Innovation Agenda” Modifying the Methodology 7 THE RISING NEED FOR INNOVATION SPEED The Benefits of Speed Designing the System for Speed 11 STRONG INNOVATORS ARE LEAN INNOVATORS Managing the Unmanageable Doing the Work Right…and the Right Work 15 ENABLING TECHNOLOGY-ENABLED INNOVATION Multipurpose Platforms How to Get There 18 THE PREREQUISITES OF PROFITABLE ADJACENT GROWTH Explore Demand-Centric Growth Cultivate a New Organization with New Talent Employ Separate Governance Adopt an Experimental Approach Build the Right Cultural Enablers Learning from the Masters It’s Not All or Nothing 21 APPENDIX 22 NOTE TO THE READER 2 | The Most Innovative Companies 2015 INNOVATION IN 2015 nnovation continues to rise in impor- question in 2005, when 66% said innovation Itance. In The Boston Consulting Group’s was their top or among their three top tenth annual global survey of the state of priorities. (See Exhibit 1.) At the same time, innovation, 79% of respondents ranked science and technology continue to be seen innovation as either the top-most priority or as increasingly important underpinnings of a top-three priority at their company, the innovation, enabling four attributes that highest percentage since we began asking the many executives identify as critical: an Exhibit 1 | Innovation Remains at the Top of Most Companies’ Agendas WHERE DOES INNOVATION/PRODUCT DEVELOPMENT RANK AMONG YOUR COMPANY’S TOP STRATEGIC PRIORITIES? % respondents CAGR 2% 79 80 77 76 75 72 72 66 66 66 64 60 32 52 53 57 Top-three 45 53 priority 43 43 39 47 40 20 40 23 23 25 26 24 24 19 22 22 Top priority 0 2005 2006 2007 2008 2009 2010 2012 2013 2014 2015 Source: BCG Global Innovation Survey, 2005–2015. Note: BCG did not conduct a survey in 2011. Because of rounding, not all numbers add up to the totals shown. The Boston Consulting Group | 3 emphasis on speed, well-run (and very often with lean R&D in the pharmaceutical indus- lean) R&D processes, the use of technological try round out the top ten. platforms, and the systematic exploration of adjacent markets. Given the strong impact of technological de- velopments such as mobile technology and The importance of these four attributes— social media in the last decade, one might ex- and of science and technology in general—is pect technology companies to have shoved not new. Looking back over our surveys of aside their more traditional counterparts. Yet the last ten years, we see that the companies we still see plenty of traditional companies that made the list of the 50 most innovative on the list. They, too, have used technological companies in at least nine out of ten of advances to their own innovative ends. Five them—Apple, Google, Microsoft, Samsung, of the top ten companies in 2015 are nontech Toyota, BMW, Amazon, IBM, Hewlett-Pack- companies (although one, Tesla Motors, ard, General Electric, Cisco Systems, Nike, bridges a couple of sectors)—the same num- Sony, Intel, Procter & Gamble, and ber as in our first survey ten years ago. On Walmart—are all strongly associated with the larger list of the 50 most innovative com- many of those capabilities. panies, 38 (76%) are nontech companies. The top 50 list is a global group: 29 compa- The 50 Most Innovative Companies nies from the US, 11 from Europe, and 10 The importance of these attributes can also from Asia. Emerging markets also make their be seen in this year’s list. (See Exhibit 2.) Ap- presence felt: there are three companies from ple and Google again hold the top two spots. China and one from India. 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, High-Impact Factors tech-savvy automakers, and a company that The four attributes that fuel innovation are exemplifies scientific expertise combined interrelated, of course, so it’s hard to examine Exhibit 2 | 2015 Most Innovative Companies 1. Apple 18. The Walt Disney Company 35. V olkswagen 2. G oogle 19. Marriott International 36. Visa 3. T esla Motors 20. Johnson & Johnson 37. DuPont 4. Microso Corp. 21. Netflix 38. Hitachi 5. Samsung Group 22. AXA 39. R oche 6. Toyota 23. Hewlett-Packard 40. 