Nothing works like innovation

When he chose the phrase ``only the paranoid survive'' for the title of his autobiography, Intel chairman Andy Grove was referring to the ...

When he chose the phrase “only the paranoid survive” for the title of his autobiography, Intel chairman Andy Grove was referring to the frenzied pace of the new economy, a place where dramatic innovations can transform an entire industry in less time than it takes Tiger Woods to break par. Even companies that successfully juggle the competing demands of customers, employees, and shareholders can suddenly find themselves on the brink of obsolescence, their products and services supplanted by the Next Big Thing. Those who reach the top of Fortune’s annual list of the world’s most Admired Companies adhere to Grove’s dictum. And the key to staying ahead of the pack is constant innovation.

Last February, Fortune published a list of America’s Most Admired Companies. This list goes a step further, evaluating companies in 27 industries all over the world. To compile the rankings, executives and analysts grade companies according to nine attributes: quality of management; quality of products and services; innovativeness; longterm investment value; financial soundness; ability to attract, develop, and retain talent; community responsibility; use of corporate assets; and global business acumen. Companies are ranked within their industry, and the top 25 — the All-Starts — are culled from across all industry groups.

Market conditions have been schizophrenic during the past year. Both the Dow and Nasdaq had their ups and downs, and markets in Europe and Asia were also unsettled. So it’s not surprising that the Most Admired list looks different from last year’s. The winners are the companies that demonstrated a new-economy-style growth strategy while maintaining an old-economy approach to fiscal responsibility. For the third straight year GE, on the strength of its management team and innovative global strategy, ended up on top. Home Deport advanced from No. 20 to No. 9, Toyota from No. 16 to No. 10, and Citigroup from No. 25 to No. 18. Microsoft, battling government regulators on one flank and perceptions of a foundering Internet strategy on the other, slipped a little, from second to third. Cisco, the so-called plumber of the Net, moved up from eighth to take the second spot. Strong demand for Sony’s flat-screen TVs, digital cameras, and PlayStation game consoles helped the company move up from No. 14 to No. 6. Thenewcomers to this year’s All-Star list — Enron, Nokia, Charles Schwab, UPS, and Goldman Sachs — all embody business strategies that bridge the old and new economic worlds. Companies that lost their All-Star status — IBM, Hewlett Packard, AT&T, Protect and Gamble, Daimler Chrysler — have had difficulties integrating new business concepts or absorbing acquisitions.

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Many of the industry categories also experienced significant turnover. Among airline companies, last year Singapore Airlines didn’t even make the list (perhaps because it was too small). This year it took the top spot from Southwest, British Airways, hobbled by internal conflict and heightened competition, fell from third to seventh….

Excerpted from `The world’s most admired companies’, `Fortune’, October 9

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