Customer Reviews

Payback: Reaping the Rewards of Innovation

5 star:		(7)
4 star:		(1)
3 star:		(3)
2 star:		(2)
1 star:		(1)

 

 

This book bears all the weaknesses one expects from management consultants. It has a solid core concept, the cash curve, and a very simple graph to go with it. Virtually everything worth knowing gets said in the first 50 pages of the book.

What follows is a logical, step by step exposition of each point in more detail using selected examples from the authors' consulting experience. Sadly, no single customer example is longer than four pages, and details are sparsely strewn. It is especially noteworthy that they graphic of the key concept, the cash curve, is wholly absent from the second (much longer) half of the book.

One also gets the feeling that if the authors had had different customer engagements, they would have come to different conclusions. For instance, they discuss how Intel practices the integration business model in their chip business. However, virtually every other semiconductor company of any note on the planet is using outside factories (fabs in semiconductor parlance). Many, such as Qualcomm and Broadcom just to pick two examples have built market capitalizations in the tens of billions of dollars practicing the orchestration business model. It would have been very instructive to compare and contrast how two different models in essentially the same business can both lead to outstanding results for investors. Sadly, that discussion is wholly absent.

In summary, the core principal of the book is a very important one. I cannot think of a single business that could become a big success not understanding it. However, the lack of details in the customer examples keeps this book from realizing anywhere close to its real potential.

The last time I checked, I was amazed to learn that Amazon offers 178,376 books on the general subject of innovation. One of the basic truths about selling residential real estate is that "for every house, there is a buyer." The challenge is to bring the two together. The same is true of business books and those who read them. The authors of Payback, James P. Andrew and Harold L. Sirkin, do not provide an annotated bibliography but do refer to dozens of excellent sources that helped to guide and inform their explanation of how to "reap" the rewards of innovation. Presumably they would be the first to suggest that their readers also consult a number of the sources before deciding - and in this context, I presume to invoke an agricultural metaphor -- what to "plant" where in order to produce the desired "harvest." The purpose of this brief commentary is to help those who read it to decide whether or not Andrew and Sirkin's book is worthy of their careful consideration. My guess (only is a guess) is that it will be of substantial value to most (if not to all) C-level executives.

The material is carefully organized and lucidly presented within three Parts: What Is Payback? ("Cash and Cash Traps" and "The Indirect Benefits of Innovation"), Choosing the Optimal Model ("The Integrator, "The Orchestrator," or "The Licensor"), and Aligning and Leading for Payback. In the Afterword, Andrew and Sirkin then offer a cohesive, comprehensive, and cost-effect plan for "taking action" which will maximize the ROI of whatever resources have been committed innovation initiatives.

Of special interest to me is what they have to say about alignment in Chapter Seven. According to a survey conducted with BusinessWeek, the highest ranked innovative companies (in descending order) are Apple, Google, 3M, Toyota, Microsoft, GE, P&G, Nokia, Starbucks, and IBM. However different they are, "all of them are aligned around innovation and achieve payback" because they have avoided the most basic causes of innovation misalignment. Specifically, these causes are:

1. Having an innovation strategy at odds with business strategy
2. Innovation that is "all talk and no support"
3. Innovation initiatives are isolated
4. The process is fragmented and disjointed
5. "Dynasties" monopolize innovation resources
6. Metrics confound the goals of innovation

Andrew and Sirkin explain how to avoid these and other causes of misalignment, stressing the importance of achieving and then sustaining individual, unit, and companywide responsibility as well as creating and nourishing conducive conditions which include openness, and, meanwhile, "measuring what matters" with accuracy and consistency.

Efforts to "reap the rewards of innovation" require effective leadership at all levels and in all areas of operation, of course, but especially at the C-level. Leaders of innovation must have a tolerance for ambiguity; also be able to assess and be comfortable with prudent risk, be able to quickly and effectively assess an individual, be able to balance passion with objectivity, and finally and most important, be able to change.

