Innovation Capital: An Emerging Source of Competitive Advantage

The bottom line is that investors and potential employees love companies—and leaders—with a reputation for innovation.  Firms and leaders with a reputation for innovation are able to attract more talented people—often at a discount—because talented individuals want to be associated with the company’s innovation brand.^[i]  Moreover, companies with an innovation brand are more likely to have customers identify with them at a personal level (think of Apple loyalists).  In turn, this leads to increased customer loyalty, repeat purchases, willingness to pay higher prices, and increased tolerance for occasional product failures.^[ii]

The key takeaway from our research is that a reputation for innovation is valuable for getting resources—and has a real impact on a company’s market value. So how do leaders and companies build a reputation for innovation?

Build your “forward thinking” skills. Individuals and companies that get recognized as innovative spend lots of time thinking about the future answering these two questions: What will customers/individuals want next?  What will new emerging technologies enable us to do?  When we asked Jeff Bezos what percentage of his time he spends thinking about how Amazon will create value in the future his response was: “Pretty much all of it.”

Be a founder. Individuals and companies get recognition by founding something that hasn’t been done before.  Think about it.  We know Bezos because of Amazon.  Musk because of Tesla and SpaceX.  Zuckerberg because of Facebook.  Doing something “new” attracts attention.  But you don’t have to found a company or a new business within a company.  Indra Nooyi, Chairman and former CEO of PepsiCo was founder of the MegaTrends group at PepsiCo.  This group was charges with identifying the megatrends that would influence PepsiCo’s future options for creating value.  This group helped both Nooyi and PepsiCo to be “forward thinking”—and built her reputation as an innovator.

Build your company’s innovation capabilities. Amazon’s plethora of innovations has come largely because Bezos has implemented processes to replicate Silicon Valley inside the company.  Amazon’s “working backwards process” allows lots of different leaders to provide funding for innovation projects (See chapter 8 of Innovation Capital for details).  What is your plan for building your company’s innovation capabilities?

Tell interesting founding and innovation stories. Individuals and companies that build reputation are good at telling stories about their innovation prowess.  We are all more likely to believe a company is innovative if we’ve heard an innovation story about a leader or employee.  It’s time to get the word out and broadcast stories of your pursuit of innovation.

So ask yourself “What am I known for?” and “What is my company known for?”  If you don’t know, it’s time to think about building reputation as an asset.  Our research shows that the most valuable reputation that any individual or organization can have is that of “innovator.”  A reputation for innovation carries more prestige, more status, and more value than any other label—so maybe it’s time to think about how to build your innovation capital.

Read more: Innovation At Scale Isn’t Easy, But The Rewards Are Worth It

[i] This has been found in academic research as well observed in managerial articles (See Economist).

[ii] See Dyer, J., N. Furr, M. Hendron and E. Volmar (2017) “Innovation reputation and firm value.”  Presented at Academy of Management Meetings, Atlanta, Georgia, August 9.