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Home >News >World >Which industry excels at innovation? You’ll be surprised

Of all the questions we’re asked by corporate executives trying to unpack our data, the one we get most often is, “How can my company be more innovative—you know, like those in tech?"

In light of our latest research, what they might want to ask instead is, “How can my company be more innovative, like those in consumer staples?"

Our findings are derived from a statistical model that was developed by the Drucker Institute and serves as the foundation of the Management Top 250, an annual ranking produced in partnership with The Wall Street Journal. Anchored in the ideas and ideals of the late management scholar Peter Drucker, it gauges a company’s “effectiveness"—defined, to use Mr. Drucker words, as “doing the right things well." The 2020 list was published in December.

In all, we examined 886 large, publicly traded companies last year through the lens of 33 indicators that fall into five categories: customer satisfaction, employee engagement and development, innovation, social responsibility and financial strength.

To construct our ranking, corporations are compared in each of the five areas, as well as in their overall effectiveness, through standardized scores with a typical range of 0 to 100 and a mean of 50.

Innovation is sized up a bit differently than the others, however. In this category, we evaluate every company’s performance relative to the average of its industry peers. This is to ensure that we aren’t comparing the total patents filed or high-tech job postings made by, say, a software firm and a hotel chain.

Still, we’ve long wondered: What would happen if we took off this industry-specific lens and looked at innovation scores in nonrelative terms? And so, for our most recent analysis, we did just that—exploring how each company’s level of innovation stacks up against the other 885 firms we cover, regardless of the kind of business that it’s in.

The results were striking. Out of 11 industry sectors, the one with the largest concentration of highly innovative companies—that is, those scoring 60 or above on our 0-100 scale, putting them squarely in the upper quintile of the entire universe—was consumer staples, with 12.1% of the firms hitting that threshold. Procter & Gamble Co., Altria Group Inc., Philip Morris International Inc., Colgate-Palmolive Co., PepsiCo Inc., Coca-Cola Co. and Walmart Inc. all made the grade.

Next was information technology at 8.5%, followed by communication services at 4.5% and healthcare at 4.3%.

Industrial companies that notched a 60 or greater in innovation when assessed on an absolute basis represented 3.5% of the sector, while for consumer discretionary companies it was 2.9%. Just 2.2% of energy producers and 1% of financial firms qualified. And three sectors—materials, real estate and utilities—didn’t have a single company that met the mark.

To be sure, consumer staples wasn’t best in every respect. Taken as a whole, the IT sector—led by International Business Machines Corp., Apple Inc. and Microsoft Corp.—had the highest average raw innovation score, at 52.4. Consumer staples was second, at 51.5.

What’s more, the 11 IT companies that scored at least 60 (out of 129 in the sector) were impressive across every innovation metric in our model, including their level of research spending, hiring in cutting-edge fields such as robotics and artificial intelligence, the active management of their patent portfolios and eight other indicators.

By contrast, the seven standouts from consumer staples (out of 58 companies in the sector) excelled at a handful of things in particular—and it is here where some broader lessons may lie.

One such measure, supplied by wRatings, tracks customer perceptions of how innovative a company is according to seven attributes: usefulness, quality, simplicity, coolness, uniqueness, variety and competence.

Gary Williams, founder and CEO of wRatings, says he isn’t surprised that a good many consumer-staples companies fared well in this regard. In his consulting practice, he notes, he has seen major players in the industry deftly use data and technology to ferret out evolving customer wants and needs—and respond by devising new products and ways to deliver them.

He also praised the sector for generally being open to a diversity of ideas and willing to change. He described other industries, such as materials and real estate, as more hidebound. “A good part of it is really based upon culture," Mr. Williams says.

The most innovative consumer-staples companies also scored extraordinarily high in the quantity and breadth of their trademarks—a type of intellectual property consisting of a word, phrase, symbol or design that distinguishes a product or service from that offered by others.

Of course, this makes perfect sense given how companies in this fast-moving sector must be ruthlessly consistent when it comes to maintaining the values of their core brand while, at the same time, striving to stay fresh and relevant—an imperative that brings about a steady stream of new trademarks.

Consumers “are always looking for a different taste, a different flavor, a different color," says Robert Reading, head of content strategy for the IP Group at Clarivate Analytics, which provides the trademark data that goes into our model.

Although consumer-staples companies are naturally driven to generate trademarks, Mr. Reading believes that other sectors—including energy, finance and real estate—should aim to do more of that themselves. “It’s about creating an identity, whether it’s quality or quirkiness," he says.

In all of this, the message is clear: If you want your company to be more innovative, you’d be smart to pay as much attention to those that sell corn chips as to those that sell computer chips.

Mr. Wartzman is the head of the KH Moon Center for a Functioning Society, a part of the Drucker Institute, and Ms. Tang is the institute’s senior director of research. Email them at reports@wsj.com.

This story has been published from a wire agency feed without modifications to the text

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