Jeff Dyer, Horace Beesley Professor of Strategy at the Marriott School of Management at Brigham Young University
Hal Gregersen, Executive Director of the MIT Leadership Center
Most innovation rankings are popularity contests based on past performance or editorial whims. We set out to create something very different with the World’s Most Innovative Companies list, using the wisdom of the crowd. Our method relies on investors’ ability to identify firms they expect to be innovative now and in the future. You can learn more about our research on innovation at The Innovator’s DNA website.
Companies are ranked by their innovation premium: the difference between their market capitalization and the net present value of cash flows from existing businesses (based on a proprietary algorithm from Credit Suisse HOLT). The difference between them is the bonus given by equity investors on the educated hunch that the company will continue to come up with profitable new growth.
To be included, firms need seven years of public financial data and $10 billion in market cap. (Facebook, for example, would rank high on the list if we used only the data since they went public.) We include only industries that are known to invest in innovation, excluding industries that have no measurable investment in R&D, so banks and other financial services don’t make the list. Nor do energy and mining firms, whose market value is tied more to commodity prices than innovation. Big caveat: Our picks do not correlate with subsequent investor returns. To the extent that today’s share price embeds high-growth expectations, one might even anticipate low returns to investors, as these expectations may be difficult to meet.
We use something called the Innovation Premium to compile our list. It is calculated first by projecting the cash flows a company produces from its existing businesses without any growth and look at the net present value (NPV) of those cash flows. We compare this base value of the existing business with the company’s current total Enterprise Value (EV): Companies with an EV above their base value have an innovation premium built into their stock price. You can read a more detailed explanation of our work around innovative companies and leaders in our book The Innovator’s DNA (Harvard Business Press, 2011), written with Harvard Business School professor Clayton Christensen. The following steps outline this approach in greater detail:
Donald Trump’s executive orders targeting Muslims, immigrants and refugees are moves that pander to the dangerous forces of racism and xenophobia.
These bans will worsen a worldwide humanitarian crisis, isolate us from our friends and allies, and make us even more vulnerable to terror attacks. Moreover, if these foolish actions are enforced, it will result in dire consequences for the economic well-being of our country. Immigrants of all races, creeds and national origins form a vital part of America’s economy as workers, job creators, and entrepreneurs.
I’m an immigrant of Lebanese Muslim descent. I’m also a telecom infrastructure expert, entrepreneur, and the founder and CEO of Capwave Technologies, based out of Asbury Park, New Jersey. Before launching Capwave, I helped restructure and launch several telecom startups and served as a strategic adviser to Fortune 500 companies. I hold a graduate degree in electrical engineering, and am currently enrolled in MIT’s Executive MBA program.
As an immigrant and successful small business owner, I’m living the American dream.
My entrepreneurial journey began on a chilly January morning in 2008, not long after my daughter, Elle, was diagnosed with type-1 diabetes. She and I were in the kitchen of our New Hampshire home getting ready for breakfast. Elle, who was eight at the time and the eldest of four children, reached into the cupboard and picked out a box of Cheerios and a bowl. I handed her a measuring cup, calculator and notepad.
The realities of living with type-1 diabetes—a chronic, autoimmune disease that destroys the body’s ability to make insulin—were just starting to sink in. Fixing a bowl of cereal was no longer a simple process; it was maths problem. Together, we needed to figure out the amount of carbohydrates in the cereal and milk and then determine how much insulin Elle would need to inject to turn that food into fuel. We also needed to keep track of the food she was eating along with her physical activity and blood sugar levels to avoid dangerous high and low blood sugars. Having blood sugar that is either too high or too low can cause serious complications and could lead to death.
Elle and I got to work but she soon became frustrated. She threw the cereal box across the room; Cheerios flew everywhere. “Why does this have to be so hard?” she asked me through muffled tears.
The first thing an organization can do to nurture innovation is to tap into its own human capital. At a high level, all organizations care about ideas, and more often than not, in corporate settings, people already have ideas. Staff have expertise, know the customers, and throughout the organization they can interface with interesting sources of data and information. It’s just that their day-to-day requirements do not allow them to execute. Slack time can be an important lever for incubating creativity and a meaningful way for executing ideas employees have had in mind for some time.
But if you ask employees to be entrepreneurial, it’s not same – they may end up directing their own unit, but not building and scaling a multi-billion dollar start-up. It’s hard when you have the safety and surroundings of a large organization to act like entrepreneurs who have to attract capital from outside. The challenge is once you identify talent and the ideas inside to incentivize to execute an experiment as though it were a start-up. Perhaps the biggest organizational change is to think like a small start-up.
From an organizational perspective, firms can learn a great deal from university accelerators. At MIT, we have Global Founders’ Skill Accelerator, where we get students with good ideas to scale businesses. The interesting thing is that students who have no experience of entrepreneurship get feedback and advice from a set of seasoned entrepreneurs. Similarly, an enterprise may have skills and expertise on the tech side, but no track record of taking an idea and scaling it to a multi-billion project. The challenge is how to recruit entrepreneurs to train employees with the good ideas to take them to the next level. Read More »
With MIT’s delta v student venture accelerator, the Martin Trust Center MIT Entrepreneurship welcomes a new group of students each summer and puts them through “entrepreneurial boot camp.” I want to give you a glimpse at some of the inspiring female entrepreneurs I’ve worked with, and how they are succeeding at what they do, shattering glass ceilings at every level:
• Take Natalya Brinker, CEO of Accion Systems, an MIT PhD graduate and a member of the 2014 accelerator cohort. Accion is developing revolutionary propulsion for satellites that will make space more accessible and affordable across industries. The company itself is seeing quite a bit of propulsion receiving funding from the Department of Defense and a Series A round and winning numerous awards.
• Or Katie Taylor, the CEO and co-founder of Khethworks, who earned her Master’s degree from MIT’s Department of Mechanical Engineering in 2015 and was part of the accelerator program that summer. Khethworks is a company that supports farmers in eastern India, where more than 30 million farmers tend to an acre or less of land. The company has developed a solar-powered irrigation system that lets these farmers affordably cultivate year-round.
• And Steph Speirs, a member of the 2016 delta v group who is co-founder and CEO of The Solstice Initiative, a nonprofit with a goal of providing solar power to underserved Americans by partnering with communities to share solar power. Speirs graduated from MIT with an MBA this June, and was honored as an Echoing Green Fellow and Soros Fellow during her time here as a student.