The Most Effective Innovators

Interview with Tim Jones, Leader of the Innovation Leaders Programme and Programme Director at Future Agenda
By Vern Burkhardt
"Innovation leaders, those companies that are able to better understand emerging opportunities, access and exploit new technologies, develop successful new products and services or even change their business models, are the corporate heroes of today."

Vern Burkhardt (VB): What is the Innovation Leaders Programme?

photo of Tim JonesTim Jones: It is an annual assessment of which companies are making the most of their innovation resources. It doesn't assess the ones that spend the most or shout the loudest, but the ones that are generating the greatest growth given the people, ideas, and money that they deploy.

VB: The Innovation Leaders analysis has now been done for 10 years, beginning in 1999. What led to you decide to do this work, and publish your findings?

Tim Jones: We were working in the pharmaceutical sector just as the in-licensing trend was being started and the company we were supporting wanted to know who they should compare themselves with from an innovation perspective. Existing analysis simply identified the big companies – the ones that spent the most on R&D or produced the largest number of patents – like Pfizer and GlaxoSmithKline.

We looked at the ratios of innovation output to input rather than the quantities themselves. The first analysis looked at patents to money spent on R&D, and it was normalized by company size. This highlighted the likes of Merck, Lilly and Novo Nordisk as being the most effective innovators and so the one's to look at in more depth.

(Vern's note: "In-licensing" is a partnership between two companies that have shared intentions, goals or fields of interest. In the case of drug companies, these goals can be the research and development of a product, or its distribution. In-licensing allows the strengths of each company to be used in beneficial ways, such as sharing experts, research facilities, investment, risk, and potential for profits or losses.)

VB: The latest Innovation Leaders was published in 2008. I was also able to obtain a 2005 publication of the same name and with the same picture on the cover. How often have you published your findings about innovation leaders since you started the program in 1999? When will the next report be published?

Tim Jones: The book comes out every 3 years. As you indicated the last one was 2008 so the next is due to be published in 2011.

The leaders don't change hugely on an annual basis so reprinting every year is not sensible. However, the analysis is done every year and we share this directly with clients and also via the website. For various reasons we didn't update the website in 2009 but will do so in 2010.

VB: You assess 1500 companies in 25 major sectors, using 8 key parameters and recent intellectual property performance as measured by U.S. patents and trademarks. How are these 1500 companies initially selected and what is your source of data for the analyses?

Tim Jones: They are companies for which the necessary information is publicly available, and so naturally tend to be listed in the Fortune 1000. We supplement with companies that are not listed in this group when necessary. Some industries, such as fast moving consumer goods, have a smaller number of companies than others like consumer electronics. On average we start off with a list of around 70 companies per sector.

VB: You say, "…it is the very lack of a suite of generic measures that works for all companies that makes it so challenging for one company to be compared to another." Does this make it difficult for you to choose the Innovation Leaders and other companies you are watching.

Tim Jones: No, not really.

We have created a unique innovation performance ratio for each sector that looks at innovation output to input, which allows us to track the different factors. We can't use the same measures for retail as for aerospace so once we know what to use for each sector it is clearer.

VB: The assessment to determine the most effective innovators is targeted at identifying which companies gain the most innovation impact in relationship to the investments they make. Would you explain?

Tim Jones: This returns us to the innovation output to input ratio. The innovation impact, such as margins, revenue growth, and new products, are compared to input – investment in R&D and marketing.

VB: One of your 8 key parameters is innovation brand impact. How do you calculate "brand value?" For example, Nokia which is in the telecom equipment sector, is shown to have a brand value of 33.7 billion $US.

Tim Jones: We use established methodologies for the key parameters. In the case of brand we use Interbrand Corporation's approach for valuating the best global brands.

VB: Of the 8 key parameters, are there 2 or 3 that are especially noteworthy for enabling a company to be highly innovative, even if they don't make your list of top innovation leaders?

Tim Jones: We use hard data, such as we just discussed, to identity the top 5 in each sector. Soft data – such as views on strategy, culture, and peer review – are then used to reprioritize. This highlights the ones going up as distinct from the ones going down.

All 8 parameters are important. Some people still like to focus on R&D intensity and margins for obvious reasons, but we try to make the conversation and analysis more objective and holistic.

