For the past few weeks, I've had innovation on the brain. Specifically, I've been fascinated by the ways in which large companies -- especially Fortune 100 companies with thousands of employees -- strive to maintain the culture of innovation that contributed to their earlier successes.
Google (Nasdaq: GOOG ) is a perfect case in point. Now that it's hovering around $500 a share, with a market capitalization just shy of $150 billion, how does it maintain the level of innovation necessary to sustain the type of growth inherent in that stock price?
One way, as I discussed a couple of weeks ago, is to institutionalize policies to allow employees the opportunity to spend a portion of their time pursuing independent projects. That's exactly what Google and a few other companies have done.
Similarly, I have also noted how BASF (NYSE: BF ) , the giant German conglomerate, recently announced a plan to make everything old new again through a comprehensive, multifaceted internal research and development effort.
Most recently, I came across a small article in this month's Fast Company magazine about how some companies are essentially outsourcing some of their innovation. The article, " Just Add Inspiration," explains how a small design company, Inventables, has lined up a number of big clients, including Motorola (NYSE: MOT ) , Nike (NYSE: NKE ) , and Boeing (NYSE: BA ) . Four times a year, it sends them a "DesignAid" kit: materials and "gizmos" with some very cool -- and often amazing -- properties.
This latest quarter's batch includes, among other things, ionic muscles which, when zapped with electronic stimulation, could cause a running shoe to tighten or loosen. This could be controlled by an iPod. It would have obvious applications for a company like Nike and might even help the company better feel your pain, as I explained earlier today.
Another product the company created was an impact-absorbing silicon. This material could help General Motors (NYSE: GM ) (another client of Inventables) create a safer and more effective car bumper.
There were still more examples on the company's website. One was a tiny sensor that could detect the tilt of an object. It was suggested that cell phone manufacturers, such as Motorola, might use it to create an easy way for users to scroll through their emails or phone book.
Now, I don't expect many of these products or gizmos to add much in the way of revenue to any of these companies' bottom lines, at least in the short run. Instead, I believe that just as investors should follow a company's innovation strategy as closely as its quarterly earnings.
In the coming months, you'll likely be mailed copies of the annual reports of all the companies in which you invest. It's easy to just scan these documents for the past year's financial highlights, or worse, simply throw them away. Don't. This year, I encourage you to read the reports; in particular, keep your eyes peeled for a section detailing how the company is approaching the topic of innovation.
If you can't find anything, consider it a red flag. Things are moving so fast today that the old saying about "change being the only constant" has become especially true. If a company's not changing, it's not moving; if it's not moving, chances are good that it's about to get run over. That's bad news for the company -- and for your portfolio.
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