Payback: Reaping the Rewards of Innovation - Hardcover

Andrew, James P.; Sirkin, Harold L.; Butman, John

Hardcover

ISBN 10: 1422103137 ISBN 13: 9781422103135

Publisher: Harvard Business Review Press, 2007

Synopsis

Unusual book

About this title

Review

a detailed roadmap on how to manage innovation projects in the early stages
[thus avoiding] irrevocable cash traps
-- Financial Times, February 21, 2007

From the Author

hy did you write a book on innovation now?
We work with many successful companies each year on issues relating to growth and innovation. Innovation is an increasingly pressing priority for leaders and demands a growing amount of time, people, and money. Despite this large investment of resources, we see growing disappointment with the returns from innovation efforts. In short, there's an innovation disconnect that has not been addressed: Companies need to innovate--and realize organic growth--but they are consistently frustrated in their efforts.

What are companies doing wrong when it comes to innovation?
Many companies have lost sight of a basic fact--that innovation must lead to a payback. Innovation must contribute, directly or indirectly, to incremental profit. If it doesn't, the effort is simply a needless expense. Companies must approach innovation in a disciplined, dispassionate way. If they don't, their portfolios will be filled with "cash traps"--projects that appear to be innovations but are really draining valuable resources that could be better invested elsewhere. Companies need a clear picture of their innovation efforts, one that fosters alignment and smart decisions.

Isn't innovation really about good ideas?
There's no shortage of good ideas; quite the contrary. In fact, idea worship may help derail companies' focus on getting payback from innovation. Unless an idea turns into incremental profit, it's not an innovation--it's an expense or a cash trap. We argue that most companies would be more profitable if their innovation portfolios had fewer initiatives that were bigger, with shorter time to market. But getting there requires the ability to measure these factors.

But doesn't everyone try to manage innovation for profit?
Most companies at least try to measure profit. But measuring and managing are different. Our work and research have shown that four variables contribute to--or prevent--cash payback: start-up costs, speed to market, speed to scale, and support costs. When analyzed, these "four S's" form a cash curve that clearly shows whether a project is on track to generate cash or not. In essence, the cash curve is a reality check that gets everyone on the same page for project discussions and decision making. The "four S's" are levers that can be used to fine-tune innovation efforts. By analyzing them on a cash curve, leaders can see clearly when to kill an effort, when to invest more, and when to delay or speed up the launch. A cash curve with these variables lets you gauge when a project will break even--and whether you'll have the resources to reach that point within an acceptable timeframe. Then you can really begin to manage innovation for payback.

What does it take be an effective innovation leader?
First off, leaders need to think of innovation in terms of payback--and ultimately cash payback. And they need to manage it as a process--one that everyone can understand and buy into, and one that takes risk into account. Just as importantly, leaders need to see themselves as innovation venture capitalists, not just innovation "yes" men or "no" men. As innovation venture capitalists, they see the big picture in terms of risk and reward and can thus balance, control, and contribute to the innovation portfolio. In that framework, they balance passion and discipline.

Who's really good at innovation? And what are some notable innovation failures?
Each year we conduct a survey of over a thousand senior executives from around the world. The ten most innovative companies in the world for 2006 were, in order: Apple, Google, 3M, Toyota, Microsoft, GE, P&G, Nokia, Starbucks, and IBM. Some notable innovation failures: Polaroid, Schwinn, and the Concorde (while a wonderful technological achievement, it never generated a cash payback).

About this edition

• Publisher: Harvard Business Review Press
• Publication date: 2007
• ISBN 10: 1422103137
• ISBN 13: 9781422103135
• Binding: Hardcover
• Number of pages: 228