As Published In February 2007

Cover Feature

2007 Profit Innovation Awards
By Molly Rose Teuke

Cutting-edge companies are open to innovation in every aspect of their operations.

General Electric, Inc.
Thinking Big

At GE, a program called "Imagination Breakthrough" is the practical realization of the company's "take big swings" approach to innovation. Each month CEO Jeff Immelt reviews 8 to 12 proposals worthy of competing for internal "venture capital." The deciding factor is whether Immelt and his CFO believe the idea has potential to generate US$100 million a year. "Talk about generating ideas and real, bankable, investable opportunities, that's it," says GE Comptroller Phil Ameen. "If you've got a big idea, you can go right to the boss. Jeff is saying, 'Maybe you want to grow your business and your budget doesn't allow for that. Come pitch me. I have the checkbook and I'm willing to fund you like a private equity company if you have a good idea.'" Since the program's inception in mid 2003, Immelt has given the nod to over 120 ideas, many of which have since become successful operations in a GE business.

Snapshot General Electric, Inc. www.ge.com Headquarters: Fairfield, Connecticut Revenue: US$150 billion, 2005 Employees: 316,000 Oracle products and services: Oracle E-Business Suite 11i

Ameen estimates GE is generating about US$3 billion in annual revenue from the "Imagination Breakthrough" portfolio of projects. "They're real case studies," he notes. "Here's the business, the market projection, the customer value proposition, the solution, the investment cost, the forecast. They're not constrained by more traditional metrics. They have a deeper level of tracking, and different time horizons within that portfolio."

It Takes an Enterprise

Strong routines are characteristic of an innovative organization. Companies can't afford the disruption that can be caused by innovation unless they've got very solid procedures, routines, and controls so they're not spreading money around without keeping track of it. "Our financial experts quarterback so many of these kinds of processes," says Ameen. "They're keepers of the numbers, but they're also strategically aligned and they play an important role in protecting those budgets further downstream."

GE's financial executives undergo several years of global training in both finance and operations. "Our CFOs are not just numbers people," says Ameen. "When you look at how their roles are defined, they're more akin to chief operating officers than simply finance people. It's that blend of skills that is present in our best and brightest finance people that our CEOs have learned to capitalize on. When you have the CEO and CFO in adjacent offices, the two of them think very similarly about short- and long-term trade-offs and how the business is going to succeed going forward."

Incentive

The top level of GE's managers are measured against these growth traits and compensated accordingly. "When we do our annual review, I'll sit down and assess myself to determine how well I'm doing against these traits," emphasizes Ameen. "Am I demonstrating them in my job? My manager will do the same, will look at me and ask, 'Are you a growth leader?' You're encouraged and compensated to demonstrate those growth leadership traits that encourage innovation. It's a further reinforcement of the culture, driving behavior through compensation for people to think differently, creatively, innovatively."

The Long View

But what's the long view of innovation within GE? Phil Ameen says that his growth playbook allows him to look out into three years of the business, and innovation is a critical component of this extended view. "I want to see where innovation is coming from. Sure, you have to make the numbers this quarter and next quarter. But how you're going to make the numbers next year and the year after is equally—and sometimes more importantly—part of your responsibility.

"We talk to investors about innovation and what that means. Our investors get the concept of growth and innovation and how that ultimately plays out in our operation. It's not linear in all cases and that's sometimes hard for people but education helps—we had an investor meeting where we brought in the head of the R&D center and he walked through the whole process of how we look at funding for R&D, how it comes down the pipeline—and how it ultimately benefits shareholders."

Google Inc.
Thinking Big

Snapshot Google Inc. www.google.com Headquarters: Mountain View, California Revenue: US$7.4 billion, 2006 (YTD) Employees: 9,378 Oracle products and services: Oracle E-Business Suite 11i, including Financials, Purchasing, Procurement, and Manufacturing; Oracle User Productivity Kit; Oracle Database; Oracle Calendar; Oracle Fusion Middleware

When Google Chief Financial Officer George Reyes says, "We've managed to build a pretty strong franchise," that's an understatement. Google, a multibillion dollar company, grew by 90 percent in 2005, by 70 percent in the third quarter of 2006, and anticipates continued growth in 2007, much of it in global markets. "We leverage Oracle's applications throughout the world to enable a tightly tuned close and financial reporting process," says Reyes.

"One of our highest priorities is to continuously invest in improving the quality of our search, our ads, and the overall experience of our users. We do this by serving highly targeted and relevant ads to our users, which in turn brings more traffic to our site. To further drive traffic to the site, we introduce all sorts of new products like Google Maps and Google Earth, as well as a whole host of other products that our users find really useful."

Staying on Top of the Business

"Given our current growth rates globally in terms of revenues, hiring, numbers of subsidiaries and investments in capital expenditures, it is imperative for us to consistently attract and retain the best and brightest talent we can recruit. We have been able to do this by judiciously monitoring our business to ensure that it remains solidly on track—we've found that high-performing individuals want to work for a high-performing company. So, we have implemented a very rigorous set of accounting controls and financial planning and analysis tools that let us track and monitor the key performance indicators of our business." Some of these metrics include revenue growth by geography, employee head count growth, operating expense levels, pretax operating margins, and free cash flow.

