Hay Group's Eighth Annual Analysis of Most Admired Companies in FORTUNE Magazine Ranking

organizational and human resources consulting firm, conducted its eighth annual analysis of the Most Admired Companies lists for the magazine's March 7 issue. In conjunction with this ranking, Hay Group surveyed executives to identify the leading traits of the world's most innovative companies.

For the study, Hay Group sought to understand how organizations develop, implement, and sustain innovation.

Top Innovative CompaniesFederal Express and Procter & Gamble tied for the number one spot in the innovation study. Other companies that ranked high were Alcoa, Texas Instruments, and Walgreen's.

"Innovative companies tend to define standards for their industry sector: FedEx and overnight delivery; Procter & Gamble with product design; Alcoa aluminum in its use and application of materials," said Hay Group’s Vice President Mel Stark.

Hay Group surveyed executives at 160 companies in the fourth quarter of 2004. The research identified two groups: innovation leaders and peer group companies. Innovation leaders were the two companies in each industry that had the highest score for innovation. All the other companies in the study were included in the peer group.

Hay Group identified more than 10 factors of the world’s leading innovative companies, including: vision, tone, talented employees, disciplined managers, a nurturing environment, patience, a tolerance for failure, investment in research and development, as well as the right structures, processes, and systems for innovation to flourish.

“Innovative companies are distinguished from their peers by having the right people in the right environment with the right leadership,” said Stark. “Innovation is not spontaneous--these companies plan for and manage their organizations to be innovative.”

Respondents from the innovation leaders report that managers are given the decision-making latitude they need (91 percent, versus 82 percent of peer companies) and that their companies are patient with ideas that don’t generate immediate results (75 percent, versus 62 percent of peer companies).

Innovation leaders also report that they invest greater resources in research and development than their competitors (65 percent, versus 44 percent of peer companies).

Innovative

ExecutivesAccording to the study, executives at the innovative companies surround themselves with people who are not afraid to challenge them on their thinking.
“Innovation starts at the top with the CEO and senior executives setting the tone and vision for the company,” added Stark.
Innovative EmployeesThe study found a number of common characteristics of the employees at the most innovative companies. They were high achievers, intellectually curious, and risk takers. They also evidenced a high tolerance for ambiguity in their jobs and a high level of empathy and sensitivity to others.
Hay Group’s proprietary data and experience working with a number of the innovation leaders correlate highly with the FORTUNE research and the competencies and qualities found in the Most Admired Companies.

Hay Group’s research showed that innovative companies are patient with ideas that don’t generate immediate returns and don’t withdraw funding or support too quickly. However, these same companies are not afraid to admit mistakes and cut their losses on ideas that fail.
"You can generate innovation within a company if you are willing to create the organizational conditions that allow it to flourish,” said Stark. “It starts with screening for the right people that will fit into the corporate culture, hiring and retaining them, and developing systems to manage them."

Hay Group partners with FORTUNE magazine annually to identify and rank the World’s and America’s Most Admired Companies and uncover the business practices that make these companies both highly regarded and successful. Past research studies have focused on a wide range of topics including attraction and retention of talent, leadership development, performance measurement, corporate culture, strategy implementation, execution, and responses to economic uncertainty.

To identify and rank the America’s Most Admired, Hay Group asked the top managers at 582 companies (the largest by revenues in each of 65 sectors) to judge their competition. In all, 10,000 executives, directors, and securities analysts rated the companies in their industries on eight attributes.: innovation, employee talent, financial soundness, quality of management, use of corporate assets, social responsibility, long-term investment, and quality of products/services.

The World’s Most Admired were measured on the same eight attributes plus effectiveness in doing business globally.

For more on Hay Group’s research and analysis of the Most Admired Companies, visit www.haygroup.com/fortune.