Much has been written about the competitive and social importance of business innovation, but a close look at the companies credited as being America’s most innovative would indicate there’s more talk about innovation than action. This article suggests there are five reasons for that.

Take a look at the ‘most admired’ companies lists of business magazines (you’ll need a prescription — these magazines aren’t very innovative online) and you’ll see yesterday’s news, and precious little innovation. The definition of ‘most admired’ is supposed to embrace innovation and social responsibility, so I expected to see companies on these lists I’d really want to work for. Fortune’s top ten are Wal-Mart, Southwest Airlines, Berkshire Hathaway, Dell Computer, GE, J&J, Microsoft, FedEx, Starbucks and P&G. These are companies known more for production efficiency, slashing costs and investment acumen than innovation. The reason they head up the Fortune list? Only CEO’s, Directors and securities analysts get to vote. No wonder. I guess it never occurred to Fortune to ask any customers who they admired.

Next stop in the search was Forbes. They define ‘best’ as synonymous with fastest-growing. Whether you get there by exporting jobs, slave labour, shoddy products or marketing sleaze doesn’t matter. Their top profile? A factory that does nothing but breed animals for a life of torture in laboratories. Uh, yeah, OK.

After finding the archives of Business 2.0 impervious to non-subscribers, I finally found what I wanted, where I should have looked first, in Fast Company. Ironically the only magazine I currently subscribe to is the only one I don’t have to. There’s a message there, perhaps.

On its Business At Its Best page, Fast Company keeps kind of a running tabulation of the world’s leading innovators. It currently lists these fifteen:

  1. GPS – The satellite system that cost $9B to develop, and which underlies a host of innovations in just about every industry on Earth. Who paid for it and (so far still) owns it? You do. And it’s absolutely free for anyone to use. The money came entirely from American taxpayers. It’s a true, courageous, awesome innovation, done completely by the public sector. Don’t let Bush privatize it.
  2. Pottery Barn – The company that made ‘brand’ something more than a swish.
  3. World Wide Pants – Letterman’s comedy production company.
  4. Google – No surprise here.
  5. Washington Mutual – The company that bought 30 banks and then refocused them exclusively on the neglected lower/middle income market.  However: They offer free chequing but gouge users $30 for NSF cheques, and a lot of their customers bounce cheques.
  6. Amoeba Music – Huge stores that carry and support the independents.
  7. Wal-Mart’s Next Stage – Expansion into service stations, groceries, reno stores, car dealerships, anything retail. All using Sam’s one true innovation: Get out of the business of selling stuff to customers, and into the business of leasing shelf space and display space to vendors. The ultimate middleman. Brilliant. Barren. Scary.
  8. ESPN – Extreme Games brings sports back to the people.
  9. Take Good Care – Health Superstores for aging boomers.
  10. The Container Store – Three strategies: Partner with vendors, Give customers hands-on, informed service, and Keep your offerings very flexible as demand changes.
  11. Electronic Arts – Four strategies: Disciplined creativity, Continuous improvement for core customers, Expand the market to new gamers (they developed the SIMS, the first game played mostly by females), Exploit the genius of cheap Canadian software developers.
  12. Wipro – The Indian firm that outsources the world’s technology R&D. Innovation at the cost of American jobs. Hmmm.
  13. BMW – For design innovation.
  14. TIVO – The cautionary tale that everyone thinks is the innovation of the decade, but still isn’t out of the red, or the courts. Video on demand, freed from its commercial shackles. We’ll see. Fingers crossed.
  15. Parkland Memorial Hospital – At last, maternity and neo-natal care that’s safe and affordable even if you aren’t rich.

Well. Definitely better. But lots of question marks, and hardly a mother lode of revolutionary business genius benefiting consumers. Why aren’t there more, and more exciting, innovations, especially among America’s largest corporations, the ones that can actually afford to invest in innovation? Five reasons, present in almost every large organization:

  1. Shareholders – Large public companies are slaves to shareholder demands for steady, uninterrupted growth in profits. No risks please. Spend your money buying your competitors and your congressmen, not investing in unproven ideas.
  2. Intellectual Property Laws – Bush has allowed what can be patented and trademarked to expand to ridiculous, anti-innovative, and anti-competitive extremes. He’s allowing big corporations to patent or trademark ideas (as general as e-mail), broad processes, symbols and representations (cartoonists may soon have to pay license fees to caricature celebrities). Huge armies of corporate intellectual property lawyers snuff out new innovations as competitive threats. These laws will kill innovation, and put our most creative minds out of work, in bankruptcy, or in jail.
  3. Customer Antipathy – The new mantra of business is “we’d have a good company if it weren’t for the damn customers”. Most visible in the entertainment industry, but increasingly true everywhere. It’s us versus them. Not clear yet who has the most power, but with new laws preventing customers from suing suppliers, the tide is turning away from us, and that’s bad news for innovation. Trust no one. When they ask you what you want, they’re just trying to figure out how to make you want what they’ve got.
  4. Size & Concentration – Large corporations are like oil tankers. They move slowly and can’t change direction in less than a generation. Not only does corporate concentration reduce the motivation for innovation (and as the economy turns around, get ready for lots more consolidation), it also makes it harder to do even when the motivation is there. Size is the enemy of agility.
  5. The Race to the Bottom – The incessant drive for cost-efficiency without any consideration for its human, social and environmental cost is leading corporations to outsource and export jobs, automate processes, and disintermediate services (i.e. ‘serve yourself’). The consequence is lower product quality, commoditization, loss of employee continuity, creativity and loyalty, and even less money for investment in innovation. If it’s cheap enough, it’s easier to throw it out than make it better.

