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There is no one-size-fits-all approach to embedding innovation within corporate culture, but there are commonalities”
In current times stability of any kind is hard to come by, while earnings stability is increasingly rare. Yet some companies manage to achieve it, not by standing still, but by strategically embedding a culture of innovation. Whether that culture drives incremental innovation, which we explored in “Winning with Sustained Innovation”, or transformational idea generation, innovation is crucial for companies that generate high returns from intangible assets because their value creation is fundamentally tied to ideas, differentiation and scalability – not physical capital.
Given our preference for intangible assets (such as brands, network effects, data, software or human capital), core to our investment analysis is the viability of those intangibles to remain relevant and drive superior compounding over the long term. Innovation protects the moat around existing competitive advantage, supports product development and servicing improvement, and enables the creation of brand-new sources of value. Leaderships that successfully nurture an environment of innovation embed creativity, curiosity, continuous improvement and calculated risk-taking into the fabric of everyday work. Such cultures also tend to attract top talent, creating a virtuous cycle.
Innovation and technology go hand-in-hand. Technology itself can spur change and disruption. But not all tech innovation is about “moving fast and breaking things”1. Microsoft’s cultural pivot toward openness and collaboration has been well articulated by CEO Satya Nadella in his book Hit Refresh – itself a metaphor for reinvention. Nadella’s approach emphasises empathy (really knowing your customers), inclusivity (embracing cognitive diversity to spur new ideas) and continuous learning (growth mindset). In driving cultural change, Nadella has transformed Microsoft from a technology laggard to a leader, focusing the company on major long-term growth drivers including Azure, collaboration tools (Microsoft Teams), and more recently generative artificial intelligence (GenAI). This shift has helped Microsoft grow revenues by 182% and profits by 287% in Nadella’s first decade as CEO.2
Oracle’s innovation journey similarly reflects a bold cultural shift, in this case balancing co-founder Larry Ellison’s3 dominant leadership style with more agile and collaborative practices. Fast decision-making and bold risk-taking are ideal for disruptive moves, like the pivot from traditional data centres to cloud computing, while a meritocratic ethos fosters internal competition, rewards top talent and powers innovation. Lacking a competitive cloud offering, Oracle began losing clients to AWS (Amazon Web Services) and Microsoft’s Azure in the 2010s, prompting the first iteration of OCI (Oracle Cloud Infrastructure) – largely an unremarkable stopgap. With continuous reinvestment and fine-tuning, Oracle has more recently narrowed the gap with leading hyperscalers and now has a competitive cloud offering that stands to benefit from the ERP (Enterprise Resource Planning) cloud transition of its existing customer base, combined with new wins in a specialist market of private and sovereign clouds (customers with stringent privacy, security or regulatory requirements often actually prefer a cloud offering engineered deliberately to operate at smaller scale). Oracle’s cultural shift led it to grow OCI revenues to $12 billion annually (from sub $200 million when it was launched in late 2016), with a 57% compound annual growth rate (CAGR), and helped it to secure a landmark $30 billion annual contract with OpenAI for data centre power capacity.4
Japanese automation solutions consultant Keyence has built an innovation ethos that rests on autonomy, direct customer insight and an integrated sales-development model, which are all supported by lean operations and continuous learning. Employees operate with a high degree of autonomy, guided not by rigid plans but by a shared-values mindset that prioritises creating daily customer value. Keyence brings deep customer immersion to its product development, with 70% of new products world- or industry-firsts, born from insights gathered directly from customers. This focus on continuous innovation has enabled Keyence to organically grow revenues at an average rate of ~10% per year over the last two decades, with an increasing contribution from overseas markets over that time.5
Innovative cultures are not limited to technology companies; we tend to find them across a wide swathe of sectors and industries. In Industrials, analytics and information provider RELX had its roots in publishing. RELX revitalised its business by embedding innovation at its core—leveraging data-driven technology, cross-functional collaboration and a commitment to developing employees. The company digitised its publishing assets and steadily integrated automation, evolving from simple legal reference tools to advanced platforms capable of drafting legal documents. Pioneering the use of GenAI, trained on its extensive proprietary datasets, RELX positioned itself to offer AI-powered, value-added services to the risk and legal industries. This strategic transformation shifted RELX from a content provider to a decision platform, resulting in margins nearing 35%, high retention rates (92-95%) and steady earnings growth (5-9%) even amid challenging market conditions.6
Credit bureau Experian’s inclusive, networked organisation, internal hackathons, innovation lab, agile methodologies and emphasis on social impact ensure that innovation is continuous, collaborative and grounded in real customer needs. In the Consumer segment, this has led to the unique Experian Boost, which allows customers to improve their credit scores by attaching their bank details, and the establishment of a U.S. auto insurance marketplace, despite the complexities of state-by-state regulation. The company has managed to diversify away from the core Financial Services base in its Business segment, particularly in Health Care and Automotive, while offering Ascend, an integrated decision-making platform across credit, marketing and fraud for banks. This focus on innovation has helped deliver an accelerating organic growth, averaging 8% over the last four years despite sluggish credit markets.7
There is no one-size-fits-all approach to embedding innovation within corporate culture, but our research shows there are commonalities. Innovative cultures make long-term bets on talent, technology and intellectual property, resulting in durable advantages. Allowing for failure within the culture, if it offers learning and breeds better ideas, is crucial.
In our view, a deep understanding of customer needs, fostered by strong relationships, helps generate ideas that improve customer outcomes and commercial success. Investment in tools and training and reducing bureaucracy improves efficiency and employee engagement. Finally, collaboration across diverse perspectives – global rather than siloed idea-sharing, cognitive diversity within teams, inclusivity – is the foundation for new thinking and big ideas.
A culture of innovation can support many of the investment criteria we prize – recurring and diversified revenues, margin durability, higher returns on operating capital employed – and could even be seen as a moat itself, an intangible asset that compounds over time. Companies that fail to innovate don’t just miss growth opportunities but risk existential decline. Innovation isn’t just a growth lever – it’s one of the strategic pillars underpinning long-term financial quality.
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