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2016/17  Analysis  Summary  Insights  from  the  Leaders  

February  2017  

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Background  Context  

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Contents  

§  Summary  

§  3  Key  Trends  

§  2016/17  InnovaDon  Leaders  

§  Background  Context  

§  The  InnovaDon  Leaders  Analysis  

§  Modeling  InnovaDon  Leaders  Performance  

§  More  InformaDon  

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Summary  

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InnovaDon  Leaders  idenDfies  the  companies  that  achieve  the    most  from  their  innovaDon  acDviDes  to  deliver  sustained  growth    

§  16th  year  of  research  §  Analysis  across  25  sectors  §  Global  view  of  >1500  firms  

§  Profiles  the  leaders:    

§  High  impact  results  

§  Most  effecDve  innovators  

§  Also  outperforms  the  market  

§  14.5%  CAGR  since  2002  

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Three  Key  Trends  

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Across  the  leaders  for  2016/17  we  can  see  three  notable  trends    

US  Dominance  §  20  of  the  25  leaders  are  US  based  organisaDons    §  This  is  the  highest  single  country  concentraDon  since  the  research  began  §  European  presence,  down  50%,  should  be  raising  some  hard  quesDons      Partnerships  at  the  Fore  §  CollaboraDon  has  been  a  key  component  for  some  sectors  for  some  Dme    §  Today  it  is  increasingly  influenDal  across  the  board  §  Delivering  high  impact  change  requires  new  alliances      Big  Bets  §  Radical  approaches  are  core  to  several  organisaDons’  growth  strategies    §  Alphabet,  Amazon,  Apple,  Tesla  being  joined  by  Bank  of  America,  LEGO,  Nvidia  §  More  established  companies  making  major  future  growth  investment  bets    

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The  2016/17  InnovaDon  Leaders  

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Across  the  25  sectors  assessed,  the  current  innova;on  leaders  are  clear  and  show  how  best  in  class  innova;on  prac;ce  is  evolving  

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Accenture      Linking  digital  and  management          consul;ng  to  drive  client  innova;on  

2016  KEY  DATA    35%  Net  Income  Growth      6%  Revenue  Growth    289  US  Patents  

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Adidas      Partnership  and  brand-­‐led  innova;on        across  the  whole  product  porPolio    

2016  KEY  DATA    48%  Gross  Margin      80%  Sales  -­‐  New  Products    €150m  R&D  investment  

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Adobe      Leading  the  digital  evolu;on  across          graphics  and  desktop  publishing    

2016  KEY  DATA    22%  Revenue  Growth    $976m  R&D  Investment    356  US  Patents  

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Alphabet    Using  significant,  rising  Google  income          to  place  many  big,  bold  bets  

2016  KEY  DATA    20.3%  Revenue  Growth      19%  Net  Income  Growth      3389  US  Patents  

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Amazon    Successful  expansion  from  retail  to  cloud        services  extending  into  AI  and  autonomy  

2016  KEY  DATA    27.1%  Revenue  Growth      298%  Net  Income  Growth      1696  US  Patents  

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Apple      World’s  most  valuable  company  is  refilling        its  pipeline  across  a  widening  porPolio    

2016  KEY  DATA    $10.0bn  R&D  Investment    2535  US  Patents    215m  iPhone  sales  

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Bank  of  America  Proac;ve  posi;oning  on  fin-­‐tech  and        block-­‐chain  inspiring  sector  disrup;on    

2016  KEY  DATA    13%  Income  Growth    289  US  Patents    $2.2tn.  Assets  

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Boeing      Matching  commercial  performance          with  advances  in  defence  and  space  

2016  KEY  DATA    $4.6bn  R&D  Investment    1051  US  Patents    5.2%  Net  Profit  Margin  

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Boston  Scien;fic  Growing  influence  across  medical  devices        via  partnerships  and  niche  market  focus  

2016  KEY  DATA    $920m  R&D  Investment    492  US  Patents    12.2%  Revenue  Growth  

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Cisco      Driving  growing  IoT    based  transforma;on          across  the  connected  economy  

2016  KEY  DATA    $6.3bn  R&D  Investment    990  US  Patents    20%  Net  Income  Growth  

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Delta  Air  Lines    Matching  new  seat  innova;on  with  more        process  and  experience  partnerships    

2016  KEY  DATA    $4.4bn  Net  Income    318  Des;na;ons    4,804  Flights  per  day  

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Dow  Chemical    Pervasive  front-­‐runner  and  driving  force        developing  a  more  sustainable  industry    

2016  KEY  DATA    545  US  Patents    $1.6bn.  R&D  Investment    103%  Net  Income  Growth  

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FedEx      World’s  largest  fleet  adop;ng  greener        fuels  and  compe;ng  on  autonomy  

