1 CIOMAX - Background Corporate Innovation Online Benchmarking innovation Building and sustaining innovation Articulating innovation This is background to the series of reports on the management of innovation and related investor information.. We update our research reports on SBUX, DE, GE, PG, and MMM on the occasion of changes in senior management or a significant shift in the stock price. We provide insight into the management of innovation in five highly-innovative companies by doing two things. 1. By researching highly-innovative companies, we derive their means of managing innovation. We articulate their policies and management practices and provide a ‘generic’ model for others to adapt to their own organization as they see fit. 2. Since the effective management of innovation is the path to growth, profit, and shareholder performance, we provide comment on the financial performance of this select group and a perspective on the short and mediumterm stock performance. Buy, sell or hold? Average Annual P/E Ratio over last 15 years Source: Valueline 24 15 14 17 15 1 Starbucks Deere & Co. GE 3M P&G The scope of our coverage includes Starbucks, Deere & Co., 3M, GE, and P&G (P&G coming soon to the CIOMAX coverage). Each research report is a comprehensive document and available on the web site. The following is a summary of the highlights from our latest CIOMAX reports. Company Summary comment Last 10 years average annual return on total capital Beats the DOW since first listed P/E ratio – average annual over last 15 years Buy, sell or hold comment – short term Buy, sell or hold comment – medium (3 years) term Stability of P/E ratio over last 2 to 3 years Key emerging issue respecting innovation Fit with the ‘generic’ model on the management of innovation. Deere & Co. Starbucks A well-managed company with solid management practices in place. Controlled, careful innovation management is the hallmark. 3M GE 21% 24% The company with the best policies and management practices for encouraging and sustaining innovation. 26% Yes Dramatically Close No 14 24 15 15 Could be a shortterm opportunity. Invest for the long term. Fully valued at present. Buy, investing for the long term ? Steady Variable Steady Management of international roll-out Success of initiatives in China and India and with ‘tea’. Rated high on most characteristics but succession has yet to be addressed Keeping the NPVI percentage high. Its management practices contributed much to the generic model. Accumulate. Rated our best fit of the five companies researched to date. With restructuring done for now, the challenge is to realize better financial performance. 6% Hold Invest as financial performance targets are realized Steady Improving GE’s financial performance and building on recent acquisitions. Compatible on most fronts but may need to adopt a more aggressive approach to decentralization. P&G To be published in 2014 17% 17 2 There are different management challenges for each of the five companies. Size seems to matter. So does diversification. Both impact return on capital? GE is the largest of these companies by far and has the worst record in terms of average annual return on total capital. Correlation between number of employees and average annual return on total capital 350000 300000 250000 200000 150000 100000 50000 0 30% 25% 20% 15% 10% 5% 0% Starbucks Deere & Co Nymber of employees Comparing earnings per share – EPS - over the 5-year period 1998 to 2002 with earnings over the most recent 5-year period provides further insight into the earnings progression of all 5 companies. GE, 3M and P&G are highly diversified companies, Deere and Starbucks much less so. 3M P&G Average annual return on capital % EPS performance; 1998 to 2002 versus last 5 years - averages 10.00 8.00 6.00 4.00 3M’s EPS (average of the 5-year period) has 2.00 moved ahead more than GE and a bit more 0.00 than P&G. but Starbucks and Deere & Co., Starbucks less diversified than the other three, have done much better. Which company is best at managing diversity? Our generic model for the management of innovation has been built through our undertaking extensive research into the policies and management practices of our ‘group of five companies’ as well as noting the best practices of other organizations. We have identified six significant components. Check your own organization’s compatibility against these components! GE Deere & Co GE 3M P&G Six major components of a model for the successful management of innovation 1. Performance management 2. Communication 3. Reliability 4. Technology development 5. Culture 6. Strategy and organization 3M is, in our opinion, best at managing diversification. When compared to P&G and particularly to GE, 3M’s record for return on capital coupled with its management practices, rank it as the best in terms of the management of innovation. It is our best example of how to do it! For further information on each company please go to ‘Research’ on this web site.
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