VB: Has the nature of the innovation leader companies noticeably changed over the past decade?

Tim Jones: Yes, five or so years ago you could be a leader by being very good at just two or three of the 5 core capabilities or success factors we have identified. For example, fast process and good use of insight in the Fast Moving Consumer Goods sector was enough.

Today to be in the same league you have to be excellent at all 5 of these success factors, and then do something extra. The analysis commentary tends to look at what else is special and is making a difference. Examples are LEGO's use of fan bases, and Medtronic's smart mergers and acquisitions.

(Vern's note: The 5 core capabilities or success factors are: have a strong strategic focus on the use of innovation; access, create, interpret and exploit insights from market research, emerging trend data, and new technology to provide the context and focus for new innovations; collaboration with partners to deliver innovative products and services; simple, effective processes to conceive, qualify, develop, and quickly launch new products and services; and an organization with roles, responsibilities and culture that support innovation together with measures and rewards for successful innovation.)

VB: Strategic focus is one of those 5 core capabilities that existed among the 25 companies you identified as the current innovation leaders. Would you talk about the importance of strategic focus?

Tim Jones: This is all about understanding the role innovation will play in growth. Some companies see innovation across the board as having an impact – Reckitt Benckiser is pre-eminent at this. It has a culture that is passionate about delivering innovation with limited bureaucracy, ambitious product targets and performance-based rewards. And it is successful, with 40% of its net revenues from products that are less than 3 years old.

Others see that innovation will deliver high impact in key strategic areas but not in others, and so they focus on those key parts of their portfolio. The companies highlighted as excelling in this core capability know where and why they will prioritize their innovation focus – Nokia on growing a service business, Shell on low CO2 fuels. This doesn't mean they will pull back in innovation elsewhere, but they do see big future bets and are making innovation a major part of their strategic focus.

VB: In reference to insight, another core capability, you say, "Most firms have access to masses of market research, consumer insight, emerging trend data and new technology foresight but few actually use it." Is effective use of insight a significant differentiator for highly innovative and successful companies?

Tim Jones: Yes, it is now essential if you want to be in the same league. I see this as a hygiene factor.

VB: Do you have any advice for companies that want to develop personas – one of the four main fields of activity for customer-centered innovation – about how to ensure they best represent not only present customers but also potential new customers?

Tim Jones: I would look at Philips. They are the leaders at keeping their personas fresh and relevant, and using them as a core part of the innovation process.

VB: How does open innovation create a dynamic vehicle for growth?

Tim Jones: Open innovation for technology transfer to a company from outside sources from other companies, individuals, or universities, and from one company to another is clearly mainstream.

What we see as the interesting next phase is using open innovation for business model innovation – a huge area of opportunity, but one where protection of intellectual property has less of a role. For some companies, like Nokia, this is not a problem. This different approach to intellectual property is a major mindset change that is a key challenge for many others.

VB: You recommend companies use collaboration, partnerships, and outside open innovation tools. What open innovation tools work best?

Tim Jones: There are lots of different tools available. Some are more suitable for specific tasks than others. As we move to business model open innovation new, more flexible approaches will come on-line.

VB: Would you talk about the two key drivers that have led organizations to improve innovation impact by collaborating more widely across industry networks and partnerships?

Tim Jones: Recognition of core capabilities – from the C.K. Prahalad and Gary Hamel days – is probably the primary driver. More recently, role models for collaboration have proven the case and hence become an approach worth imitating. Virgin, Lego, IBM, Tesco, and UPS are companies that are good in this area.

VB: Is the emergence of multiple innovations escalating the pace of innovation of products and services, and resulting in a significant increase in competition within and across sectors?

Tim Jones: Yes, but it's being driven by the increase of business model innovation as the core glue. That is what drives Apple and Google, and what others are seeking to emulate.

VB: Have innovation leaders you identified over the past decade tended to remain innovation leaders up to the present time? Have you detected any reasons for why some have remained leaders while others have faltered?

Tim Jones: Some yes, and some no. Nokia, Apple, Virgin Atlantic, Samsung and Medtronic have been pretty consistent. They continue to lead their sectors by a significant margin.

In other areas, where there is a group of leaders close together, there have been regular shifts in ranking among first, second, and third. This has occurred in the chemicals, automotive and aerospace sectors.

