Monday, August 20, 2007

CEO Lingo Can Predict Innovation

University of Minnesota researchers have found that a CEO's use of future tense can predict a company's track record in innovation.

"The answer lies in the words of the CEO," said Rajesh Chandy, professor of marketing at the university's Carlson School of Management. "By simply counting the number of future oriented sentences in annual reports we can predict future innovation by the firm."

In an upcoming paper, "Managing the Future: CEO Attention and Innovation Outcomes," to be published in the Journal of Marketing, Chandy and his co-authors show that CEOs who focus their attention on future events, as well as external activities, lead their firms to earlier adoption and invention of new technologies and greater and faster development of innovations. In contrast, more attention to internal operations leads to slower detection, adoption and implementation of new technologies.

Chandy and crew studied empirical data collected from the online banking industry over eight years to determine innovation outcomes such as speed of detection, speed of development and the breadth of deployment of technology. By counting the number of future oriented words and phrases in letters to shareholders over this time span, they were able to predict the level of innovation by the firm up to five years later.

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