The DNA of the World's Most Innovative Companies

innovation is at the heart of economic development and it's one of the core features of successful companies worldwide we're joined by Hal Gregerson who is the INSEAD affiliate professor of leadership and who has just published a book on the subject of innovation who is an innovator what are the features of an innovator is called the innovators DNA hal Gregerson thank you for joining us can you tell us a bit about what is the fundamental feature of an innovator innovators are people who behave differently and don't just think differently so in other words if I want to be like Steve Jobs and have this capacity to think differently the fundamental message of innovators DNA is people have to behave differently and so if we walked into Steve Jobs world and walked around with him and followed him during a day we could see him behaving in ways that will generate new ideas so he observes the world really carefully he talks to all different kinds of people he's more than willing to engage in different kinds of experiments constantly peppering the world and the people around him with questions that provoke people and and challenge the status quo and when Steve Jobs or anybody else behaves that way AXA differently asked lots of questions observes like an anthropologist experiments constantly networks for ideas they're likely to get incredibly insightful ideas about new businesses new products new services breakthrough processes things that will make a difference for any company but you've identified I think five basic characteristics of the innovator which you call the innovators DNA could you elaborate first of all on these five characteristics what are they innovation starts with a question so when I'm trying to figure out a new process in my organization I'm trying to figure out a better service proposition for my clients and customers if I'm trying to do those sorts of things I've got a question why not this why couldn't me that what's going on here how could we do this better how can we do this differently and we don't have an answer to those questions and so part of being an innovator is being able generate the right question the next piece becomes doing something with the question so questions for questions shape the questions sake is just being clever I sit in my office I asks clever I ask clever questions and they're not going to go very far when it comes to innovation but if I get out of my office take that question make it active go into the world I might be someone like Jeff Bezos at Amazon I'm an experimenter that's just his DNA that's how he approaches innovation he's constantly trying to experiment with the world try new things try different things asking questions as he does it and he gets new ideas other people take a question like Mike Lazaridis a research in motion the BlackBerry company and essentially he idea networks he talks to different people than who he is to get new ideas and again in those conversations he's asking them lots of questions Scott cook founder and CEO of Intuit he essentially is an observer he watches the world very carefully he's always asking himself when he goes into a situation what's surprising what's unexpected that I didn't see before in this situation it helps him generate new ideas so we take a question combine it with an action like an observation experiment or networking with people for ideas then when we're pushed into a corner we have to get a new idea about again a business a product of service etc then we were pushed in the corner we have a smart idea and we have a really creative idea and often it's a surprising idea now you use the expression DNA which implies that these qualities are innate in the people concerned but you also suggest that it's possible to learn these qualities how do the two aspects balance out it's a fascinating question and in some ways it's like why did you call the innovators DNA is that a fixed thing well the reality is it is partly fixed researchers have done some really systematic careful academic studies on this they've looked at twins who have been separated at birth grew up to adulthood in different environments and then tested them around their creativity in innovation skills and these research studies basically find that about 25 to 30 percent of our innovation capacity is a genetic component it's our DNA but that's one third of the equation the other two-thirds is the world we live in and it's fascinating when we interviewed these these famous entrepreneurs to realize that they grew up in worlds where adults paid attention to these innovation skills Jeff Bezos had grandparents who taught him and reinforced to him questioning reinforced to him the experimentation matters he lived on a farm with them in the summertime and when things broke down they fixed the things that broke down they learned when you try and experiment you can figure out a solution a riccati issue is a chairwoman of Bain consulting she grew up in a family where questioning was everything and it was reinforced to her that she questions so they both not only had some genetics around these skills but they grew up in the world that said keep them pay attention to them use them do something with them and then when they became adults they actually went out and did something with them and so it's a combination of who we are combined with the world we live in partly when we're growing up partly when we become adults it doesn't have to be that our family reinforced this it could be that we simply had a manager who paid attention to our ideas and reinforced and rewarded them through these actions and so what you've discovered in your research is that companies which foster this kind of approach actually are valued more highly by the stock market it's interesting because this research project started looking at individual entrepreneurs and innovators so was both entrepreneurs plus CEOs who were incredibly innovative somebody like AG Lafley who was the CEO for about ten years at Procter & Gamble so essentially we looked initially at who are these people who lead these incredibly innovative companies or started them unmanly realized these companies seem to be incredibly valuable and so at that point we collaborated with Credit Suisse and they have a halt a division in their organization that does some really sophisticated analysis here's what we discovered investors pay a stock price for a stock based upon two things one is the cash flow is the money coming in from existing products services and markets so you are your amazon is an example and I'll pay you this amount for your stock for the existing product services and markets you're in but guess what I believe you will do something different in the future you'll have new markets you'll have new services you'll have new products you don't even have today and because of that I'll pay you a premium and so in the case of the number one innovation premium company in the world it's I'll pay you a hundred euros for what you do today and I'll pay you 75 more euros because I think you'll do something innovative tomorrow you don't do today so it's a 75% premium on that stock price and that's essentially what happens in these companies when we've looked at it we've got a list now that is going to be coming out in a Forbes we're collaborating with Forbes around publishing this list of the most innovative companies in the world these are organizations that systematically over at least a five-year period have generated this kind of premium that investors bet with their wallets this company is innovative not only now but in the future and how do you find these companies so essentially what we did in working with Holton's