It’s reasonably well known that having a ‘champion’ inside the organization can be crucial for any innovation to succeed, but perhaps less is known about the importance of influential outsiders, especially among the investor community.
New research from Bocconi and Texas A&M suggests that investors can be vital in the success of any innovation. The study suggests that the reaction of large individual investors plays a crucial role in the way innovations are valued on the stock market, but that this reaction can vary considerably based upon nationality.
The authors cite Oprah Winfrey as a good example of just such an investor. Her purchase of around 10% of Weight Watchers in 2015 saw a $700 million leap in the stock market valuation of the company in the two days after her investment. Likewise, a similar boost was seen when Rakesh Jhunjhunwala invested in Prakash Industries.
Influential investors
The researchers examined listed companies in the global food and beverage industry between 2006 and 2014, totalling 56 firms from 27 national stock markets. Between them, these firms had 458 large individual investors. The researchers hypothesized that the national culture of the investor had a big impact on the scale of the financial returns when they backed an innovation.
The team use Geert Hofstede’s culture framework to define national culture along six key dimensions. They find that cultures that are more supportive of innovation tend to be high in individualism, uncertainty avoidance, power distance and long-term orientation, whilst also being low in masculinity. That captures countries such as Belgium, Brazil and France, with counties like Ireland and Italy less conducive to innovation.
“It doesn’t mean that these are the countries that value innovation the most and the least in absolute,” the researchers explain. “This analysis helps us identify what cultural traits trigger or hinder a positive response to innovation for each large individual investors.”
Once you have this basic understanding, the authors propose that traditional marketing strategies of segmentation, targeting and positioning can be applied to individual investors, and by doing this, companies can help to maximise the return they get on particular innovations. This messaging should be tailored to the cultural traits of each investor.
I’m inclined to think it’s a theory that could use a bit more fleshing out before it’s entirely convincing, but it certainly provides some food for thought, especially as innovation is on the ‘to do list’ of most organizations today.
