Is Microsoft Innovative? BusinessWeek Says Yes

With all the crap that Microsoft takes for imitating more than innovating, it’s easy to forget that in the grand scheme of things this little software company in Redmond is one of the most innovative companies in any industry.

Bloomberg BusinessWeek provided a reminder last week. The magazine rated the world’s 50 most innovative companies for 2010 and Microsoft landed at No. 3 behind, you guessed it, Google and Apple. The amazingly consistent Apple repeated as No. 1 on this list (and Google repeated as No. 2). Microsoft moved from the No. 4 last year to No. 3 on this year’s list.

Many other companies in the top 50 had better stock, revenue and profit growth than Microsoft, including of course Google and Apple. But Microsoft cracked the top three for being a “software leviathan that is still nimble,” according to BusinessWeek.

The magazine also praised Microsoft for fixing the shortcomings of Vista with Windows 7, growing Bing to more than 10 percent of the online search market share, and for synchronizing e-mail, contacts and social media tools into the upcoming Outlook 2010.

All valid points of innovation. Yet I can’t help being a tad surprised that Microsoft ranked so high. After all, the past year saw Microsoft’s first ever formal layoffs and record low revenues at the end of fiscal 2009. However, Microsoft revenues have turned around starting with the release of Windows 7 in October, with some help from increased PC sales and relative improvement in the economy and corporate IT spending. Yesterday, Microsoft announced Q3 2010 revenues that easily beat Wall Street forecasts.

But innovation is not always measured by sales and revenues, and you could argue that Microsoft has not been hailed as a true innovator since the Clinton administration.

As recent as early February, Microsoft was lambasted in a New York Times op-ed by a former company VP for cultivating a dysfunctional corporate culture where big egos and politics stifle innovation.

Nevertheless, the software soldiers in Redmond have shown fortitude so far in calendar year 2010, continuing to compete aggressively on many different fronts: operating systems, laptops and netbooks, mobile, cloud-based applications and services, online search, browsers, enterprise business software, consumers devices like the Xbox 360 and Zune HD media player, and on and on.

And it’s not as if Microsoft got the VIP treatment just for being a tech giant: Other big-time players took a fall on the innovation list. Over the last year Nintendo fell from No. 5 to No. 20, RIM fell from No. 8 to No. 14, Hewlett-Packard fell from No. 7 to No. 16, and Nokia fell from No. 9 to No. 23.

So kudos to Microsoft for staying — or should I say being forced to stay — innovative. I’ve been covering big Redmond for CIO.com for a year and half now and the company has been all over the map in this time period. A year ago, things looked bleak with businesses not spending a dime and netbooks killing Microsoft’s bottom line. But now there is relative stability: partly because of a boost in consumer and business spending and partly because Microsoft did innovate with Windows 7, Bing and the upcoming Office 2010, not to mention better overall advertising.

But one thing’s for sure: Microsoft, with its many agile competitors and relentless bashers, will need to stay innovative to keep thriving in this most innovative of industries. It’s no coincidence that 22 out of the 50 innovators on BusinessWeek’s list are tech companies.

Bloomberg BusinessWeek’s list of innovative companies is based on data collected by BCG (Boston Consulting Group), which last December e-mailed a 21-question poll to senior executives around the world. The 1,590 respondents were asked to name the most innovative companies from outside their own industry in 2009. BCG then factored in the financial performance of the top vote getters. The final list factors in the survey results 80 percent, stock returns 10 percent, and three-year revenue and margin growth 5 percent each.

Shane O’Neill is a senior writer at CIO.com. Follow him on Twitter at twitter.com/smoneill. Follow everything from CIO.com on Twitter at twitter.com/CIOonline.