Smartest Companies

Google: 'smartest companies'. In each page of the search results you'll find 3-5 hits that link to Baseline's 100 Smartest Companies.

This seemed promising, as I am attempting to find metrics to determine which companies are the 'smartest' - a part of the 'Intelligence Project'. As I read through the 'methodology' though, I started to raise my eyebrows:

"The metric Strassmann created isn't complex. First, subtract the company's shareholder equity from its market capitalization. Then divide that amount by the number of employees at the company. The result is an intangible but vital asset: the value each employee generates."

While this measure has an Occam's Razor-esque appeal, it has a number of extremely obvious and fatal problems.

1) There is no distinction made between 'smartness' and 'productiveness'. It seems as if Strassmann simply took a productivity measure, reframed it in terms of 'the value each employee generates', and then called it an intelligence measure. One could (maybe) argue that productivity and intelligence are the same thing when it comes to business, or perhaps that it is impossible to divorce a worker's productivity from her intelligence. But, then it seems pretty disingenuous to name the list '100 Smartest Companies'.

2) Dividing a company's 'value' by the number of employees at the company disadvantages companies in sectors where more employees are needed to have a functioning business. Starbucks and Walmart, for example, are (intuitively) very smart companies, but both of them would have had a worse rank on this list than, say, pets.com (back in the day) - simply because the way in which Starbucks or Walmart generates profits requires more people than a small website. A really smart company in retail - excellent management, innovative marketing, streamlined supply chain - for instance, still needs to have a lot of low-human-capital employees, but this fact should, a priori, not detract from how smart the company is measured to be.

3) Most importantly, using the stock market to determine how valuable/smart a company is introduces distortions related to bubble-economics. I would imagine that during the tech boom, there would have been a ton of down-right stupid companies at the top of Baseline's list. And, look at the list of companies that are at the top of the list for 2006:


Does anyone really believe that 7 of the top 10 companies in the US are no-name real estate companies? No. Of course not. What Baseline has created is something more like a measure of bubble-economics, not intelligence.