An Innovative Investment Idea

In today's hypercharged business environment, everyone knows that innovation is an integral component to an organization's continued long-term success. Plenty of companies pay lip service to innovation, but how many are actually actively encouraging it?

I know of at least three companies backing up their talk with action: Google (Nasdaq: GOOG  ) , Genentech (NYSE: DNA  ) , and 3M (NYSE: MMM  ) . All three have institutionalized policies that allow some of their employees to spend anywhere between 15% and 100% of their time pursuing independent projects of their own choosing. In essence, they are given permission to be innovative.

3M has been a proponent of this practice the longest. According to the company, the practice dates back to the 1920s, when an employee reportedly disobeyed an order to abandon a project and ended up creating Scotch tape.

One of its better-known and more recent success stories is that of the Post-it Note, which was developed by an employee who was free to pursue the project because of this policy. The benefits, though, go beyond isolated successes. 3M has an incredible history of developing new products, and for years, the company touted that 50% of its annual revenues could be traced back to products that were developed within the past five years.

Its policy on innovation was one of the driving forces that allowed it to regularly achieve this goal. It not only reinforced the idea that continued innovation was critical to the company's success, it gave employees the confidence to focus on ideas that at first might have seemed like dead ends or sounded too off-the-wall to pursue.

Genentech has also embraced a "discretionary time" policy. For the past few years, it has been ranked as either the best or one of the best places to work in America. Among other benefits, it allows its scientists "discretionary" time to pursue independent projects -- in some cases, as much as 100% of their time. Genentech officials credit the creation of the anti-cancer drug Avastin -- a product with more than $1 billion in annual sales -- to this policy.

Finally, there is Google. In many ways, Google has the boldest policy, because it applies to all of the company's employees (3M's and Genentech's programs are centered on their scientific and R&D staffs). Among the programs attributed to the policy are the creation of Google News, social-networking site Orkut, and Gmail.

In addition to generating new innovative products, these "discretionary time" policies are a great recruiting and retention tool. In today's business environment, there is a fierce battle to attract and retain talented workers. Google, Genentech and 3M are doing well partly because this policy sends a clear message to prospective employees that the company trusts them enough to let them pursue interesting and important projects.

By encouraging this freedom, these companies also offer employees a way to surpass expectations, rather than simply meeting them. That makes the companies themselves more likely to surpass expectations, too. That kind of behavior earns rewards from Wall Street, and could provide investors some discretionary financial benefits of their own.

Further Foolish insights into innovation:

3M is aMotley Fool Inside Valuepick. Get Fool value guru Philip Durell's full list of bargain-priced stocks when you try our premium newsletter service free for 30 days.

Fool contributor Jack Uldrich is self-employed, but still makes it a policy to spend 20% of his time pursuing outside interests. He owns stock in Google. The Fool has a strict disclosure policy.


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