Innovation Underpins Corporate Reputation: The Lesson of Steve Jobs

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Steve JobsOne of 2011’s seminal business events, the death of Steve Jobs, has heightened the discussion in business circles about the role of innovation in corporate success and reputation (Apple has been ranked #1 in just about every corporate reputation survey conducted in the past four years). Whether one believes Jobs was an original innovator, or as Malcolm Gladwell postulated in a New Yorker article that he was actually a “tweeker” of other people’s ideas, there is no debate over Apple’s powerful growth and profitability resulting from the cascade of successful new products introduced in the past nine years.

Even before Jobs passed away, at least one study found that innovation was moving up on the priority list of CEOs this year. According to PwC’s 14th Annual Global CEO Survey, innovation “has gained prominence among global chief executives’ strategic priorities as a means of boosting revenues and reducing costs.” For the first time since this survey has been conducted, CEOs said they are “just as likely to focus on innovation to achieve growth as on exploiting existing markets.”

My review of corporate reputation ranking systems suggests that innovation has become the most important of the reputational components referred to as “intangible assets” (assets which cannot be quantified on a company’s balance sheet). The pioneering work of New York University accounting professor Baruch Lev concluded that intangible assets, including patents and trademarks, corporate culture and talent management, have become major drivers of corporate financial value in an era where intellectual capital is such an important part of a company’s assets, often surpassing the value of brick and mortar assets. (Financial performance remains the primary determinant of corporate reputation, according to most reputation measurement systems).

While companies normally quantify their R&D investments, the hundreds of millions or billions of dollars often have nothing to do with how innovative a company is, if innovation is defined as bringing new products to market successfully. In fact, Booz & Company’s 2011 Global Innovation 1000 study concluded that spending more on R&D “won’t drive results.” The Booz authors noted: “There is no statistically significant relationship between financial performance and innovation spending, in terms of either total R&D dollars or R&D as a percentage of revenues. Many companies – notably Apple – consistently underspend their peers on R&D investments while outperforming them on a broad range of measures of corporate success, such as revenue growth, profit growth, margins, and total shareholder return.”

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