2016  KEY  DATA    6.1%  Revenue  Growth    73%  Net  Income  Growth    12m  Daily  shipments    

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First  Solar    Pushing  integrated  system  adop;on  in  a          fast-­‐growing  but  highly  compe;;ve  sector  

2016  KEY  DATA    $131m  R&D  Investment    49  US  Patents    38%  Net  Income  Growth  

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Humana    Advancing  digital  healthcare  to  increase        engagement  and  reduce  costs  

2016  KEY  DATA    12%  Revenue  Growth    11%  Net  Income  Growth    Growing  Patent  PorPolio  

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Inditex      Sustained  innova;on  op;mising          global  mul;-­‐brand,  fast  fashion  

2016  KEY  DATA    11%  CAGR  Revenue    9%  EBIT  Growth    250  Store  Openings  

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KT  Corpora;on  Deep  collabora;on  driving  adop;on  of          next  genera;on  technology  plaPorms  

2016  KEY  DATA    184bn  KRW  R&D  Spend    553bn  KRW  Net  Income    108  US  Patents  

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LEGO      World’s  most  valuable  brand  exploring          and  delivering  the  future  of  play    

2016  KEY  DATA    25.2%  Revenue  Growth    31%  Net  Income  Growth    109  Net  Promoter  Score    

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Lilly      Strong  pivot  to  cancer  and  Alzheimer’s        bearing  fruit  alongside  the  tradi;onal  core    

2016  KEY  DATA    $5.2bn  R&D  Investment    44  US  Patents    8.9%  Revenue  Growth  from  New  Products  

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Marrioe      Major  hotel  firm  embracing  innova;on  as        source  of  guest  experience  differen;a;on    

2016  KEY  DATA    Opened  55,000  Rooms    5.0%  Revenue  Growth      14%  Net  Income  Growth  

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Nvidia      High-­‐impact  expansion  from  processors          for  gaming  into  automo;ve  and  AI  

2016  KEY  DATA    353  US  Patents    $1.3bn  R&D  Investment    7.0%  Revenue  Growth  

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PepsiCo    Sustaining  “performance  with  purpose”  to        improve  resource  use  and  product  health  

2016  KEY  DATA    9%  Growth  New  Products    $654m  R&D  Investment    16.3%  Fall  in  Net  Income  

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Reckie  Benckiser  Non-­‐stop  incremental  innovator  growing        globally  as  consumer  health  powerhouse  

2016  KEY  DATA    11.1%  Revenue  Growth    60.9%  Gross  Margin    5.1%  Net  Income  Growth  

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Tesla      The  catalyst  for  change  across  the          automo;ve  industry  and  beyond  

2016  KEY  DATA    $214m  R&D  Investment    81%  Revenue  Growth    373,000  Preorders  for  Model  3  

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Xerox      Industry  pioneer,  regaining  leadership        through  focus  on  analy;cs  /  automa;on  

2016  KEY  DATA    $476m  R&D  Investment    1227  US  patents    27.4%  Fall  in  Net  Income  

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Background  Context  

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Back  in  1999,  exploring  growth  strategies  in  pharma,  we  wanted  to  know  who  were  the  most  effecDve  innovators?  

1.  “If  we  are  going  to  gain  more  more  from  organic  growth  then  which  companies  that  are  delivering  sustained  growth  are  the  most  effecDve  innovators  to  learn  from?”    

2.  “How  best  should  we  measure  innovaDon  performance?”    

Company  InnovaDon  CapabiliDes  

InnovaDon  Input   InnovaDon  Output  

e.g.  $  R&D  Spend   e.g.  #  Patents  

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But  if  we  wanted  to  know  who  is  the  most  effecDve  innovator  then  we  had  to  understand  key  raDos  of  output  to  input  

Company  InnovaDon  CapabiliDes  

InnovaDon  Input   InnovaDon  Output  

InnovaDon  Input  

InnovaDon  Output  

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The  InnovaDon  Leaders  Analysis  

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For  the  past  15  years  we  have  been  idenDfying  and  profiling    the  worlds  most  innovaDve  companies  across  25  sectors  

This  published  analysis  has  consistently  idenDfied  organisaDons  that  subsequently  deliver  higher  organic  growth  

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Most  now  recognize  that  innovaDon  can  both  take  many    different  forms  and  result  in  a  wide  range  of  varied  impacts  

Product Innovation

Technological Innovation

Service Innovation

Process Innovation

Business Model Innovation

Many are looking for a correlation between effective innovation capability and sustained corporate growth

Increased Sales

Higher Margins

Enhanced Brand Value

Attractive Culture for Talent

New Ways of Working

Tangible  

Intangible  

Tradi.onal  

Emerging  

Types  of  Innova:on   Example  Innova:on  Impacts  

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Our  model  analyses  the  1500  largest  companies  in  these    sectors  and  systemaDcally  selects  the  top  innovators  

