Chinese tech giants force way into BCG top 15 most innovative companies

Chinese tech giants Alibaba and Tencent have cracked the top 15 of the most innovative companies list issued by management consulting firm The Boston Consulting Group, with digital natives crowding the top of the rankings.

Conducted since 2005, The Boston Consulting Group’s annual global list of the most innovative companies takes in the views of senior executives across a wide range of industries, and has this year seen the Chinese firms Alibaba (10th) and Tencent (14th) join Samsung (5th) as the only international challengers to US dominance among the top 15 entrants, led by list-stalwarts Apple, Google and Microsoft. Other Asian entities in the top 50 include Toyota, Nissan, Japanese IT outfit NTT Docomo, and Huawei.

While the Chinese internet titan Tencent returns to the list after previously rising to 12th spot in 2015, and the South Korean electronics leaders Samsung have been a regular top-five fixture for the past five years, the booming ecommerce company Alibaba makes its first appearance on the list, shooting straight into tenth spot as a fitting reflection of the company’s plus 23.7% push in research and development spending for the past financial year.

Setting the list of companies apart is their embracing of digital innovation – naturally, where it concerns digital natives, with seven such companies featuring in the top ten overall, or by having otherwise built digital technologies into their innovation programmes. The report notes that the trend can be seen across all industries, “penetrating what were heretofore the most stolid and conservative businesses.”

Fittingly, in terms of the areas of innovation that respondents believed would have the greatest impact in their industry over the next three-to-five years, the only categories to have grown in importance in the minds of executives since BCG’s 2014 survey have all concerned digital-related activities; big data analytics, new technology adoption, mobile products and capabilities, and digital design.

Digital innovators

Although ‘new products’ and ‘technology platforms’ remain strong at each 41% of respondent citations, they have respectively dropped from 48% and 51% on the last survey. In contrast, ‘big data analytics’ (39%), ‘speed of adopting new technology’ (38%), ‘mobile products and capabilities’ (34%), and ‘digital design’ are all on the rise and fast closing the gap.

Indeed, big data analytics has risen from eighth to a close third most important focus, with the energy, media and entertainment, financial services, and public sectors all recording large increases in the cited pursuit of big data. The gearing toward the digital side of innovation becomes even more prominent when assessing the gap between those companies which consider themselves strong in innovation as compared to those who describe themselves as weak.

The report states; “More than half of respondents said that their companies use data analytics for a variety of purposes connected with innovation, including identifying new areas for exploration, providing input for idea generation, revealing market trends, informing innovation investment decisions, and setting portfolio priorities.”

Together with big data, stronger innovators attach much greater importance to the other rising digital categories, as well as pursue them much more aggressively, and are far better at leveraging big data throughout the innovation cycle. The authors note that strong innovators utilise multiple sources of data for innovation, with almost three quarters reporting that “new projects or ideas for growth come from social media or data mining.” This compares to a less than one fifth positive response from weak innovators.

As might be imagined, strong innovators are also far more inclined to be happy with their return-on-investment (90%) as compared to self-described weak innovators (24%). But when split between strong and weak innovators, the difference in the areas being actively targeted demonstrates a striking digital ‘divide’, with 42% of strong innovators looking to tech platforms compared to 22% of weak ones, big data 43% to 26%, mobile products 42% to 16%, and speed of technological adoption 40% to 15%.

Naturally, the areas expected by executives to have an impact on their industries reflects to a large extent the areas being pursued by companies, where big data (up six points to 35%) has in fact now drawn alongside ‘new products’ (down nine points to 35%) as equal primary pursuits across the board. ‘Speed of adopting new technologies’ meanwhile has jumped 14 percentage points year-on-year to draw even with technology platforms at 30%.

Here, the report states; “The importance of speed in adopting new technologies has gone from near last place to fourth. Speed also used to be last in terms of the number of companies pursuing it as an innovation strategy; it is now tied for third. The percentage of companies targeting fast adoption increased significantly in manufacturing, insurance, metals and mining, and the public sector.”

The report contends that digital organisations such as Alibaba and Tencent are built on a common set of design principles which enhance their successes in terms of innovation. First of all, they are customer-centric, to the extent that they focus all aspects of their business on customer needs and wishes, and they are experimental, with business models designed to promote experimentation; “they are built to try, fail quickly, and improve. When something works, they scale up fast.”

Moreover, from an organisational perspective, they are agile, adhering “to short response and implementation times in both decision making and resource allocation”. They are lean, simple and standard – featuring “standardised structures, units and processes as well as clear roles and responsibilities,” with simplicity being a key consideration in decision-making. And they cross-functional, showcasing teams which “purposefully combine all relevant types of expertise, both digital and business-specific.”

Further to their underlying functional structures, strong innovators in general are far more likely than weak ones to have processes in place and a company culture which encourages and fosters radical innovation – starting from the very top, with 77% of strong innovators noting an upper-management commitment to radical innovation compared to just 27% of weak ones, and 76% of the strong companies offering radical innovation-linked incentives against 31% of weak ones.

Similar contrasts in figures can be found in terms of governance, with strong innovators allowing room for iterations and adjustments in 81% of responses compared to 24%, granting room and time for experimentation at 78% to 29%, protecting radical projects from strict cost controls at 78% against 23%, and not tying the start of projects in with a reliance on future returns in 78% of strong organisations as compared to 25% of the weak ones.

The report concludes; “Strong innovators are much more likely to pursue disruptive or radical processes governing innovation projects. These companies understand that technological advances, like time, wait for no one – and the need to transform their innovation functions, as well as their broader organisations, for the digital world is urgent.”