3M 7. BMW 24. Amgen 41. NEC 8. Gilead Sciences 25. Allianz 42. Medtronic 9. Amazon 26. Tata Motors 43. JPMorgan Chase 10. Daimler 27. General Electric 44. Pfizer 11. Bay er 28. F acebook 45. Huawei 12. T encent 29. B ASF 46. Nike 13. IBM 30. Siemens 47. B T Group 14. SoBank 31. C isco Systems 48. Master Card 15. F ast Retailing 32. Dow Chemical Company 49. Salesf orce.com 16. Yahoo! 33. R enault 50. L enovo 17. Biogen 34. Fidelity Investments Source: BCG Global Innovation Survey, 2015. 4 | The Most Innovative Companies 2015 one in any depth without running into anoth- cient and not slow down. Gilead has shown it er. Speed has long been a priority and is one is not afraid to pursue adjacent openings of the major sources of differentiation for when it sees a high-value opportunity—as ev- true breakthrough innovators, as we dis- idenced by its shift into HCV. John Milligan, cussed last year. In fact, the percentage of re- Gilead’s president and COO, put it this way in spondents in 2015 citing the importance of an interview with BCG: “I don’t think of Gile- quickly adopting new technologies jumped ad as having a growth agenda; we have an in- 22% over 2014. novation agenda—we spend a lot of time thinking about how to make better medicines Lean R&D processes have a major effect on for tomorrow, and that innovation then drives speed—as well as on multiple other areas. No growth.” surprise, then, that the percentage of respon- dents citing improvements in operating pro- cesses as crucial to innovation increased this Speed is one of the major year. Lean methodologies that were originally developed for manufacturing are now being sources of differentiation for applied in a sophisticated manner to R&D and new-product development, and they are true breakthrough innovators. having a big and growing impact in such in- dustries as industrial goods, health care, and high tech. Gilead’s innovative capabilities stem from a management team that combines exception- In most companies, technology used to live in ally deep scientific and technical expertise in its own silo—the IT department. Today, digi- its area of focus with an equally deep knowl- tal, mobile, big data, and other technologies edge of market needs. The result is a remark- are used to support and enable innovation able ability to identify major potential ad- across the organization, from new-product de- vances in treating serious illnesses and the velopment to manufacturing to go-to-market conviction to pursue them, regardless of strategies in multiple industries. whether the essential science has been devel- oped internally or externally. Gilead couples Finally, many companies facing slow growth scientific rigor with strong senior-manage- in their core businesses are looking to ex- ment cohesion and the courage to pursue pand into adjacent markets. To do so, they high-risk, high-return initiatives. The compa- frequently leverage existing capabilities in ny’s 2011 acquisition of Pharmasset for lean, speed, and technology platforms to en- $11 billion (almost one-third of Gilead’s mar- able innovations, whether next door or fur- ket value at the time) was pivotal in the de- ther afield. velopment of Sovaldi and Harvoni, treat- ments for hepatitis C that cure more than nine out of ten patients with the most com- “An Innovation Agenda” mon type of the disease, leaving them with Innovation is one of a handful of growth no detectable virus. At the same time, the strategies that companies employ. At a few company has pioneered innovative R&D and companies, it’s the primary strategy. One of manufacturing models, such as licensing these is Gilead Sciences, which joins the 50 agreements with India-based manufacturers most innovative companies list this year at of generic drugs, to expand access to its drugs number eight. Gilead has developed a cure in developing markets. for one major disease, hepatitis C (HCV), while significantly advancing treatment of another, HIV infection. Modifying the Methodology Over the years, we have from time to time Gilead exemplifies the attributes we examine improved our survey methodology. This year, in this year’s report. As its annual sales ap- we made two modifications. One is predicat- proach $30 billion, the company is deter- ed on the belief that the experts in an indus- mined to keep its innovation processes effi- try often spot an innovative company before The Boston Consulting Group | 5 it becomes widely known.