What does it take to encourage innovation?

"We have very deep and intimate relationships with ourcustomers," says Scott Stephenson, president and CEO of JerseyCity, N.J.-based Verisk Analytics. "We have a real sensitivity towhat their needs are — and their emerging needs. When you are acompany like us, where our customers are our business, a deepunderstanding of their world is fundamental."

This value of understanding customers' needs deeply, and ofadvocating for and placing resources to address those needs, is onestep on the path toward innovation.

Because of high marks in criteria both qualitative (financialperformance) and quantitative (relationships or consumerconfidence, for example) performance criteria, Forbes rankedVersisk Analytics No. 18 on its list of the World's Most Innovative Companies. The data analyticscompany also ranked first among its industry counterparts in theResearch & Consulting category.

One innovation that garnered Forbes' — and the insuranceindustry's — attention? Last September, Verisk Insurance Solutions(a Verisk Analytics business) started the Verisk Telematics DataExchange with GM as a partner. Verisk would make use of the datathat comes from an Onstar system to help insurance companiesunderstand driver behavior. This information would be used toensure accurate ratings. "This was the first of its kind,"Stephenson says, speaking to PC360.

Stephenson says he believes that innovation comes naturallybecause Verisk, which has about 7,500 employees, is "in anenvironment where it's not inherently so expensive to beinnovative. What we do is not capital intense — in data andanalytics, it's natural to be innovative."

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However, it's not enough to simply throw money at an idea andhope it comes to fruition. Stephenson also says that companies needto establish a culture that values innovation. "Sounds simple, butone of the things to stimulate innovation is to ask forinnovation. If you don't, people will tend to do tomorrow a lotlike how they are doing today."

Here, Stephenson outlines his best practices to encourageinnovation:

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1. Innovation starts at the top

If a company wants to see innovation increase, the president orCEO must think and talk about innovation more.

"You have to make it clear what you value," Stephenson says.Talking about innovation must be as commonplace as discussingprofit margins and bottom lines. Don't underestimate how importantit is for the rank-and-file to hear senior employees appreciate andpraise innovation.

"We have made a number of statements about who we are and whatwe care about. We call it 'The Verisk Way.' We have recorded viewsthat are really dominant ones for ua: a vision statement, our corevalues, what it means to be a leader, how we reimagine themarketplace. This influences the way we all think at Verisk,"Stephenson says.

2. Spend some money

One of the best ways to support a bright idea is to fund it,because that creates the infrastructure to innovate.

"If you look at the level of capital expenditure in our company,as a percentage of revenue, it's between 7% to 8%. That's largecompared to companies like us. Most companies spend 3% to 4% orless," Stephenson says.

3. But don't spend it all at once

Provide direction to innovation by putting funding behind someideas, and asking others to go back to the drawing board.

Remain in routine contact with innovation projects to ensurethat they are making progress.

Ask if a particular idea is really innovative, if it is in themarket today, and if it is unique. Use business analytics todetermine the rate of return, and focus on those with higherreturns, Stephenson stresses.

4. Get customers on board

Employees should have a customer signed up conceptually before acompany makes the decision to develop an idea.

It's difficult to have confidence that a particular idea ismeaningful to your customers if a client hasn't asked for it, or iswilling to provide feedback.

"This is our secret sauce, Stephenson says. "We ask ourinnovation champion [the employee making the proposal] if he or sheis working with a specific customer who will be right beside you inthe development lab as you put this together."

5. Provide support

Surround your employees with the appropriate infrastructure andcapabilities. "We have a team — the Joint Development Environment —in the center of the company that helps other employees who haveinteresting data sets, to get those data sets together in a way toreally mine for analysis," Stephenson says.

Forbes says it ranked companies by the difference between theirmarket capitalization and a net present value of cash flows fromexisting businesses. The difference between them is the bonus givenby equity investors on the educated hunch that the company willcontinue to come up with profitable new growth. More about themethodology used to rank companies can be found here.

Companies considered were those that provided seven years ofpublic financial data with $10 billion in market cap, in industriesthat are known to invest in innovation. Excluded from considerationwere banks, energy and mining firms, for example, which have nomeasurable investment in R&D, Forbes says.

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