Vital Signs: Brand Value - Top 100 Most Powerful Brands (2008)

Does being innovative result in "brand value" and therefore shareholder value? There's new data to suggest that the correlation exists.

Millward Brown Optimor has released its third annual Brandz Top 100 Most Powerful Brands Ranking

The Top 10 List (in contrast to BusinessWeek's 2008 ranking of World's Most Innovative) is as follows:

1. Google (No.2)
   
2. GE (No.4)
   
3. Microsoft (No. 5)
   
4. Coca-Cola
5. China Mobile
6. IBM (No.12)
   
7. Apple (No.1)
   
8. McDonald's (No.30)
   
9. Nokia (No.10)
   
10. Marlboro
    

Of note is that Coca-Cola and China Mobile did not make the Most Innovative ranking but they're in the top 5 global brand value ranking. In the case of stalwart Coca-Cola, the surveys seem to indicate that the brand is strong but the company is not an innovator. It would appear , however, that with the newcomer China Mobile, brand value does not necessarily rely on being innovative (it didn't make BusinessWeek's regional list) when you can tap into the world's largest growth potential!

As a contrast to BCG's approach to surveying executives for the World's Most Innovative and looking at historic shareholder value growth, Millward Brown Optimor quantifies and projects expectations of brand value using quantitative measures and consumer surveys:

"The data for BrandZ is collected by interviewing consumers about brands from categories in which they shop on a regular basis. Respondents evaluate those brands competitively: they are asked to think about all the brands that they know within a category. The interviews deliver valuable insights because respondents who know a category are better suited to tell us what brand attributes matter to them most. These attributes are key measures of brand strength. BrandZ has interviewed over 1 million consumers who cumulatively compare 50,000 brands."

"Brand value is the financial value of a brand defined as the sum of all earnings that a brand is expected to generate. For the purpose of the BrandZ Ranking, Millward Brown Optimor values brands in three steps. First, we establish a company’s intangible earnings and allocate them to individual brands and countries of operation, based on publicly available financial data from Bloomberg, Datamonitor (www.datamonitor.com) and our own research. Secondly, we determine the portion of intangible earnings attributable to brand alone, as opposed to other factors such as price. This metric, known as Brand Contribution, reflects the share of earnings from a product or service’s most loyal consumers or users. For this second step, we use research-based loyalty data from the BrandZ database. Finally, we project the brand value forward based on market valuations, the brand’s risk profile, and its growth potential."

Finally, the 2008 BrandZ press release provides the following takeaways:

1. Established vs Emerging Asia. Chinese brands continue to get stronger.
   
2. BRIC's (Brazil, Russia, India, China) continue to help drive international growth.
3. The Technology sector boom. Technology led this year's brand value growth of $187.5bn. This is more than half of the Top 100’s total increase.
   

The net of this new data and methodology (see details in 2008 Report) is a calculation is that has 3 key factors:

Brand Value = Intangible Earnings x Brand Contribution x Brand Multiple

With globalization and the rapid growth of China, it will be fascinating to see how these rankings evolve over time! Comparing the two reports mentioned in this post, there does appear to be a significant connection between innovation and brand value. In future posts I intend to dissect the equation, further unpacking how the BrandZ report makes key assumptions in predicting the future. Let's not forget, however, Michael Raynor's recent strategic research and bestseller, The Strategy Paradox, that concluded you can't predict the future!

Vital Signs: BusinessWeek's 2008 Most Innovative Companies

BusinessWeek recently released its annual "Most Innovative Companies" issue and its list of The World's 50 Most Innovative Companies Interactive Scoreboard

Apple (AAPL) again leads our list. [Link to Apple brief here]But the added metrics and more global nature of our respondents produced new names. Tata Group and Nintendo both landed in the top 10 for the first time. And dark horses like struggling General Motors (GM) received a surprising number of votes, thanks to concept cars like the electric Volt and a renewed focus on design.

BW explains its methodology:

To determine our 2008 list of the 50 most innovative companies, the Boston Consulting Group once again asked executives to vote for the most pioneering companies in the last year. In a climate when innovation will be scrutinized more than ever, we added three financial measures. For 2008, votes cast in the BusinessWeek-BCG survey got an 80% weighting, while three-year revenue and margin growth each got 5% and stock returns were weighted 10%.

BCG sent the 17-question survey electronically in November to the 2,500 largest global corporations by market value. More than 2,950 executives responded, our largest sample ever. BCG also sent it to readers in senior management, including members of the BusinessWeek Market Advisory Board. Participation was voluntary and anonymous, and self-votes were eliminated. To compare financials of private companies, we used metrics equal to industry performance.

The survey itself isn't published but of particular interest in the scoreboard are the categories used to assess innovativeness in addition to the 3 key quantitive measures of revenue growth, margin growth and stock returns over the 2004-2007 period.

Survey Categories:

1. Products
   
2. Customer Experience
3. Processes
4. Business Models
   

Notably, Google was number 2 with a focus on online office software and upcoming video ads.

The issue provides some other interesting insights including a description of ING's approach:

The online banking arm of this Dutch financial giant, ING Direct, was a pioneer in consumer finance, with high-interest savings and no regular branches. In its U.S. ING Direct business, executives are frequently moved from one function to another to promote collaboration; the unit's internal "Innovation Pipeline" site offers a place for employees to swap and vet creative ideas.

The issue also notes that Starbucks has implemented its MyStarbucksIdea.com as I have blogged previously here.

Finally, it was interesting to see Facebook make it on the list for the first time!

In future posts, I'll profile the most innovative companies in more detail.

Vital Signs: BCG's Measuring Innovation 2007 Survey

Boston Consulting Group's Innovation practice has some interesting insights to measuring innovativeness in their "Measuring Innovation 2007: A BCG Senior Management Survey":

The paper's summary is a companion to the 2007 BCG-BusinessWeek innovation survey and BCG's Innovation 2007 Report:

For most companies, innovation is the key to driving growth, shareholder value, and competitive advantage in today's global economy. But even at the best companies, up to a third of all innovation initiatives are draining valuable resources.

According to the most recent BCG-BusinessWeek innovation survey only 46 percent of senior management are satisfied with their return on innovation spending while 63 percent of chief financial officers are still unhappy with their innovation results. Innovation remains a top priority for 66 percent of respondents, and 67 percent are planning to increase their investment in innovation.

The problem these companies face isn't a lack of ideas—most of them have more than enough. It's that companies don't have a disciplined process for turning those ideas into cash. An effective innovation-to-cash process (ITC) is the foundation of successful innovation, which we define as profitable innovation.

For those seeking measures for their innovations, BCG learned that the most common measures used by organization to assess their innovativeness were:

• Total funds invest in growth projects
• Projected versus actual performance
• Average development time per project
• Revenue realized from offerings launched in the past three years
• Allocation of investments across projects
• Number of projects that meet planned targets
• Cannibalization of existing product sales by new offerings
• Percentage of ideas funded
• Number of ideas killed or table at each milestone

In future posts, I plan to dissect the report and its recommendations in more detail.