Whatever their size and nature, all organizations need to "get their arms around [their] innovation portfolio," Andrew and Sirkin insist, and "the projects under review will fall into three categories. About a third of them will be winners that should be promoted and accelerated. Another third will be a waste of resources and should be stopped even if they are being supported by `other budgets.' These are the `walking dead,' and it takes great courage to kill them, but it must be done. The final third will be less easy to evaluate and will need further exploration and discussion to determine whether they should be kept or killed. Moving on the third that should be stopped, and reallocating resources to accelerate the third that are winners, will immediately increase payback."

Long ago, Thomas Edison asserted that "vision without execution is hallucination." While no doubt agreeing with Edison, Andrew and Sirkin take that thought a step further by insisting that execution of innovation initiatives must deliver the required return on a company's investment of money, time, and people. "Payback means one thing - cash. Cash that is realized within the planned time frame."

For decision-makers in organizations that have not as yet achieved and then sustained such payback, Andrew and Sirkin's book is a "must read"...and I mean now.

Based on the other reviews I must have read a different book. But seriously Payback bills itself on the ideas behind creating practical and actionable innovation, how else could you meet the promise of 'reaping the rewards of innovation.'

Unfortunately the rewards they are talking about are all in terms of cash and profits making this book a 101 finance book built around the authors notion of the Cash Curve with the following basic tenants:

- don't spend to much to create an idea because that consumes upfront cash
- don't take too long to commercialize and bring the idea to market
- get your idea into volume production as soon as possible
- support the idea with a measured post launch investment.

Sorry but that's it. The book is heavy on the finance 101 side and extremely light on the idea of practices and ideas. Sure they say that you can play different role: innovation integrator, orchestrator, or liscensor but you pretty much know what the authors are going to say just by the role names.

The book does have an number of case studies, many that are available in the public domain, however these cases are more narrative telling you what happened without being analytical and telling you why the did this or that and the result it took.

Overall this book is very light on the ideas and actions required to deliver the rewards of innovation because it treats innovation as a financing event that is intended to generate cash. While that view is true, there is allot of insight, actions and practices that must happen before we can start thinking about how to get cash out of an innovation. I only hoped that the authors had taken the time to tell us that.

Lots of books on innovation purport to be useful to managers but end up spinning stories that rarely hang together. Payback really delivers! The authors have constructed a user friendly framework that links profoundly to business outcomes (cash) and articulates a number of generic strategy choices that are supported by useful examples. The managerially oriented reader can't help but come away with practical assistance and a vocabulary which can be easily shared with their team. If you are truly interested in making innovation work in your orgainzation this will end up as a "must read"

Everyone who wants to make money should read this book -- CEO's, CFO's,mangers, inventers, and investers. It's a real hardball look what it takes to make innovation payoff...and why so many companies with good ideas fail. Had the authors been running a political campaign, the slogan would have been "It About the Cash Stupid!"
What impressed me most about Payback is that while it's filled with high caliber business insight, it's very easy to read -- not at all like many theory-laden books written by strategy consultants. There are lots of great examples, taken from companies we all know, but not necessarily ones we've read about over and over. You learn why Polaroid failed, what makes Microsoft a great innovater -- and in neither case is the answer a good idea [or lack thereof]. This is definitely the best innovation book out there -- and one that will make a real difference to your bottom line.

For a while now I've followed the writings of Jim Andrew from the Boston Consulting Group. His annual survey about innovation in corporate America provides an interesting window into what's on the minds of corporate leaders about innovation. Jim and a fellow BCGer, Harold Sirkin, have just released a book about innovation called Payback, Reaping the rewards of innovation.

As you might guess from the title, Payback is about closely and carefully identifying the measurable, tangible benefits of innovation. Too often, innovation appears as a "good thing" but we don't measure the results very carefully. In these cases it can be hard, if not impossible, to indicate the direct benefits and payback of innovation. Andrew and Sirkin want to change our thinking about innovation, and make us much more hard headed about the reasons for innovation and the expectation of return.