25  InnovaDon  Leaders  

Single  company  for  each  sector  

75  Companies  

25  Sectors  1500  Companies  

Largest  companies  across  25  sectors  

25  most  innovaDon-­‐focused  sectors  

Top  3  companies    per  sector  

QuanDtaDve  Analysis  Throughout  Process  

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The  annual  InnovaDon  Leaders  results  since  2002  have  been  published  in  books  and  via  the  innovaDon  leaders  website  

Sector   2012   2011   2010   2009   2008   2007   2006   2005   2004   2003   2002  

Aerospace   Rolls Royce   Rolls Royce   Rolls Royce   Rolls Royce   Boeing   Rolls Royce   Rolls Royce   Honeywell   Rolls Royce   EADS   Honeywell  

Airlines   Lufthansa   Air New Zealand   Air New Zealand   Virgin Atlantic   Virgin Atlantic   Virgin Atlantic   Virgin Atlantic   Virgin Atlantic   Singapore Airlines   Singapore Airlines   Singapore Airlines  

Automotive   BMW   BMW   Renault   Tata Motors   BMW   Toyota   Toyota   Toyota   Honda   Honda   Honda  

Chemicals   BASF   BASF   BASF   BASF   BASF   Dow   DSM   DSM   BASF   Dow   Dow  

Consumer Electronics   Apple   Apple   Apple   Apple  Samsung Electronics  

Samsung Electronics  

Samsung Electronics  

Samsung Electronics  

Samsung Electronics  

Samsung Electronics   Sony  

Energy   Chevron   Shell   Chevron   Statoil   Shell   Shell   BP   BP   BP   BP   BP  

Fashion Retail   Inditex   Inditex   Inditex   Inditex   HandM   H&M   H&M   H&M   H&M   H&M   Inditex  

Food and Drink   Nestle   Nestle   Nestle   Nestle   PepsiCo   Nestle   PepsiCo   PepsiCo   Danone   Nestle   Nestle  

General Retail   Amazon   Amazon   Amazon   Amazon   WalMart   Tesco   IKEA   Tesco   Tesco   Tesco   Tesco  

Hotels and Leisure   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood   Starwood  

Household Goods   Reckitt Benckiser   Reckitt Benckiser   Reckitt Benckiser   Reckitt Benckiser   Reckitt Benckiser   Reckitt Benckiser   Reckitt Benckiser   Reckitt Benckiser   P&G   Kimberley Clark   P&G  

Insurance   Humana   AON   Humana   Humana   Aviva   Allianz   Allianz   Allianz   AEGON   Prudential   Prudential  

IT Hardware   ARM   ARM   ARM   ARM   Apple   Apple   Apple   Logitech   Apple   AMD   AMD  

IT Services   IBM   Infosys   IBM   IBM   Infosys   IBM   Wipro   Infosys   IBM   Infosys   IBM  

Logistics   UPS   UPS   UPS   UPS   UPS   UPS   UPS   UPS   Federal Express   Federal Express   Federal Express  

Media and Entertainment   Google   Disney   Disney   Disney   Google   Google   Google   Time Warner   Disney   Disney   Disney  

Medical Devices   Medtronic   Stryker   Stryker   St Jude Medical   Medtronic   Medtronic   Medtronic   Medtronic   Medtronic   Medtronic   Becton Dickenson  

Office Products   Canon   Canon   Canon   Canon   Canon   Hewlett Packard   Canon   Canon   Hewlett Packard   Canon   Canon  

Pharmaceuticals   Roche   Novo Nordisk   Novo Nordisk   Novo Nordisk   Lilly   Novartis   Novartis   Novo Nordisk   Novo Nordisk   Novo Nordisk   Merck  

Retail Banking   ICICI Bank   Santander   Santander   Santander   Handelsbanken   Handelsbanken   Santander   RBS   HSBC   Bank of America   Bank of America  

Software   Microsoft   Google   Google   Google   Microsoft   Microsoft   Microsoft   Microsoft   Adobe   Adobe   Adobe  

Sports Goods   Nike   Nike   Nike   Nike   Adidas   Adidas   Adidas   Adidas   Nike   Nike   Nike  

Telecom Equipment   Qualcomm   Juniper   Qualcomm   Qualcomm   Nokia   Nokia   Nokia   Nokia   Qualcomm   Qualcomm   Qualcomm  

Telecom Operators   Bharti Airtel   Bharti Airtel   Bharti Airtel   Bharti Airtel   Telefonica   NTT DoCoMo   Vodafone   NTT DoCoMo   NTT DoCoMo   NTT DoCoMo   Vodafone  

Toys and Games   LEGO   LEGO   LEGO   LEGO   LEGO   Nintendo   Nintendo   Nintendo   Nintendo   Nintendo   Nintendo  

