CIOMAX - Background

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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.