Payback: Reaping the Rewards of Innovation

Abstract

Payback: Reaping the Rewards of Innovation; James P. Andrew and Harold L. Sirkin; Harvard Business School Press, Boston, MA; 2007; 228 pp., $29.95. At most companies, is a black hole that consumes vast amounts of resources and delivers uncertain returns-a situation that has frustrated company leaders for years. Now there's a book that could actually solve the problem. In Payback: Reaping the Rewards of Innovation, Andrew and Sirkin, senior vice presidents with The Boston Consulting Group, provide a powerful and actionable perspective on how to improve the innovation performance at a company, as well as specific organizational and leadership recommendations that cut through much of the normal fuzzy thinking that shows up in books on innovation. This is an important work. The authors start with the contention that there's only one true measure of an innovation's success: cash. Then they offer up a disciplined, pragmatic approach to the innovation process that focuses relentlessly on the bottom line. This focus on payoff is critical. According to the authors' experience, up to one-third of all innovation projects are wasting time, money and people-even at the best companies. A lack of good ideas isn't the problem; most companies have more than enough. In fact, worship is often part of the problem, distracting management from the more important business of managing innovation as process. The key is to focus on the ideas that are most likely to generate a return. To help identify the potential winners, Payback offers up a tool the authors call the Cash Curve, which plots the four factors that contribute to or prevent a profitable outcome: start-up costs, speed (time to market), scale (time to volume), and support costs. The result is a payback profile that clearly shows when-if ever-a new product will be profitable, and more importantly provides a picture to engage teams in a way that the ubiquitous spreadsheets cannot on what they can do to boost the odds of success. By analyzing the four Ss of the curve, innovation leaders can see when to kill an effort, when to invest more, or when to speed up or delay a launch. The authors also show how the Cash Curve can be an effective tool for decision-making and understanding where, and how, an organization needs to be aligned. Payback is filled with fresh and interesting case studies-not the retreads we read about time and again. What's also fascinating is to see the payback profiles of products we (think we) know. The iPod, for instance, has a model Cash Curve. Launched in late 2001, Apple's digital music player became one of the most successful products in consumer electronics. But the idea itself wasn't new-three or four (depending on how you count) other players were already on the market. But Apple managed the Cash Curve beautifully by keeping the iPod's start-up costs relatively low, then bringing it to market and ramping up volume quickly. The iPod became very profitable very fast-a compelling payback success story. Andrew and Sirkin then compare this to the Concorde jet, a triumph of aeronautical design and speed (a great idea) but ultimately what the authors call a cash trap. Looking back through the lens of payback, the Cash Curve and the authors' 4S framework, it's easy to see why it failed. When France and the UK formed an alliance to develop the Concorde in the early 1960s, the original cost estimate was $1 billion, but the reality was four times the budgeted pre-launch investment, ending up closer to $4 billion. That alone would destroy the payback potential of most projects, but the Concorde took far too long to reach the market-14 years-and failed to ever achieve scale. Support costs were high, too. The jet's outdated technologies made maintenance a challenge. Tickets couldn't be priced high enough to recoup these staggering costs. These and the other case studies in the book show that successful innovation has little to do with luck and everything to do with controlling the factors that drive profitability. …

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