Tech fails miserably in Forbes' most innovative companies

But don't worry, the methodology is suspect to say the least

The tech industry feeds off its reputation for being innovative but, according to Forbes at least, it may not be warranted.

In a new list of the "World's Most Innovative Companies," the business magazine has ranked the top 100 companies. Aside from Tesla, which could arguably be listed as a tech company and took the coveted top spot, the tech industry had to wait until number 11 and Amazon.com to get into the list.

In fact, it what appears to be a distinctly anti-tech list, just eight out of the 100 companies listed are tech companies and there is no mention of Google, Apple, Facebook, Uber and other household names that have brought enormous changes to society in recent years – although it does include their Chinese counterparts in Baidu and Tencent.

If you were to believe Forbes, by far the most innovative industry in the world is pharmaceuticals – with an extraordinary six of the top 10 companies from that industry.

The list also seems to think that credit companies are hugely innovative – a little unusual since they are pretty much doing the same thing they have always done. Only Trans-Union of the big three doesn't make it into the list. It also includes plenty of companies that have notably done poorly in the past year, a good example being fast-food company Chipotle.

So just how did the company come up with its list? It tells us:

"We set out to create something very different with the World's Most Innovative Companies list," it notes, "using the wisdom of the crowd."

Ahhh, the wisdom of the crowd: otherwise known as those people who pay Forbes to be a part of its insider group. In this case, it is the company's "The Innovator's DNA" standalone website and service that will sell you Forbes' insights into industries for undisclosed sums.

Back to the methodology: "Our method relies on investors' ability to identify firms they expect to be innovative now and in the future ... Companies are ranked by their innovation premium: the difference between their market capitalization and the net present value of cash flows from existing businesses (based on a proprietary algorithm from Credit Suisse HOLT). The difference between them is the bonus given by equity investors on the educated hunch that the company will continue to come up with profitable new growth."

Forbes also only included companies that had more than seven years' worth of public financial data and a market value of over $10bn – thereby removing 99 per cent of the companies that do the bulk of the innovation in the world. Facebook didn't make it to the list because it "only" IPO'd in 2012.

  • 11. Amazon.com
  • 12. ARM Holdings
  • 15. Netflix
  • 25. Red Hat
  • 29. Baidu
  • 36. Adobe Systems
  • 48. Tencent Holdings
  • 58. Expedia

It then gives a fair amount of information into how its algorithm worked, digging into return-on-investment and reinvestment rates. But the whole list is fundamentally flawed from the outset, given the limited dataset.

Effectively, the Forbes methodology for calculating the "World's Most Innovative Companies" is a little like compiling the World's Most Extraordinary Places and deciding that only those built in the past ten years can be included in the list. Taj Mahal? Grand Canyon? No, how about this huge shiny new tower in Dubai?

What is the value of the list? Who knows? Forbes business development manager, that's who. ®




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