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The  annual  InnovaDon  Leaders  results  since  2002  have  been  published  in  books  and  via  the  innovaDon  leaders  website  

Sector   2016   2015   2014   2013  Aerospace   Boeing   Boeing   Raytheon   Rolls  Royce  Airlines   Delta  Air  Lines   Delta  Air  Lines   Delta  Air  Lines   Delta  Air  Lines  AutomoDve   Tesla   Tesla   Tesla   Toyota  Chemicals   Dow  Chemical   Dow  Chemical   Dow  Chemical   BASF  Consumer  Electronics   Apple   Apple   Apple   Apple  Energy   First  Solar   First  Solar   Chevron   Chevron  Fashion  Retail   Inditex   Inditex   Inditex   Inditex  Food  and  Drink   PepsiCo   PepsiCo   PepsiCo   Nestle  General  Retail   Amazon   Amazon   Amazon   Amazon  Hotels  and  Leisure   Marriok   Starwood   Starwood   Starwood  Household  Goods   Reckik  Benckiser   Reckik  Benckiser   Colgate  Palmolive   Reckik  Benckiser  Insurance   Humana   Humana   Humana   Humana  IT  Hardware   Nvidia   Nvidia   ARM   ARM  IT  Services   Accenture   Accenture   IBM   IBM  LogisDcs   FedEx   UPS   FedEx   UPS  Media  and  Entertainment   Alphabet   Alphabet   Alphabet   Google  Medical  Devices   Boston  ScienDfic   Boston  ScienDfic   Smith  &  Nephew   St  Jude  Office  Products   Xerox   Xerox   Xerox   Xerox  PharmaceuDcals   Lilly   Novo  Nordisk   Novo  Nordisk   Merck  Retail  Banking   Bank  of  America   Bank  of  America   Bank  of  America   ICICI  Bank  Sooware   Adobe   Adobe   SAP   Adobe  Sports  Goods   Adidas   Adidas   Nike   Nike  Telecom  Equipment   Cisco   Broadcom   Broadcom   Qualcomm  Telecom  Operators   KT  CorporaDon   Verizon   Verizon   SK  Telecom  Toys  and  Games   LEGO   LEGO   LEGO   LEGO  

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Modeling  InnovaDon  Leaders  Performance  

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We  have  modeled  how  an  InnovaDon  Leaders  porrolio    would  have  performed  as  an  investment  fund  since  2002  

Models  have  been  created  that  show  the  performance  of  a  fund  based  on:  

§  InvesDng  in  the  most  innovaDve  company  per  sector  each  year  

§  Making  the  investment  on  March  31  of  each  year  

§  Holding  these  stocks  for  2  years  before  rebalancing  the  porrolio  

§  ReinvesDng  all  capital  and  profits  at  then  end  of  each  2  year  hold  period  

Key  assumpDons  made  in  the  modeling  include:  

§  IniDally  equal  value  investments  in  all  companies    

§  Independent  of  current  price  and  short-­‐term  market  fluctuaDons  

 

For the analysis stock selection we used only the published results of the innovation leaders analysis

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A  2012  back-­‐test  of  the  InnovaDon  Leaders  against  S&P500  showed  clear  outperformance  over  the  previous  10  years    

Compound  Annual  Growth  Rate:  14%,  Std  Dev:  20%,  Alpha:  12,  Beta:  0.74  

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Throughout  the  years  a  porrolio  of  the  InnovaDon  Leaders  companies  has  consistently  out-­‐performed  the  major  indices  

Year   ILF   MSCI  ACWI   S&P500   NASDAQ   FTSE100  

2002/3   (15%)   (20%)   (22%)   (28%)   (25%)  

2003/4   37%   34%   29%   50%   14%  

2004/5   31%   15%   11%   9%   8%  

2005/6   15%   10%   5%   1%   17%  

2006/7   26%   21%   16%   10%   11%  

2007/8   25%   10%   5%   10%   4%  

2008/9   (40%)   (40%)   (37%)   (41%)   (31%)  

2009/10   54%   31%   26%   44%   22%  

2010/11   31%   12%   15%   17%   9%  

2011/12   1%   (5%)   2%   (2%)   (6%)  

2012/13   21%   6%   9%   13%   0%  

2013/14   22%   15%     19%     29%     3%    

2014/15   18%   3%   10%   3%     3%  

2015/16   15%   (8%)   (1%)   3%   (8%)  

W W W . I N N O V A T I O N L E A D E R S . O R G

More  InformaDon  

W W W . I N N O V A T I O N L E A D E R S . O R G

For  more  informaDon  please  see  the  InnovaDon  Leaders  website  To  discuss  please  contact  research@innovaDonleaders.org    

W W W . I N N O V A T I O N L E A D E R S . O R G

2016/17  Analysis  Summary  Insights  from  the  Leaders  

February  2017