Creator of New Report Explains Why Innovation is a Key Measurement of Company Success

In R&D Magazine on September 26, 2018.

We all value innovative ideas—whether they are incorporated into the technology we use, the cars we drive, the stores we shop in, or the restaurants we eat at.

But how can the innovation of one company be compared to another? How can companies really quantify how truly ‘innovative’ their customers think they are?

One group is working to provide these answers.

Earlier this year, a collaboration between research firm Rockbridge Associates, the Fordham University Gabelli School of Business and the Norwegian School of Economics, unveiled the American Innovation Index (Aii), a comprehensive metric that scores major companies based on how they innovate to improve their services.

The Aii—which includes 163 major companies in 20 different sectors such as automotive manufactures, banks and credit unions, fuel companies, restaurants, general merchandise retailers and technology providers—represents the first comprehensive methodology that quantifies and ranks innovativeness as experienced by customers. Each of the companies received a score based on a representative survey covering over 40,000 customer touchpoints.

The research collaboration also developed the Social Innovation Index, which is a rubric that scores companies based on how their customers believe they are innovative in regards to social and environmental consciousness.

On Nov. 15, Charles Colby, the chief methodologist and founder of Rockbridge Associates and Gina Woodall, the president of Rockbridge, will outline the Aii as part of the opening keynote address during at the 2018 R&D 100 Conference at the Waldorf Astoria in Orlando.

Attendees of the conference will get key insights from the report from its creators as well as free access to the full index.

To provide a sneak peak of what to expect, Colby recently granted an exclusive interview with R&D Magazine where he discussed the basis of the index and what he hopes its ultimate impact will be.

Charles L. Colby
Chief Methodologist and Founder of Rockbridge Associates

R&D MagazineCan you explain what the American Innovation Index is?

Colby: The whole index is based on a new paradigm of how companies succeed. Traditionally we think of a simple paradigm that you satisfy your customers and you provide good value and you will be rewarded with their loyalty and capture market share. What we are finding is that is not enough.

You can have industries where there is a very high level of satisfaction, but the ones who actually grow are the innovators. Innovation is another layer that customers expect from companies that provide services. The more innovative companies tend to break away from the pack and command greater loyalty and in some cases become disruptors in their industry. What we essentially measure is customer perceived innovation, what customers notice. Many of us are familiar with traditional measures, things like satisfaction and the Net Promoter Score.

What the index does is it measures customer’s perceptions, how innovative companies are and captures perceptions that the company changes the market, that it’s creative, that it’s pioneering, that it is generally innovative from a customer point of view.

R&D Magazine: How do you decide which companies to include in the index?

Colby: We can’t quantify everybody. This originally started in Norway and we were looking at 75 or 80 companies and in the U.S. we looked at 163 companies. The way we picked them was, first of all they are all B-to-C. We did not want to look at, for example, how IBM delivers services to corporate clients and things like that. Then we picked what we felt were the major sectors of the U.S. economy and we looked at what the Fortune 500’s were. Then within their categories, we tried to look at some non-U.S. based companies like Ikea for example. Then we added some disruptors because we felt like they were up and coming like Uber and Lyft. In the travel industry, we included all your traditional hotel companies, but we also made sure to include AirBnB.

R&D Magazine: Can you explain the difference between the American Innovation Index and the Social Innovation Index?

Colby: We measured two different things. The Aii is customer-focused innovation; it is the overall innovativeness from the customer’s perspective. Social innovation is the customers view of how socially innovative a company is. Here it relates to things that are maybe less tangibly valuable to a customer but might matter to a customer because they know the company is doing positive things for society and the environment. What we are looking at there is they have innovative offerings that benefit society, they make benefiting society and the environment a priority, and they come up with innovative solutions to social and environmental problems.

R&D Magazine: Is there a correlation between high scores in one index and the other?

Colby: They do correlate highly, but not perfectly.

R&D Magazine: Do you feel like the companies towards the bottom will see this and try to do better or try to do things differently? Will this list make a difference in how companies operate?

Colby: We are hoping that it does.  I think the challenge is if you talk to any executive in a company, the main thing they care about is the Net Promoter Score. But if you look at that the actual science behind the Net Promoter Score, it doesn’t project loyalty very well, it doesn’t project behavior. You come to this viewpoint here that you don’t necessarily have to satisfy customers, you need to be innovate. If you are innovative, you actually increase your loyalty with your customers. That’s hard for people to understand but we are hoping some of the companies at the bottom pay attention.

R&D Magazine: What do you hope companies learn from this index?

Colby:  As an example, the real innovators focus on customer-focused innovation, things that actually improve the customer experience. We want companies to know that some sectors are really doing poorly. An example would be like the cable and internet provider industry, but on the other hand, it is not a foregone conclusion. An example would be the airline industry, where the bottom two airlines are at the bottom of the list and the top two airlines are at the top of the list.

R&D Magazine: What do you hope R&D attendees learn from your speech?

Colby: We are looking forward to presenting it. I think one other thing the audience at the conference would be interested in is that we’ve established a bottom line importance of innovation. We’ve correlated it with loyalty and it is definitely a predictor. The implication that has to people involved in R&D areas is this is more than just tinkering and coming up with new approaches, this translates into market share.