Over the 10 years of analysis, some companies have fallen from the top – Merck, BP, and Time Warner. Some that have fallen are on the way back up and others not. The faltering is usually caused by an external shock to the system, as occurred with Merck, or by a change in leadership or culture.

VB: Of the innovation leader companies identified for the 2008 publication, 33% are based in the U.S. Do you see this percentage changing as companies in Asia and Europe focus increasingly on innovation?

Tim Jones: Yes, in some sectors. The US will probably continue to lead in sectors where it has major financial, societal, or market strengths such as medical devices and aerospace. It has clearly lost leadership in automotive, consumer electronics, and banking.

Europe is consistently top in the service sectors – airlines, retail, and banking. Asia leads in making stuff better than others, such as Samsung and Canon. An interesting shift will occur when India has as much impact in other areas, such as pharmaceuticals and automotive, as it has had in IT with Infosys.

VB: Is there any indication that companies in South America and Africa are becoming stiff competition for a place in your innovation leader group within the next decade?

Tim Jones: Not yet. There are companies in parts of South America and Africa that excel locally in innovation but not on a global scale. We don't foresee any taking on a world leadership role in the near future.

VB: Are there any countries we should especially watch as likely to have increasing proportions of companies in the top 1500 competing to be selected as innovation leaders?

Tim Jones: Alongside the usual suspects of US, Germany and Japan, it's always interesting to see Scandinavia punching above its economic and population weight.

VB: A few of the top innovation leaders in your 2008 publication included sectors not normally known to be innovative as they don't usually focus on product development. An example is insurance companies. Is innovation increasingly accepted as being the key to success even in these types of sectors?

Tim Jones: Yes, they are taking innovation more and more seriously as the commodity angle of their business model is put under pressure. They are looking to innovation to get their margins back up.

VB: In your automotive sector analysis you identified BMW as the innovation leader, with GM and Tata as "Ones we are watching." Given what has since happened in the auto industry and the U.S. bailout of General Motors, is GM still one to watch or are there other auto companies that are now more likely candidates.

Tim Jones: We had a big debate about this.

Tata was no question "one to watch" for the future, but it's still not in the top 5. The usual trio of BMW, Toyota and Honda were at the top with BMW edging over Toyota for the first time.

In the analysis for the 2008 publication we wanted to highlight companies that could come back or could appear on the scene over the next two years. Examples were Dow in the chemicals sector and Jumeirah in the hotels and leisure sector.

The argument for GM, given its scale, was that, if it got the electric car right and continued to do well in China and Russia, the company could be turned around. But we highlighted the big "IF" related to the legacy of financial obligations. Our research team argued that, if the company could rid itself of these obligations and stop being as Detroit focused as it had been in the past, the level of R&D investment and reach, coupled with the inevitable rise of electric-powered automobiles, could make GM a sound future bet for innovation leader.

One could now argue that Renault or Nissan have the potential for future leadership in electric cars. The Chinese companies could also be the ones to leapfrog to electric and hydrogen – something that GM tried too early.

That said, if GM changes its dependency on the US market and is free to explore and innovate, the required talent and investment could be there. But the 2009 analysis clearly puts them well down.

VB: You say, "Testament to the success of Google is the common use of the brand name as a verb…." Is this a good indication of a world-class innovation leader, or sometimes merely the result of good marketing or being first to market? For example, some still use the term Xerox as a verb for making a copy of an original.

Tim Jones: People like to knock Xerox and Hoover, but in their time they were strong because they produced good products. It is interesting how quickly this can change.

"Doing a Dyson" has now replaced 'Hoovering' in many countries as the common vernacular. This highlights the impact of a new brand.

VB: In the retail banking sector you identify Handelsbanken in Sweden as the Innovation Leader, and indicate that Zopa is one of the two banks you are watching. Are you still watching Zopa, and if so, why?

Tim Jones: Yes, Zopa is doing really well. As people trust banks less than ever and the margins become more evident, peer to peer models are in the ascendancy. Zopa is growing very well
VB: In the food and drink sector, PepsiCo is identified as the innovation leader, with Nestlé and Cargill as the ones you are watching. What happened to Coca-Cola?

Tim Jones: I could go on for hours about this.

