Peter Drucker noted that innovation is one of the only two drivers of business (the other is marketing), yet innovation-driven efforts often get swept into obscurity in an effort to meet the demands of the moment.

To better understand the value of innovation, take a look at one of Wall Street’s most coveted metrics: the Price-to-Earnings Ratio (or P/E Ratio or just “the multiple”).

A publicly-traded company’s P/E ratio is calculated by dividing the stock price (market value per share) by earning per share (EPS). For example, Apple’s current stock price is $168 and its EPS is $5.72 yielding a P/E ratio of 29.41. 

The P/E ratio shows how much investors are willing to pay per dollar of earnings. With a multiple of 29.41 investors are willing to pay $29.41 for every $1 of Apple’s earnings.

Higher multiples imply a higher expectation of future growth. While Apple’s multiple is 29.41, multiples for Dell, Microsoft, and Hewlett-Packard all hover around 15. This means that the market expects Apple to grow twice as fast as its competitors.

Apple, Amazon.com, Google and Netflix all have staggeringly high P/E ratios as a consequence of their customer-centric, innovation-driven businesses. Their higher multiples increase the perceived value of their business today, providing them with a larger pool of capital to continue to fuel innovation efforts tomorrow.

Notice also how these innovation-driven businesses dominate within their respective markets.

It pays to be innovative.

Related posts:

1. The Secret Behind Innovation
2. Incremental Innovation
3. Is Your Business Killing Creativity?

In The Effective Executive, what I consider a must-read for anyone who works in any organization, Drucker highlights five habits that executives must acquire to be effective:

1. Time Consciousness: Effective executives are aware of where they spend their time. (We’ll address this more specifically in another post.)
2. Outward Contribution: Effective executives focus on outward contribution to the organization, and ultimately, the customer. They gear their efforts toward results, not work.
3. Strength-Focused Mindset: Effective executives build on their own strengths as well as the strengths of their superiors, colleagues, and subordinates. They do not build on weakness or start out with things they cannot do.
4. Measurable Results: Effective executives concentrate on the few critical areas where superior performance produces measurable results. (See A New Results Mindset at Work.)
5. Effective Decisions: Effective executives make effective decisions. The focus is on a small number of fundamental decisions that greatly impact the organization.

How well do you size up? Where can you improve your level of effectiveness?

Related posts:

1. Five Habits of Highly Effective Team Leaders
2. Adopt a New Results Mindset at Work
3. Excessive Meetings = Ineffective Organization

While this to-do-list-driven thinking may help distribute various activities to different team members, it does not necessitate the achievement of organizational goals.

As Peter Drucker explains, “Productivity for the knowledge worker means the ability to get the right things done. It means effectiveness. Knowledge work is defined by its results.” As is always the case with to-do lists: they drive towards actions, not results.

Results planning doesn’t require another internal document, but a mindset your organization can adopt. With this new mindset, you and your organization will:

• Stay perpetually connected to a larger, shared vision
• Evaluate complex problems with higher understanding
• Conduct shorter meetings (this is benefit enough!)
• Make smarter, quicker decisions
• Be more effective at operating as a collective whole, serving your customers, and growing your business

How do you adopt a Results-Planning mindset?

1. Continuously ask the question: What is the result we are going to achieve? Cultivate a culture that values investing time envisioning the big picture instead of jumping into an endless series of to-do-list driven activities.
2. Next, ask: What are the conditions that need to be set in order to realize our desired result? Now, brainstorm and strategically think through the issue while keeping the end result firmly in mind.

While these two questions might seem simple, consistent and effective execution is extremely difficult.

But here’s the good news: Any progress you and your organization make towards a Results-Planning mindset will measurably improve your business over time. (I’ve had the privilege of witnessing the positive effects with over a dozen enterprises I’ve worked with.)

Related posts:

1. Five Habits of the Effective Executive
2. The Death of To-Do Lists and the Birth of Creativity
3. Results Thinking for Clarity and Direction

At our company (Cult Branding), we believe we have developed the ultimate business lens to help businesses make effective decisions that lead to long-term profitability.

Peter Drucker reminded us that “the purpose of business is to create a customer.” Thank you, Mr. Drucker. Very true.

But you also know that all customers are not created equal. Some customers are more loyal, and therefore, more profitable. If you serve your loyal customers better than anyone else, they’ll provide your business with a fortified foundation as well as help you create new customers through word of mouth.

Do you realize how important the lens of your best customers—your Brand Lovers—can be? Do you know who your Brand Lovers are?

Here’s our latest deck to help illustrate the importance of your best customers:

Related posts:

1. The Key to Building a Profitable Business
2. The Purpose of Business
3. What’s Your Decision-Making Lens?