The book is divided into three sections. The first section looks at payback from innovation and its importance. The second section is about choosing the "right" strategic model and the third section is about alignment for innovation.

In the first section, the book looks at what should be obvious but often isn't - the investment in a new idea and the "cash curve" an idea represents. That is, almost all new product or service ideas require an up-front investment before there's a return, which drives the cash curve negative. Eventually, sales begin and revenue turns the curve upward and a new product or service crosses the breakeven threshold and starts to earn money. The problem many innovations face is that we are too optimistic about the "ramp up" and investment and discount the costs of investment. The authors break these costs into four phases - Startup costs, Speed or time to market costs, Scale or time to volume costs and support costs after the product is launched. Generally speaking, we underestimate the startup costs, and larger firms fail to take into consideration the bureaucracy and barriers to new product development, so speed to market is a challenge. We overestimate the "hockey stick" or ramp up, so the cash curve for many innovations never reaches the break even threshold.

Again, we know a lot of this stuff - but where innovation is concerned, too often we fall in love with our ideas and don't take a hard headed look at the payback of the ideas.

In the second section, the authors look at three innovation models, which are really strategic decisions about how your firm should innovate. These models are: integrator, orchestrator and licensor. Of course one firm may follow several or all of these models in its various business units.

An integrator controls all aspects of the innovation - from ideation through product launch. The authors note that the integration strategy is important when:

* control is necessary
* the company has world-class capabilities
* risks are manageable
* knowledge assets have to be protected
* or simply, there's no better choice.

Orchestrators combine their own talents with the skills and talents of others to bring innovations to market. Orchestration is a good option when:

* A key capability is missing
* You are entering an unfamiliar market
* You don't want to invest in building a capability
* You have trusted partners
* You want to share the risk of development

The final model is licensing. The authors note that licensing makes sense when:

* the company does not have the resources to commercialize an idea and can't acquire the resources
* there's an opportunity to create critical mass through adopting a standard
* the competition can be transformed into a royalty source

The last section of the book is about aligning the organization to support and nurture innovation initiatives. The authors point out several significant challenges to innovation that are structural or cultural:

* Innovation strategy is at odds with business strategy
* Innovation is all talk and no support
* Innovation is an island
* The innovation process is fragmented
* "Dynasties" monopolize innovation resources
* Metrics (and compensation) confound the goals of innovation.

Frankly, this was my favorite section of the book. We've found that in most of the firms we've worked with, the management teams have innovation religion, but aren't sure how to change the culture and get people on board, much less how to make innovation sustainable. The list of challenges I've just provided will occur in just about any firm where the culture and the strategic intent for innovation are not firmly in place. A lot of these challenges can be chalked up to what the authors called "alignment". Strategic alignment, team alignment, compensation alignment, role alignment - all of these things and more must be aligned for innovation to succeed, since, as the authors point out "..the effect of any organization on innovation is often a negative one. This is because organizations, no matter how nontraditional they may be, are primarily designed for control, standardization and reduction of risk - and these characteristics can be the enemies of innovation."

Payback is a good book, but I would have ordered it differently. I strongly favor the last section, since it is alignment and cultural change that make sustained innovation possible. Only when you have sustainable innovation should you worry about payback on innovation. Clearly, the investment in innovation is important, and none of us will invest in concepts with very uncertain outcomes. However, getting the process and cultural attitudes are more important initially than payback. I'd then focus on the returns of innovation and how to maximize those returns. The middle section points out some of the models that are possible to pursue as an innovator - many firms will have all three of these models operating simultaneously - creating and launching ideas themselves, partnering with others to bring new ideas to market and licensing great concepts to others. Choosing a strategy for innovation is important, but I think getting the process up and running initially and tying it to strategic intent is the most important concept - what the authors call "alignment".