A simple summary would be that PepsiCo saw the future – obesity and the decline of carbonated drink – and reacted by growing its low fat drinks and food businesses. Coca Cola dithered and focused too much on differentiation in a declining sector – for example, Vanilla, lime, and low caffeine – and the world has moved on.

I foresee that Coca Cola will have a hard time catching up with the others as it has yet to show it can change its mindset like others have.

VB: When writing about the consumer electronics innovation leader you say, "Time and again Samsung has proved it is able to look into the future and create what's just around the corner for the rest of us." Would you talk about this? Are they the best at identifying what will thrill consumers, creating "breakthrough" products, and doing superior marketing?

book coverTim Jones: Samsung creates products that are "affordable, accessible and amazing." They may not be the most expensive but they are providing new technology for the masses.

They are very good at value innovation. They have a clear understanding of how their technologies can be huge enablers for new business models in other sectors. Also, their design capabilities are now on par with, or better than, the likes of Sony.

VB: In the general retail sector Tesco, UK's leading food retailer and ranking third worldwide, beat out companies such as Wal-Mart as the innovation leader in 2007. Are there important lessons for other companies in what Tesco considers the four issues contributing to its innovation success – "trying new things, not being complacent, being prepared to change, and being determined that no other business will achieve more for customers?"

Tim Jones: Tesco's consistent growth is very impressive, but for me what makes it special is that, unlike its competitors, it does not try to impose a single model on all markets. It is willing to adapt by geography and by business, so that Tesco in Thailand is different from Tesco in Poland. How they tackle providing financial services products is different than how they do Tesco Mobile.

There are lots of common ingredients but Tesco tweaks to perfectly fit the local consumer mainstream.

VB: You identify Virgin Atlantic as the innovation leader among airlines in 2007, with …"a world leading design team that focuses equally on product innovation and service innovation." Could British Airways learn some lessons from Virgin Atlantic, given BA's current financial situation?

Tim Jones: Not really, BA has so many problems and is still stuck in seeing itself as an airline competing with other airlines. It is struggling to keep its business class passenger margins up, as well as struggling to compete with low cost Ryanair.

For 25 years Virgin has been the competitor – it has a different attitude, compares itself with other "best experiences," and has a brilliant innovation focus.

VB: Do you have any thoughts about whether the numerous acquisitions by Oracle of other companies, and the recent HP acquisition of EDS fit your description of "smart mergers and acquisitions," or are they essentially following previous CEO Jack Welch's approach at GE?

Tim Jones: Mostly they are following the old model. In the IT space I see Cisco as more of a smart M&A company – although not yet as accomplished as Medtronic, Nokia and, more recently, Google.

VB: Does the concept of leap-frog innovation go a long way in describing why China and other parts of Asia are emerging as economic giants in the global economy?

Tim Jones: Leap frog innovation relies on a combination of technology development, a real market or social need, and local catalysts. The catalysts may be government, such as in Singapore, or companies.

Take M-Pesa mobile phone payments success in Kenya. That is simple technology applied where there is a major social need and a company – Safaricom – willing to back the idea. Your readers may be interested to know that the "M" in M-Pesa stands for mobile and "Pesa" is Swahili for money. The most recent next step in this leap frog innovation, through a strategic partnership with Western Union Digital Ventures, is Safaricom's recent launch of M-Pesa in selected outlets in the UK, enabling Kenyans working in the UK to send remittance money to their families' mobile phones in Kenya.

VB: Successful companies are forward thinking and look to the medium- and long-term impacts to develop creative ideas and be innovative. Would you talk about this?

Tim Jones: The short term innovation space is now a commodity. It's a capability that is easily imitated, and for many can be bought off the shelf.

The competitive space has shifted to the "next big thing" and that requires insight and foresight. It entails differentiating between possibility and probability, understanding the left field developments, and recognizing the unique opportunity spaces. This is where I see lots of companies moving.

VB: You talk about the approach of large innovation leaders, such as Dutch Shell Oil and IBM, in developing scenarios for insights into intermediate- and long-term consumer and technology trends. What can smaller companies do if they can't afford to develop useful scenarios? Do they have to wait to see where the innovation giants are heading before they invest large amounts in innovation?

Tim Jones: Many of these companies share their insights openly and so smaller companies can also make use of them. Understanding where the big players are moving over the next 5 to 10 years can be hugely influential for small companies.

