How is innovation defined in the American Innovation Index™?
Today’s marketplace is continually transformed by technology and disruptive competition, making innovation a key driver of sustainability and growth. The Aii defines innovation as constructive change that is observable by customers. Customers view a company as innovative if their experiences suggest it is creative, pioneering and changing its industry (rather than reacting to change). Companies may work diligently to become innovative, investing in R&D, building an innovation culture, and making tangible changes in processes and products, but these “up-stream” efforts are meaningless unless they have an impact “down-stream” at the point where customers interact and buy. The Aii quantifies innovativeness at the company level for 200 leading American companies across 20 sectors. Company ratings are based on what their own customers have experienced in the past year.
Why innovation matters…
The traditional paradigm for business success is to satisfy customer needs by offering attractive products, good value, and a satisfactory experience, but in reality, this is not enough. Research shows that customer satisfaction has diminishing returns, while satisfaction fails to differentiate companies in mature markets where all competitors perform well. Companies that deliver more innovation down-stream to their customers will achieve greater retention and growth than companies that merely satisfy needs but fail to change.
Customer-focused innovation and social innovation…
One type of innovation the Aii captures is customer-focused, consisting of new and better ways of meeting customer needs. The other type of innovation the Aii captures is social innovation, which consists of delivering offerings and devising creative solutions to benefit society and the environment. The two constructs are interconnected – an innovative company can be a disruptor that leaves a wake of social harm, or it can be socially transformative, using innovation to simultaneously improve the lives of customers and make the world better. Customer-focused and social innovation, each measured by their own index, offer multiple ways for companies to differentiate themselves.