I found the book to be a real mixed bag - full of good advice but the sections seem to target different audiences and out of the order I'd prefer to see them. Naturally, as someone who is interested in the cultural and process aspects of innovation, I found the third section the most compelling, and the concepts and advice in that section are worth the reading by themselves. These ideas are more operational and topical, while the second section is really written to a very senior management audience who can choose the appropriate innovation models. The second section is really about the innovation strategy you'll choose. Finally, the first section seems "obvious" to anyone who has launched a new product or service, examining the costs and benefits of a new product or service and the cash curve. What the first section reminds us is that we too often fall in love with our ideas and neglect the hard evaluation of each phase of a new product or service development, underestimating costs and overestimating adoption, leading to many ideas that fail to achieve break even.

This is a tough book to evaluate, since it is chock full of great ideas and models to use to evaluate your business and implement change, yet to me it feels a little unfocused in its target and the consistency of its message. James Andrew is a noted leading thinker in the innovation space, and for that reason alone the book is worth a long look. The ideas around alignment and leadership are especially important and worth reading.

Filled with insights and anecdotes that really delight. Innovation is one of the toughest topics out there. So many people have written about it. Andrew and Sirkin shine a bright light on what's important...getting cash back fast, focusing your portfolio and getting to daylight. Easy to read. Well organized and fun.

Overall, I was not extremely impressed with this book. The cash curve is a good idea, especially if you can accurate analyze the costs. The four S-factors are a fine way to break the problem down into smaller components. Every methodology seeks to provide a common vocabulary and this one wasn't that compelling. The real sin is that it appears a good article was turned into a book. There simply isn't enough material. Parts Two and Three (7 of the 9 chapters) consisted of short corporate anecdotes, followed by a list of items, followed by 1-3 paragraphs describing the fairly obvious items on the list. Finally, as the jacket cover says - "You won't find pat answers in Payback". That is quite accurate - no pat answers and not very much in the way of useful analytic frameworks, beyond the cash curve itself.

Recommended: Chapters 1-2 are applicable to all, Chapters 3-9 only to CEOs looking to implement innovation. Instead I would recommend
"Developing Products in Half the Time: New Rules, New Tools", 2nd Edition by Preston G. Smith and Donald G. Reinertsen. This focuses on reducing the risk in the cost curve (although they don't call it that) by getting products to market faster.

More detailed review at: [...]

Innovation is one of the biggest problems facing companies today. This book does an excellent job of analyzing innovation into various types of companies and showing several examples of successful and unsuccessful companies.

The authors break innovation approaches within companies into three broad categories:

1. The Integrator - Here is where a company has a core competence and they hold the developement very close to their chest. The example they use is BMW who has a core technology in engines that they protect as much as they possibly can. Afer discussing a couple of other successes they then discuss Polaroid who attempted to move from film to digital cameras but failed.

2. The Orchestrator - where a company has the broad general idea and the ability to take a product to market but doesn't have the time, expertise, or desire to do this particular design/manufacturing job.

3. The Licensor - Some companies develop technologies that they are not going to take to market themselves. Dolby is the example they use, with technology licensed to various manufacturers. They have become the standard for audio professionals.

These decisions cannot be made by accountants, they take a leader. Someone has to see the potential beyone what the sheer numbers are showing.

Don't expect any insight into the process of innovation. Payback provides a freshman-level overview of innovation taking place in various companies, but is not a source of insight into the process. Years after the results of internal policies of many companies have become apparent to the business World, the author merely points to seeming successes and says "Do That", and to the failures "Don't Do That".
There is a decent comparison of the Integrator, Orchestrator, and Licensor models and some of the issues facing decision makers. Look for this around the middle of the book.
For a far more profound study that is immediately useful there is probably nothing better than Christensen's Innovator's Solution - cover-to-cover. Payback lacks any reference at all to many of the biggest challenges to implementing policies and deriving return in the market place, from innovation. Beginning with Christensen's Innovator's Dilemma, learn first of all why established companies get stuck in a rut of satisfying the demands of existing customers and simply cannot produce new products and services that really will produce big paybacks. Learn also the big difference between sustaining innovations and disruptive innovations. Discussing payback without this understanding is like studying Rocks without studying Geology.