Measuring the Culture of Innovation

“When it comes to innovation, geography is destiny,” wrote the New York Times this past February. Not according to three business school professors, who say it’s corporate culture, not geography, that defines innovative potential.

A February 2007 working paper, Innovation in Companies Across Nations: New Metrics and Drivers For Radical Innovation, describes a global research effort that looked at 759 public companies from 17 of the largest economies and most populous countries in the world. The companies came from a set of nations that included developed nations such as the United States, Germany and Japan, and developing nations such as China and India, providing a cross-cultural look at the factors that drive innovation.

Measuring innovation can be a tricky business, however. Other research tends to focus on laboratory inputs, such as the number of scientists or research and development spending, or intermediate outputs, such as patents, as proxies for innovation. However, this paper defines radical innovation as “the commercialization of new products that are based on substantially different technology and provide substantially higher customer benefits relative to existing products in the market.” To capture the commercialization aspect, a more direct measure of innovative output would be needed, surmised the authors, Gerard J. Tellis, professor of marketing, Neely Chair of American Enterprise and director of the Center for Global Innovation at USC’s Marshall School of Business; Jaideep C. Prabhu, professor of marketing at the Tanaka Business School, Imperial College London; and Rajesh K. Chandy, professor of marketing at the University of Minnesota’s Carlson School of Management.

So the professors surveyed vice presidents for innovation or technology at their sample companies to determine how radically different the executives felt their companies’ products are from the competition’s, and whether they believed their companies lag behind others in introducing products based on new technologies. This survey data was then combined with data on company patenting and national data covering a host of factors that are considered to drive innovation.

It turns out the proxies that other researchers have used — patenting, for example — are not strong factors for stimulating radical innovation. Neither are most of the factors that other researchers have posited at the national level, such as religion, geography and intellectual property protections.

Rather, the most important factor driving innovation is the internal culture of the company.