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The U.S. Department of Energy calculated that LED lighting could save the country $250 billion.

Twelve innovation lessons for 2014

The World's 50 Most Innovative Companies of 2014

If you Google the phrase "faith-based businesses," the results point to companies that pursue a religious agenda. But there's another kind of faith in business: the belief that a product or service can radically remake an industry, change consumer habits, challenge economic assumptions. Proof for such innovative leaps is thin, payoffs are long in coming (if they come at all), and doubting Thomases abound. Today, pundits fret about an innovation bubble. Some overvalued companies and overhyped inventions will eventually tumble and money will be lost. Yet breakthrough progress often requires wide-eyed hope.

In this special report on the World's Most Innovative Companies, there are plenty of examples to make you a believer ("I've never been more excited about the possibilities ahead of us," Nike CEO Mark Parker recently told me). Our staff has spent more than six months gathering and analyzing data. To generate our list of the 50 Most Innovative Companies—and the accompanying top 10 companies in various sectors—we assessed thousands of enterprises. From all that work, I've pulled out 12 rising trends, which follow here. Risk of failure and collapse are always with us. But the culture of innovation across the globe is more robust than ever. We think that's worth celebrating.

  1. Exceptional Is Expected

    The No. 1 company on our list, Google, did not land there for the range of its activities—despite the 29 achievements we list. In fact, today's smartest businesses tend to laser-focus on just a few goals; broad ambition can distract from the nitty-gritty required to turn goals into reality. Yet from Google Fiber to Google Glass to investing in new health technologies, Google executes at a high level repeatedly. That's why it tops the list.

  2. Innovation is episodic

    Only a handful of companies on our list repeat year after year. That's not because companies suddenly lose their edge; it's because innovation ebbs and flows. As editor-at-large Jon Gertner explains in his eye-opening guide to breakthrough change at Philips (No. 50), development of LED lighting has been under way there for 50 years—but a specific 11-month deadline provided the essential innovative exclamation point.

  3. Making money matters

    Great ideas are captivating, but great businesses are self-sustaining. Dropbox (No. 4) and Airbnb (No. 6) are darlings of the venture set, but they also charge real customers real money for a product with real value. Unlike the many web-based companies launched pre-2008 whose business models rely on advertising for revenue (Facebook, Twitter, et al.), these enterprises are transaction based—and are reaping the rewards.

  4. Sustainability has found a new gear

    Remember when operating a "green" business was either a gimmick or a promise (or both)? No more. Today, energy efficiency, alternative fuels, and recycling are core advantages for successful enterprises. Brazil's Braskem (No. 41), a $19 billion petrochemical giant, uses sugarcane rather than oil to create in-demand plastics. Levi Strauss (No. 30) produces more than 10% of its clothing with recycled materials, on its way to 100%. Companies such as FedEx and Coca-Cola are converting their truck fleets to hybrids, with the help of XL Hybrids (No. 35). You don't have to own a Tesla (No. 20) to see the impact.

  5. Unlocking global talent unlocks possibility

    In Kenya, a homegrown tech center called iHub (No. 38) is unleashing Silicon Valley–like potential, signing up 10,000 members, launching 152 companies, and spawning similar efforts in Tanzania and Uganda. India's Universal Identification Authority (No. 22) combats the rampant fraud that cramps entrepreneurialism there. As an encouraging ad campaign in South Africa from Johnnie Walker (No. 31) explains: "Our future will not be written by the great strides of yesterday, but by the ones we take today."

  6. Passion is underrated

    Crowdsourcing may seem like old news, but tapping into a genuine fan base is powerful. SXSW (No. 12) started as a small regional gathering and now attracts 60,000 people from around the globe. GoPro (No. 39) has moved from extreme athletes to the mainstream. GitHub (No. 26), home to the geek elite, is making collaboration the first resort for software development.

  7. Conflict isn't required

    How do you make meaningful change in the face of calcified institutions? Sometimes you just have to go around them. That's the path Charles Best at DonorsChoose.org (No. 9) has taken, avoiding unions and politicos by crowdsourcing direct assistance to teachers. Bloomberg Philanthropies (No. 2) uses data to answer questions other foundations aren't asking, while SHoP Architects (No. 33) manages to both create cutting-edge designs à la indie firms and get them built at the appropriately industrial scale.

  8. Happy customers make you happy

    Uber made hailing a cab a pleasure, not a pain. But then it forgot what made it great; its pricing tactics have invited a backlash (which is why it's not on this year's list; see why). The mirror opposite of Uber? That's Yelp (No. 10), which continues to reward grateful users with new features. Other companies are thriving by solving customers' nagging problems, from Square's mobile payment advances (No. 28) to Warby Parker's stylish spectacles (No. 17). OTG Management has even made it possible to enjoy airport food (No. 46).

  9. Software beats hardware

    The hoopla around the latest iPhone or the newest car obscures the fact that software is the key source of progress today. Our autos are rolling computers, upgraded remotely and managing more of our driving tasks. (See "Driverless Cars") Even lighting, thanks to LEDs and the folks at Philips, will be seen less and less as a physical product and more as an application.

  10. "Made in China" is a compliment

    There was a time when artisans in China were considered among the world's finest. That emphasis on quality is returning, as a new generation of fashion and luxury brands caters to the burgeoning middle and upper classes. The pernicious idea that Chinese companies aren't about innovation is a relic. Xiaomi (No. 3) is reinventing the smartphone business; Beijing Genomics Institute (No. 37) has become the world's largest DNA sequencer.

  11. The biggest winner in the App economy remains Apple

    Case in point: gaming. As mobile and social gaming have exploded, we've gone from the Doodle Jump era to the FarmVille era, from Angry Birds to Candy Crush. Yet no new company has emerged with the profitability and stability of console-based enterprises like Electronic Arts or Activision or Ubisoft. (See why the maker of Candy Crush, King, failed to make this year's list.) Meanwhile, (No. 14) Apple's 2013 App Store sales topped $10 billion.

  12. Dreaming big isn't folly; it's required

    Philips scientists calculated that LED lighting could cut total worldwide electricity use by 10%—saving some $250 billion. It's the reason they've put decades into developing it. Pharma researcher Medivation (No. 16) believed it could attack cancer in a new way, and it got a breakthrough drug on the market three years faster than the norm. GE (No. 27) estimates that sensor-packed plane engines could save the airline industry $30 billion over 15 years—and that broader applications of data-driven efficiencies could increase national incomes by nearly a third. Is Tesla's vision of a national network of electric cars pie-in-the-sky? Maybe. But without the dreams, we'll never find our way to what is truly possible. As Jon Gertner observes in his Philips article, "The initial appeal of an innovation doesn't predict the problems it may one day solve."

Check out what the past 12 months have brought the Most Innovative Alumni of 2013.

[Photo by Kevin Van Aelst]