An example is the accelerating of the water issue – foreseen by Shell in 2004 and IBM in 2005. Waterstrategies in the UK is a pioneering international advisory firm that focuses on helping companies understand the emerging water issues, and identify new business opportunities related to these issues. Innovation around water is a major issue now for many large companies – which in turn are looking to small firms to come up with the new technologies and processes to address the tangible challenges.

VB: Do companies late to market with a product or other offering need to find a niche part of the market rather than competing head to head with those that are consistently able to move fast? Or is the brand of large companies, even if slow to move, a major advantage in most cases?

Tim Jones: Samsung is the best example of how fast a company ranking second can come out on top as an innovation leader. It has eclipsed Sony on this basis. The challenge however is that once you take over technology leadership, as many would see Samsung have done from Sony and Philips in consumer electronics, there is no one to follow so you then have to become the "first to market" driver of change.

VB: What do you mean when you refer to companies "innovating at the edge of their portfolio?"

Tim Jones: If companies have a technological or market core, such as making mobile phones and network equipment for Nokia, then innovating at the edge can be seen in the way they apply this to adjacent sectors and opportunities. In the case of Nokia, this is in healthcare monitoring in partnership with Medtronic in the US, and information provision to Indian farmers.

VB: You identify 4 core catalysts for innovation today across markets and sectors – Web 2.0, carbon and the broader green agenda, the end of oil and rise of nuclear and bio-fuels, and wellness. Is it likely they will remain key catalysts long into this century, especially given concerns about climate change?

Tim Jones: These are the current catalysts for change – the ones that every forward looking company has had on their agenda for a few years now.

The next catalysts – water, authenticity, healthcare insurance and people tracking via mobile – will become mainstream over the next few years and will be areas of differentiation for the next decade.

I see that major innovation catalysts are changing on about a decade cycle right now.

VB: Are innovation leaders in Europe that are focusing on sustainability as an integral part of their strategic priorities for innovation doing this in the context of reducing their carbon footprint and addressing global warming, or is it mainly tied to creating a positive image through marketing rather than making real, long-lasting changes?

Tim Jones: In the past couple of years it has really become core. Greenwashing is very dangerous so sustainability credentials come under a sharp focus.

Lots of companies – Adidas, H&M, GE, Du Pont, Tata, Shell, Vodafone, and many more – have put sustainability centre stage in their global strategy. This means they have to deliver real, tangible and measureable change so they can talk about it in consumer facing messages with credibility.

(Vern's note: Greenwashing refers to the practice of some companies deceptively portraying their products and policies in marketing or public relations as being environmentally friendly. An example is describing cost cutting as reductions in the use of resources.)

VB: Innovation can be measured in terms of past performance, current activities, and future opportunities. Does transparently reporting to the public these measures provide a key marketing advantage that is likely to generate consumer and B2B loyalties?

Tim Jones: Innovation has become better understood by investors and customers over recent years so innovation performance, once we all agree on the right measures, will be part of the corporate scorecard for all firms. Reporting opening and honestly innovation performance will be a market advantage.

VB: You didn't put numbers on the pages in Innovation Leaders? Was that a conscious, innovative idea?

Tim Jones: The companies are in alphabetical order so it doesn't need an index.

VB: If you had to pick one company in Europe to be at the top of your list of companies to watch, which would it be?

Tim Jones: Take your pick – Zopa, one of the stem cell start-ups, or another Scandinavian telecom. What comes after Ericsson, Nokia, and Skype?

VB: What about in the rest of the world?

Tim Jones: Tata or a brand in China we haven't yet heard of.

VB: Is the topic of innovation a "management fad" or is it here to stay?

Tim Jones: It's here to stay no question. It is evolving. Going back to an earlier comment, short-term product or service innovation is now a commodity.

Longer term, collaborative and business model innovation is where the focus is. This will also evolve.

VB: In addition to being the Head of Research for the Innovation Leaders Programme, you are Programme Director at Future Agenda. Would you talk about this?

Tim Jones: I conceived the program following a discussion with Group Strategy at Vodafone. I am now coordinating it, and the interactions with a host of companies and organizations around the world.

Something at this scale has not been done before and so it is very much an experiment, but one which has gained a lot of interest and support.