Holt with in Credit Suisse is there's an algorithm that looks at their financials and figures out what proportion of their current cash flows are related to existing products and services and what portion are related to future products services and markets that we don't have today that we could do in the future and so as you start splitting out the value of a stock price by existing business and expected future business it creates this premium that people pay because I think you're going to do something different does this list include companies like Facebook or Google Google is on it Apple is on it it could include some of those famous companies so is at the top there are other companies that people don't know about one of the top five is intuitive Surgical most have no clue who Intuitive Surgical is but they make robotic surgery instruments you've got a surgeon in London who can operate on someone in Mexico City and it actually makes the surgery more effective because our hands tremble even the best surgical situations and the equipment they use to do the surgery takes out those hand tremors actually makes the surgery a better surgery and the recovery time is quicker and the people are much better afterwards and so it has this incredible technology in a fast growing market and they're able to take advantage of the innovative approach they've taken to doing surgery other companies again they're their ones we didn't know about until we did the analysis but Cannes corporation in Japan they make electronic sensors for automated factory systems it's a b2b business it's not very you know sexy or exciting at one level but they decided we're going to be an innovative company and they do it so when thousands of their sales force go into their clients and figure out in a plantain factory situation now what are they doing here what are they building how does their automation system work how could we make it better how could our sensors help them make it better and then the critical question is how can we go back to to headquarters to the country headquarters to the production facility that we have a kids how can we do something different how could we make our product better how could we do it differently so would make this a perfect solution for the client and they don't just do that once but they do it systematically to the point that they get this huge innovation premium but these this premium is based on the stock price and stock prices fluctuate as we know this presumably means that sometimes companies are in the next year they may be out simply because something is happened on the stock market where they're quoted independently of their own performance is that an issue it's really interesting most of the most innovative company lists out there or historical to some degree you could call it popularity contest because they essentially ask other executives who's the most innovative company in the war old if I get that kind of a question and I'm the CEO of a company I will tell my answer will be based upon some company that historically has been innovative so Sony often is on those lists of innovative companies but they're not profitable and their stock price certainly isn't going up right at the moment so that's a historical look our list is future looking forward looking and it's based upon past performance predicting do I believe they're going to do something in the future and it's not just a one-time one-year experience it's not just we happen to hit a goldmine in one particular product but at least over a five-year period we've been able to weather the storm and we consistently generate new things new ideas new products new services and the only way company is going to get on that list is if they've been consistent at innovating and then I have confidence to put the money into your company if I'm investing because I think you'll do it also in the future we've seen in the past the dot-com bubble is there a danger that there might be an innovation bubble in these stock prices that's always there and whenever you make a list of the most innovative companies in the world the highest performing companies in the world some companies stay on and some companies drop off so that's a given some will drop off why we think this list will persist not perfectly but for the most part is these companies have generated an environment within their organizations that says innovation matters don't quit there are three elements of this is the people in the company the processes they have and the philosophies they have and the people part it starts at the top you walk into those senior management teams and these organizations that are incredibly innovative and they don't delegate innovation to somebody else R&D is important consumer insight is important marketing marketing is important but as a senior manager or CEO of that company I don't delegate innovation activity just to them it's my job so when these folks go out there constantly probing the world these CEOs are probing the world to get new ideas they're doing it themselves the second part is not just my job but is everybody's job it's just part of what you do when you walk into the door today when you come to work you need to figure out a better way a more innovative thing better process better product better service that's a piece of your job can you give some examples of actual companies that are doing this you know one of the fascinating companies that I had not known about until we did the analysis for this top 50 list is essentially in the matura they make cosmetics and they started in Brazil incredibly innovative founders running this organization it's it's over a ten billion dollar corporation now they direct sale cosmetics not only in Brazil and South America but throughout the world and they have this fascinating process of being able to go into their world going into the Brazilian forests and and working with local communities around herbs and other trees and so on that could be part of their cosmetic solutions for people who use them and they create these sustainable long-term contracts with these local communities and make products that are just incredibly successful for middle to upper income people it has this fantastic track record of being able to go into local space generate new ideas for products work with local communities to source those things in a sustainable way and then they have a workforce that's exceptionally skilled at delivering those products in a way that fairly high income people want to buy them a lot of that comes from a CEO and senior team who actually do this stuff and then they they tell the organization do it but they give them the skills to do it they train them they reward them they promote them they foster it to make it happen looking forward strategically what's your next project one of the things that's fascinating is that most of these entrepreneurs who found are these incredible companies they've also moved into the social innovation space they've moved their their skills from just great creating great products services and businesses to solving serious social problems and making a difference in the world all of these folks are deeply committed to changing the world not just their business but changing the world and so I'm deeply intrigued by how can we not only use these skills in a for profits and for profits situation but how can they also be used by incredibly energetic innovative innovators and entrepreneurs trying to take on the toughest social problems and so that's a piece of where I'm going as we're taking this forward well I wish you the best of luck thank you very much I'll drink it thank you

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