impact on share prices

In the world of innovation, there has been an assumed linkage between innovation success and sustained growth. Over the years varied academics in the US and Europe have found correlations between innovation activity and corporate growth, while numerous government departments have mapped share price growth of high investors in research and development against FTSE, NASDAQ and Dow Jones indexes. Add into the mix OECD, World Bank, KPMG and PWC analysis and the guiding view for those involved in innovation has been that, as a means to generate successful, share price-influencing growth, it is largely more successful and more sustainable than a purely merger and acquisition strategy.
 

Over the past eight years, as the Innovation Leaders analysis has been undertaken and updated each year, we have had a unique set of companies to assess and track in terms of revenue and margin growth as well as share price rise or fall. The results have been quite revealing: half of the companies identified as Innovation Leaders in their respective sectors back in January 2005 subsequently demonstrated an increase in share price of at least 50% over the succeeding two years. In addition, the top five performers over this period all had growth in share price of over 60%. Between 1st January 2005 and 1st January 2007:

• Apple’s share price increased by 163%;
• Google’s share price increased by 139%;
• Rolls-Royce’s share price increased by 89%;
• Toyota’s share price increased by 64%; and
• Canon’s share price increased by 61%.

Over the same period, the Dow went up by 15%, NASDAQ by 20% and the FTSE 100 by 9%. As a portfolio, the Innovation Leaders shares have in fact exceeded the performance of all the major indexes for the past seven years.

In the past twelve months, the rise of the Innovation Leaders shares have continued apace: Between 1st January 2007 and 1st January 2008, the 2006/7 Innovation Leaders overall portfolio went up by 12% while the Dow only managed 7%, NASDAQ achieved even lower growth of 4% with the FTSE 100 bringing up the rear with a growth of only 3%. The top 5 Innovation Leaders performers over this period were:

• Apple, whose share price increased by another 135%;
• Nokia, whose share price increased by 91%;
• Google, whose share price increased by 52%;
• Adidas, whose share price increased by 36%; and
• Reckitt Benckiser, whose share price increased by 25%.

Innovation success, as demonstrated by the Innovation Leadership analysis is thus clearly not only directly related to share price growth, but, by comparison to all major indexes, also enables companies to outperform their peers.Making sense of the marketplace and clarifying the emerging opportunities.