VB: Future Agenda is headquartered in Oxford, UK. How did the idea for this organization arise?

Tim Jones: It is actually more of a project than an organization per se, and Vodafone is very kindly sponsoring it.

The idea came from a desire to engage a wider audience than other futures programs I have been involved with. Rather than bringing together 30 people in Bangalore to discuss the future and develop scenarios, and then share the output we are flipping the structure around.

VB: "Using a coordinated mix of debate and on-line interaction, the Future Agenda is provoking, stimulating and capturing discussion from across a global audience on 16 major challenges."

(Vern's note: The 16 major challenges are authenticity, choice, cities, connectivity, currency, data, energy, food, health, identity, migration, money, transport, waste, water, and work.)

Tim Jones: Initial perspectives have been written and anyone in the world can add their comments via the website over the next couple of months to build on the view. In the New Year we will then invite the people who have made the most interesting contributions to a series of workshops to explore the issues further.

In essence, rather than predefining who are the experts to bring together, we are using the Future Agenda website and other media to stimulate debate, and identify who to connect in the 2010 workshops to detail the future pathways.

To make a comment people can select the major challenges that interest them by clicking on the "Topics" button, and select the challenges of their choice.

VB: In Innovation Leaders you identify 3 key catalysts for the future – water, authenticity, and healthcare insurance. What role might integrity, honesty, and social responsibility play as possible catalysts in the future?

Tim Jones: I see all these as part of authenticity and so do others.

One of the challenges of the digital age, given the ease of making imitations, is to manage the explosion in imitation. Diane Coyle, Founder of Enlightenment Economics and author of Sex, Drugs and Economics, has written about the "Future of Authenticity," which is posted on the Future Agenda website. We hope to generate a world wide dialogue on this important issue.

VB: Authenticity is one of the 16 major challenges posted for discussion on Future Agenda. Which of these challenges especially interest you?

Tim Jones: At a big picture view I think water, cities, food, and energy are clearly the macro challenges for a planet with imbalanced population growth.

From a personal point of view I'm interested in how the debates on the future of choice, future of work, and future of identity progress. And the role data and connectivity will play.

Also, the potential of an Asian equivalent of the Euro taking over the U.S. dollar as the global reserve currency are timely, compelling, and getting lots of response.

VB: Do you have any other comments you would like to share with our IdeaConnection readers?

Tim Jones: I think we have covered everything.

"Innovation drives growth and so demands clear focus."

Picking out the world innovation leaders in 25 major business sectors is a huge challenge. The methodology used by Tim Jones and his team to annually pick out the leaders and the ones to watch provides many useful insights into the key things to look for when assessing whether a business is excelling in innovation, and therefore is likely to have a bright future.

In Innovation Leaders we read that, in addition to the innovation capabilities they currently have, innovation leaders will be looking to address emerging issues. Two such issues are:

  1. Extreme simplicity: "…making products and service extremely simple is destined to be the source of many new breakthrough innovations over the next few years."

  2. Open innovation: "…as companies strive for more radical ideas, expect to see broader, more diverse open innovation initiatives that seek to connect the usual suspects in new ways around common agendas while simultaneously sharing any intellectual property."

Tim Jones' Bio:
Dr Tim Jones is Head of Research for the Innovation Leaders Programme, which publishes Innovation Leaders every 3 years. The last edition was published in 2008.

Tim is also Programme Director of the Future Agenda, which is "a unique global program to bring together the best minds to discuss the greatest challenges for the next decade, the options we have and the best way forward." He has a blog where he shares his views related to these major challenges.

In 2000, he founded the innovation strategy company Innovaro which he left in October 2009 to focus on the Future Agenda program. Previously Tim was Managing Consultant at Gemini Consulting and Consultant at Scientific Generics in Cambridge.

Tim Jones is a recognized leader in innovation and future growth with specific expertise in bringing together unique collaborations and helping organizations identify new opportunities. He has led a number of programs looking 10 and 20 years ahead for organizations such as Shell, P&G, Mars, Speedo and several government departments. He advises a number of public bodies on innovation and future priorities, and is a regular speaker at corporate events and public conferences.

He has a PhD on Conflict in Innovation Teams, an MDes in Industrial Design Engineering from Royal College of Art, and MA Engineering from University of Cambridge.

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