What does it take to encourage innovation?

"We have very deep and intimate relationships with our customers," says Scott Stephenson, president and CEO of Jersey City, N.J.-based Verisk Analytics. "We have a real sensitivity to what their needs are — and their emerging needs. When you are a company like us, where our customers are our business, a deep understanding of their world is fundamental."

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

Because of high marks in criteria both qualitative (financial performance) and quantitative (relationships or consumer confidence, for example) performance criteria, Forbes ranked Versisk Analytics No. 18 on its list of the World's Most Innovative Companies. The data analytics company also ranked first among its industry counterparts in the Research & Consulting category.

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

Stephenson says he believes that innovation comes naturally because Verisk, which has about 7,500 employees, is "in an environment where it's not inherently so expensive to be innovative. What we do is not capital intense — in data and analytics, it's natural to be innovative."

However, it's not enough to simply throw money at an idea and hope it comes to fruition. Stephenson also says that companies need to establish a culture that values innovation. "Sounds simple, but one of the things to stimulate innovation is to ask for innovation. If you don't, people will tend to do tomorrow a lot like how they are doing today."

Here, Stephenson outlines his best practices to encourage innovation:

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1. Innovation starts at the top

If a company wants to see innovation increase, the president or CEO 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 discussing profit margins and bottom lines. Don't underestimate how important it is for the rank-and-file to hear senior employees appreciate and praise innovation.

"We have made a number of statements about who we are and what we care about. We call it 'The Verisk Way.' We have recorded views that are really dominant ones for ua: a vision statement, our core values, what it means to be a leader, how we reimagine the marketplace. 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 large compared to companies like us. Most companies spend 3% to 4% or less," Stephenson says.

3. But don't spend it all at once

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

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

Ask if a particular idea is really innovative, if it is in the market today, and if it is unique. Use business analytics to determine the rate of return, and focus on those with higher returns, Stephenson stresses.

4. Get customers on board

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

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

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

5. Provide support

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

Forbes says it ranked companies by the difference between their market capitalization and a net present value of cash flows from existing businesses. The difference between them is the bonus given by equity investors on the educated hunch that the company will continue to come up with profitable new growth. More about the methodology used to rank companies can be found here.

Companies considered were those that provided seven years of public financial data with $10 billion in market cap, in industries that are known to invest in innovation. Excluded from consideration were banks, energy and mining firms, for example, which have no measurable investment in R&D, Forbes says.

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Verisk CEO: Here's what it takes to encourage innovation

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