"On a closing note, none of what we have been able to accomplish thus far at Google would be possible today were it not for the vision of our founders, Larry and Sergey."

Starbucks Inc.
Thinking Big

Snapshot Starbucks Inc. www.starbucks.com Headquarters: Seattle, Washington Revenue: US$7.8 billion, as of September 2006 Employees: 135,000 Oracle products and services: Oracle E-Business Suite 11i, including Advanced Pricing, Discrete Manufacturing, Financials, Financial Analyzer, Inventory Management, Order Management, Process Manufacturing, Procurement; Oracle Retail (formerly Retek), Oracle's Siebel Call Center for Service

At Starbucks, thinking big can mean thinking small—such as Frappuccino in a 6-ounce bottle. Inspired by a failed attempt at carbonated coffee, nearly a decade ago, Starbucks Bottled Frappuccino is now a billion-dollar business. Or the slender Starbucks card, a prepaid purchasing card introduced in November 2001. "The card has built a very loyal client base and is a great business generator for us," says chief financial officer Michael Casey. "We continue to add features. We've gone to multiple currencies and multiple countries, and we're in the process of making it universal." That underscores Starbucks' global strategy: the Seattle-based retailer is opening six and a half stores a day, many in countries outside the United States. "We have a huge network of entrepreneurial, innovative people working all over the world," notes Casey.

Watching the Numbers

"Innovation is just part of our overall measurement of the success of our business," emphasizes Casey. "We work at a fairly small scale to test the technology of potential innovations, then the operational feasibility, and then customer insights with one store, 100 stores, then 500 stores before we get to the point where we have to make a big bet.

"You need to act like a venture capitalist. You have to provide seed money for innovative projects but you also have to have periodic hurdles that allow you to stop the things that aren't heading in the right direction and to accelerate the ones that are. But we would do something that might have very low financial return if we thought it contributed to the overall aura of Starbucks as being an innovative company. One of our strategies is to surprise and delight our regular customers so that repeat visits continue to be exciting."

The Long View

It may surprise you to learn that a company in the business of providing a decidedly low-tech product to its customers has to make long-term plans that are equivalent to the most complex high-tech enterprise. "To be a high-growth company, we have to invest ahead of the curve," states Casey. "We have to source the coffee years before we need it. We have to build the roasting plants significantly before we need that extra capacity. We need to build the stores before we sell one product from them. We're investing money now to figure out how to do business in India. We won't make money in India in the next five years. But in the five years after that, India, along with China and Russia and other places where we're just getting started, are going to be part of what allows us to be a growth company years from now, not just today and tomorrow."

Toyota Motor Sales U.S.A. Inc.
Thinking Big

Snapshot Toyota Motor Sales U.S.A. Inc. toyota.com Headquarters: Torrance, California Revenue: US$65 billion, 2006 Employees: 39,000 Oracle products and services: Oracle's PeopleSoft Enterprise Financial Management applications, including Accounts Payable, Accounts Receivable, Asset Management, Billing, Cash, Commitment Control, General Ledger, Inventory, and Procurement

With a budget of US$28 million each day for R&D, Toyota is always in the market for new ideas, but the emphasis isn't always on big. "The two major pillars of the Toyota Way are respect for people and continuous improvement," says Tracey Doi, chief financial officer at Toyota Motor Sales USA. "The two are very closely aligned because if you are respectful to people and their voices are heard, you will get creative ideas." A recognition program rewards individuals for ideas, large or small, that lead to enhanced customer service, revenue generation, cost efficiency, or people development. "It bubbles all the way up to the President's Award," notes Doi, "where our CEO hands out rather generous checks to associates, recognizing them publicly for their innovation."

Watching the Numbers

When Toyota introduced Scion in 2004, financial return was just one component in Doi's view of a successful new brand launch. "It was also about the customer experience," she says. "We wanted to approach a younger buyer and bring new owners to the Toyota family. The median age of Scion buyers is 30, which makes us the youngest brand in the industry, and four out of five Scion owners are new to Toyota. Scion was, and still is, considered a laboratory for us."

But numbers do matter. Supporting the full panoply of product lines is an enterprisewide scorecard based on metrics associated with growth and strategic initiatives. Key performance indicators are measured internally, with some external monitoring. "My role is to make sure we balance short-term and long-term objectives effectively," says Doi. "We must continue to increase our efficiencies and allocate the right resources to support sustainable, profitable growth. The human capital, engineering, manufacturing, sales and marketing, IT, and capital investments all need to be integrated to ensure a successful outcome. I strive for finance to be a strategic business partner."

The Long View

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"Ultimately, what Toyota stays focused on is building products that customers can live and breathe with, that are part of their lifestyle," says Doi. "It's very, very tangible at all levels that there's a high level of desire to do whatever will make the customer happy."

"We're like any other company. There's always room for improvement. We're not perfect. There's always challenge, and there's always opportunity. That's what makes it exciting."