Economy, Strategy & Finance Briefs

A Culture of Innovation Drives Corporate Value

July 20, 2018

There are many and varied definitions of the word innovation. The word often conjures up visions of scientists in white lab coats holding clipboards, but the most successful innovations that drive business results are often small and incremental cultural innovations rather than dramatic large-scale R&D endeavors.

Innovation is a massive concept, as vast as “quality” and as mercurial as “reputation.” Business leaders understand and desire to manage innovative companies, but how is innovation managed? Is innovation distinctive enough to stand alone, or is it a component of business strategy? Can a company develop an innovative culture, or is culture judged based on a company’s record of innovation?

To get a handle on this powerful yet often misunderstood attribute we first had to define what we are evaluating. The definition of a Culture of Innovation is the perception of a company that prioritizes the advancement of new ideas that create value across all operations.

In 2016, the research team at Tenet Partners worked cooperatively with The Conference Board by adding culture of innovation as a new attribute of the CoreBrand Index^®(CBI), which is a quantitative research study that has been consistently fielded since 1990. The researchers at the firm conducted 1,600 interviews of impartial observers made up of influential consumers and business decision makers and focused on a subset of 160 companies of the 800 total companies in the CBI. The report entitled Innovation Culture and Brand: Measuring Intangibles that Drive Financial Outcomes, is available from The Conference Board.

Historical measures in the CBI include three attributes of the corporate brand: Overall Reputation, Perception of Management, and Investment Potential, which together make up the Favorability [PA1] rating. Utilizing this consistent quantitative research as the benchmark and comparing it with the new attribute identifies thought-provoking discussion points. For example, when segmented into four performance tiers, the top tier of culture of innovation is higher than investment potential of the firm. Conversely, the bottom tier is lower than the bottom level of investment potential. That means that culture of innovation is potentially a more critical measure of future financial performance than the perceptions of a company’s investment potential. This trend holds true across other attributes as well. The results indicate that a culture of innovation is indeed measurable and that it compares favorably with other attributes measured in the study. Culture of innovation seems to be a dynamic attribute that drives performance of the company’s brand as well as its financial performance.

Culture of innovation is an attribute in business, which can be measured both qualitatively and quantitatively and these measures correlate with other dimensions of brand image and customer satisfaction, as well as financial performance. It seems logical that developing a culture of innovation should be a strategically driven process that is a component of intangible assets that bring significant value to a company.

Every executive would admit that innovation is good for companies, but innovation alone is not going to lead to better business results. The innovation goal of leadership should be to create a culture of innovation that includes continuous measured improvement in all areas of the company. Success is achieved when the goals are tied into specific business improvements in the corporate brand and customer satisfaction. Those perceptions positively impact business results when consumers buy more of your products or investors buy and hold more of your company’s stock.

About the research

Innovation Culture and Brand: Measuring Intangibles that Drive Financial Outcomes examines two elements of innovation efforts: internal innovation network and customer experience and branding. These are part of a larger framework outlined in the report Signposts of Innovation: Towards Better Innovation Metrics for Business: A Primer. Companies can use the framework as a reference for assessing innovation or as a basis for creating their own metrics.