When it comes to innovation, all companies are not created equal. While strong investment in research and development seems to be a key to success, dollar figures do not tell the whole story, according to a new ranking of the nation’s most innovative companies.
The CNBC RQ50 ranking is based on the concept of research quotient (RQ), developed by Anne Marie Knott, PhD, professor of strategy at Washington University in St. Louis’ Olin Business School.
RQ is a measure of firms’ research and development (R&D) productivity. It captures the expected increase in revenue from a 1 percent increase in R&D. RQ is a way to link R&D spending to corporate growth and market value, giving investors a predictive tool that offers a long-term focus. The CNBC RQ50 ranking is the set of 50 firms with the most productive R&D among all public U.S. companies investing $100 million or more in R&D.
The ranking is the centerpiece of a special report released in partnership with CNBC called “R&D All-Stars: The CNBC RQ 50.” The CNBC special report includes CNBC’s Dominic Chu covering the list for the network during CNBC’s Business Day programming and a number of features on CNBC.com, including: original stories; an op-ed by Knott recommending that Congress eliminate R&D tax credits; exclusive digital videos; and a feature on the R&D Hall of Fame — the 28 perennial firms that would have made the list more than 10 times in the past 25 years.
“The R&D All-Stars feature had a strong first day,” said Nikhil Deogun, senior vice president and editor-in-chief for CNBC Business News. “Dom’s video reports were woven into online original text stories offering readers several additional in-depth angles bouncing off the core list. Going forward, as opportunities arise, the special report will be updated with fresh content about the companies featured in the CNBC RQ50.
“We’re always looking for new insights to give our investor audience,” he continued. “The RQ gave us a rare opportunity to examine many companies we cover on a daily basis through a unique and academically proven lens.”
Knott is delighted with the CNBC partnership. “While I devised RQ to solve an academic problem, it occurred to me shortly thereafter this was the tool I’d been looking for since my days in industry — something that tells firms whether changes in their R&D practices are helping or hurting long-term capability,” she said.
“The real value in the measure occurs when investors use it, because that will force firms to use it. The CNBC collaboration makes use by both groups much more likely,” she said.
Knott continued, “What’s exciting to me is the promise of getting firms’ RQs back to the average in the late 1970s. If we can do that, data suggests we might regain the Gross Domestic Product growth from that period.”