There are solutions, ways of overcoming these enemies of innovation, and I’ve developed a prescription for them. But without structural and cultural changes to address the five problems above, innovation is going to get more and more difficult for business to foster, and less and less palatable. In the mindless pursuit of profit at any cost, we are digging ourselves into a big hole.

This entry was posted in Working Smarter. Bookmark the permalink.


  1. 2. Intellectual Property Laws — These aren’t a Bush thing. He didn’t allow anything. His Administration is now trying to export our IP Disease, but all our most vile and despicable IP laws were written and enacted well before he took office. Virtually every pain-in-the-ass process patent now creating havoc in the tech world was granted before 2000.Our IP laws are pretty badly broken and are a major impediment to growth, innovation, and progress in the US. But they aren’t created, managed, or usually even advocated by the executive branch. The problem is almost wholly with the Congress and that is where we have to solve it.– twf

  2. Adam Solove says:

    I don’t know if you can discount profit-hoarding as a motive for innovation. Schumpeter’s famous creative destruction thesis comes with an opposite corrolary — in order to free resources for innovation, old industries have to become more efficient. If we outsource the making of cars or apparel, we free the capabilities to work on industries where innovation is more useful. Ultimately we can’t have anything new until we can make the old stuff seem commonplace.The successes are in many cases that exceptions that prove the rule — innovative and more expensive new products do sell well. This only illustrates that those who can’t would do well to simply become more efficient. The factors you show as opponents of innovation are in most cases the things that make an eocnomy stable. Innovation could never be the rule, it is merely the exception that makes the rule worthwhile.

  3. Doug Alder says:

    re: your first point Shareholders – The main reason by a long shot that the US is falling further and further behind the rest of the developed world in advanced teecommunications to the home. The need to deliver shareholder value in the form of constant dividends has preventred telcos from writing off hteir copper infratsructure and replacing it with fiber. It has prevented them from writing off SONET/ATM combos and replacing them with GigE and SONET/GigE networks – much cheaper and more adaptable. The need for shareholder value forces them to continue building smart networks (networks where the intelligence (control) in the network resides in the center of the network) as oppposed to the much more versatile satupid networks (where the intelligence resides at the network edge (customer systems – protocols) ) While the last point is good for hte telco’s bottom line – that is they can depreciate outmoded technology over a longer period of time and simultaneously force customers to purchase expensive and outdated technology (T class, DS class and OC circuits) it stymies development of advanced networks that reach the multitudes. Such networks are necessary in order to stimulate application development. The long envisioned future of getting all communication services over one line including instantaneous movie downloads and anything else you can imagine doing digitally will not happen as long as people think broadband is xDSL or Cable Internet. Blame it all on shareholder value.

  4. Dave Pollard says:

    Terry: Yes, I stand corrected. Sometimes it is too easy to blame Bush for all the country’s ills, but in this case Congress is the real problem, and has been under both Republican and Democratic control. Too many &#$% lawyers in there.

  5. Dave Pollard says:

    Adam: It’s true that innovative products do command a higher margin, at least until competitors catch up and commoditize them. The problem is that it costs money to promote and educate customers to use them, which can more than offset the higher margin. And then of course there are the innovations that never see the light of day or don’t catch on in the market.

  6. Dave Pollard says:

    Doug: Absolutely true. There are comparable ‘false economies’ in a number of other industries, where there is reluctance to write off investment in obsolete technologies, products and processes, and jump to newer, more efficient and powerful ones. The energy and transportation industries are especially notable examples of this.

  7. Bruce Hughes says:

    You might want to have a look at Zuboff and Maxmin’s book, “The Support Economy,” for some other ideas on the adversarial relationship between customers and business and the race to the bottom that is constrained by transaction economics.

  8. says:

    I am also unhappy with people and things cutting innovation. Well, I think culture (the refusal to change) is big chunk of the problem. You’ll find my rant like reasoning at my thoughts … I mean blogs …- Kaleem.

Comments are closed.