27th September 2018
Capitalizing on Innovation – Success factors for building reputation for innovation
“Financial returns are simply the result of Apple’s innovation, putting our products and customers first, and always staying true to our values,” wrote Apple CEO Tim Cook in a memo one day after the iPhone manufacturer was the first S&P 500 company to achieve a market capitalization of one trillion dollars. Innovation makes all the difference. In the age of rapid technological change, the market value of a company increasingly depends on its perceived innovation potential. For investors, customers, employees, and talents, this is becoming an ever more crucial component in determining their preferences. Our white paper, “Capitalizing on Innovation”, is based on our experience in the German-speaking market and provides insights into how innovative strength can be transformed into a reputation driver and how reputation for innovation as an intangible asset can add value to the company.
The future belongs to the innovative
At the turn of the millennium, the internet and the “New Economy” it generated were still in their infancy. Now, almost two decades later, the stock markets are dominated by this internet economy. For a long time, Alphabet, Amazon, Apple, and Facebook competed for the first trillion-dollar valuation. Apple was the first company in the world to reach this historic mark on Wallstreet on August 2, 2018. Amazon also reached a market capitalization of one trillion dollars a month later on September 4, 2018. Analysts and journalists ascribe even more potential to Amazon. This is primarily down to Amazon’s unwavering focus on customers and their needs, its high willingness to take risks and invest, and, above all, the company’s seemingly inexhaustible innovative strength. Amazon’s market capitalization is directly linked to its nimbus as an innovation machine. The company exemplifies a trend that clearly points toward a future that belongs to the innovative.
AirBnB, Netflix, Spotify, Tesla, and Uber have also targeted the business models of established companies and in some cases successfully disrupted them. Start-ups with billion-dollar valuations have sprung up within just a few years. At the same time, company life cycles are becoming ever shorter. In 1965, S&P 500 index members remained listed for 33 years on average, whereas forecasts for the year 2026 only expect a 14-year span.1 Amid record numbers of mergers, acquisitions, and spin-offs, partnerships and agility are becoming increasingly important for long-term survival, and 100-year company anniversaries are rare nowadays.
Innovative strength is a must
In global competition, a company’s innovative strength is an existential factor. On the one hand, it increases the organization’s likelihood of surviving longer than others and persisting through disruption, or even of being an active disruptor itself before new competitors take on this role. On the other hand, innovation also plays an increasingly important role for how a company is perceived by its stakeholders. Future-related issues, for example, have received increased attention in the media for some years now. Tech magazines and conferences on the issues have been around for years now, and even traditional business media increasingly sharpen their focus on topics related to the innovative strength of companies, industries, or countries. In 2018, the Handelsblatt Media Group started to dedicate itself to topics of the future with not one but two new magazines, Edison and ada. This interest is certainly justified. After all, only those who act with foresight and continually inspire both existing and new customers with novel products and services while opening up new markets can survive. Innovation is thus no longer a matter of choice, but has become a must.
Yet, even highly innovative companies often fail to convert their potential into reputation among their relevant stakeholders, although innovation might be a driver of corporate reputation.
This should prompt companies to ask a few fundamental questions: How do our stakeholders perceive us in terms of innovation compared with our competitors? Where do we get the narratives that support our strategic goals in our communications? And to whom should we be telling our innovation stories – and when and how? It is the responsibility of the corporate communications department to find answers to these questions.
Reputation for innovation as a corporate communications job
Depending on the sector and its development, innovation communication could become a central task of corporate communications. Topics such as electromobility, genetic engineering, the Internet of Things, and blockchain are changing business models, processes, or even entire sectors. These topics are often new and complex, and therefore need to be explained in detail, both internally and externally. For corporate communications, this means knowing the key aspects of both content and technology inside and out, addressing stakeholder reservations, identifying new formats and stakeholders, and preparing the innovation stories accordingly.
After all, the task of innovation communication is to transform existing innovative strength into reputation – on the capital market and in the media. Only if the relevant stakeholders are aware of a company’s innovative strength and have a positive reaction to it, is innovation a relevant aspect of the company’s reputation. As an intangible asset, it then makes a contribution to entrepreneurial value creation by ensuring a willingness to cooperate and pay. In this sense, therefore, it is about building reputation for innovation.
When innovation becomes the driving force behind corporate reputation, confidence in the company’s future viability increases among key stakeholders, and so does its reputation for innovation: Companies can survive lulls without sustained loss of investor confidence and are in a better position to enforce higher prices for innovative products. Top talents are more enthusiastic about innovative companies that offer them enough freedom to develop their own ideas. Future initiatives can lead to partnerships to open up new business areas. And finally, a company’s own employees also benefit from the sustainability of their employer. After all, innovation functions as a reputation driver both internally and externally.