If you're like most people, you bet your career and company on innovation--because you must. Payback: Reaping the Rewards of Innovation offers you a new way to think about and manage innovation that will dramatically improve the odds of success.

Authors James Andrew and Harold Sirkin, senior partners in The Boston Consulting Group, describe an approach to managing innovation based on the concept of a cash curve--which tracks investment against time. They ask the questions you need to ask: How much should you invest in a new product or service? How fast should you push it to market? How quickly can you get to optimal value? How much additional investment should you pour into sustaining and building the product or service?

Payback offers you practical and economically sound advice on when to pursue cash flow indirectly by first pursuing other benefits, such as brand and knowledge. It also shows you how to reshape the cash curve by using different business models - integrator, orchestrator, and licenser - each of which balances risk and reward differently.

The authors then present a short list of decisions and activities that you must make - not delegate - to achieve a high return on innovation. You won't find facile answers in Payback - but you will find valuable insights and practical guidance for mastering one of the most challenging and critical business activities: innovation.

The authors then present a short list of decisions and activities that you must make - not delegate - to achieve a high return on innovation. You won't find facile answers in "Payback' - but you will find valuable insights and practical guidance for mastering one of the most challenging and critical business activities: innovation.

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).

In Payback: Reaping the Rewards of Innovation (Harvard Business School Press; January 2007), authors James Andrew and Harold Sirkin show that innovation success has little to do with luck and everything to do with understanding--and controlling--the factors that drive profitability. Based on their work with hundreds of leaders, managers, and innovators, Andrew and Sirkin, both executives at The Boston Consulting Group, offer a breakthrough framework for profiting from innovation. The book will benefit anyone who faces the challenge of generating a payback from a new idea, product, or service.

Payback acknowledges that innovation can deliver four types of benefits besides cash: knowledge, brand, ecosystem, and culture. But the authors contend that even these indirect benefits must ultimately generate cash to be of value. The book offers a means and a mindset to focus sharply on doing only those new things that will provide a return on investment. The authors say companies must be able to measure the factors that determine whether or not an innovation will be profitable. They outline four variables--start-up costs, speed to market, speed to scale, and support costs--that help to make this determination. When analyzed, these four factors provide a reality check in the form of a cash curve that shows whether a project is on track to generate cash.

Just as important to a successful outcome is the innovation model that a company chooses. Andrew and Sirkin explore three different models--integration, orchestration, and licensing--and provide guidelines for making the right choice. The authors also offer recommendations on how to organize and lead innovation efforts more effectively, and present a short list of decisions and activities that must be made to achieve a high return on innovation. The book serves up a rich assortment of company examples, including BMW, Bosch, Citigroup, Danaher, Del Monte, Dolby Laboratories, Linde, Microsoft, Nokia, Philips, QUALCOMM, Renault, Schindler, Siemens, Sony, and many more.

?Jong-Yong Yun, Vice Chairman and CEO, Samsung Electronics

?It?s refreshing to see a book that brings the innovation debate so firmly back to the issue of determining and executing on the right business model. Andrew and Sirkin provide deep insights into driving financial returns from innovation.?

?Henning Kagermann, Chairman of the Executive Board and CEO, SAP AG

?There?s no question that Andrew and Sirkin understand that the real focus of every company?s innovation strategy should be sustainable business growth. Or, said more simply, the book is about making more money every year from your innovation efforts. The authors provide a clear road map that will help managers avoid the pitfalls that others have fallen into, while providing a great vision to substantially improve results. Payback is a book for leaders.?

?Stephen David, Senior Vice President and CIO (retired), Procter & Gamble, and creator of P&G?s global innovation network

?Payback provides a way to think about innovation as a management process, rather than as a mysterious creative activity. The authors demonstrate that a lack of good ideas is rarely an impediment to successful innovation; lack of leadership and good management too often is.?

?Jarkko Sairanen, Vice President, Corporate Strategy, Nokia

"Innovation is the competitive weapon of the 21st century. Those who master it will out perform those who don't. Andrew and Sirkin provide a systematic approach for dramatically improving your organization's innovativeness. A must read ... before your competitors do!"

?J. Bruce Harreld, Senior Vice President, Marketing & Strategy, IBM

Hal Sirkin is senior vice president and director at BCG and worldwide leader of the Global Operations practice. He has extensive experience in operations across a wide range of topics and industries. Throughout his career he has helped leading companies to develop breakthrough innovation strategies. He is the co-author of ?Innovating for Cash? and is the author of many other articles, which have appeared in Harvard Business Review, Industry Week, Journal of Business Strategy and other publications.

John Butman is the author, editor, or collaborating writer of more than a dozen books about business management and social change. His most recent collaboration with BCG was Trading Up: The New American Luxury, which was a BusinessWeek bestseller and was named Berry-AMA Best Book of 2004.

2007-12-11 Getting the most from innovation