Ninety percent of senior executives say that innovation-driven growth is integral to their company's success, and most report that they're spending more on innovation efforts every year. But nearly half say they're unhappy with their return on these investments.
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Authors James Andrew and Harold Sirkin show that successful innovation has little to do with luck and everything to do with understanding and controlling the factors that drive profitability. Based on BCG's work with leading companies worldwide, Payback introduces the tools companies need to succeed:
- The "cash curve," which analyzes four variables that contribute to, or prevent, payback: start-up costs, speed to market, speed to scale, and support costs. This reality check shows whether an innovation is on track to generate payback.
- The four indirect benefits of innovation—knowledge acquisition, brand enhancement, ecosystem strength and organizational vitality—that must also generate cash.
- Three innovation business models (integrator, orchestrator, and licensor) that can affect an innovation's profitability.
- Guidelines for aligning an organization, including metrics that provide a clear picture of the outputs of innovation—both cash payback and indirect benefits—but also the inputs, such as time and money, and the overall effectiveness of the innovation process.
- Seven actions leaders can take, and cannot delegate, to improve innovation output.
The book also includes more than 70 case studies—both successes and failures—that have never been made public before, covering a wide range of companies around the world.
Payback addresses the most important problem confronting business people today: how to achieve a better return on investments in innovation.
We've worked with hundreds of companies, in virtually every industry and in countries around the world. Most of these organizations are experts at what they do, and many of them are world-class. Nevertheless, we've seen only a few that are operating anywhere near their potential when it comes to achieving a return on their innovation spending. As a result, they are unable to maximize their shareholder value, grow at a rate they would like, or respond as effectively as they could to competitive pressure.
Some executives have told us that they can't innovate successfully because their companies don't generate enough good ideas. But in our experience, a lack of ideas is rarely the issue. Thousands of good ideas exist within every organization, even those that don't think of themselves as innovative. The real problem these companies have is turning their ideas into cash. They lack discipline in what we call the innovation-to-cash process, a key lever for innovation success that involves collecting, screening, nurturing, and commercializing ideas in a way that achieves payback. This proven approach helps companies solve the problem of poor returns—and capture the opportunities that successful innovation can offer.
As a result of our extensive work and research on the subject, we believe more deeply than ever that innovation is far more than a discrete product, service, or improvement. It is a holistic process and a corporate journey—with payback as its ultimate goal. And, because profitable innovation is so important to individual companies and to the global society, you cannot begin the journey too soon.
Part I. What Is Payback?
Introduction: What Is Payback?
- The Characteristics of Cash
- Indirect Benefits That Can Lead to Cash
- Choosing the Optimal Model
- The Innovation Business Models
- Aligning and Leading
Cash and Cash Traps
- The Cash Curve
- Assessing Risk
- Cash Traps
- Concorde: A Cash Trap
- iPod: A Model Cash Curve
- Cash in the Context of the Portfolio
The Indirect Benefits of Innovation
- Knowledge Acquisition
- Brand Enhancement
- Ecosystem Strength
- Organizational Vitality
- Achieving a Balance of Cash and Indirect Benefits
Part II. Choosing the Right Optimal Model
The Integrator
The Orchestrator
The Licensor
Part III. Aligning and Leading for Payback
Aligning
- Aligning the Organization for Innovation
- Citigroup: Alignment as a Series of Small Steps
- BMW: An Almost Perfect Alignment
Leading
- The Seven Levers That Leaders Use—That Can't Be Delegated
Afterword: Taking Action
Acknowledgments
Notes
Index
About the Authors
James P. Andrew
Jim Andrew is a senior partner and managing director in the Chicago office of The Boston Consulting Group and head of the firm's global Innovation practice. He has been with BCG for 20 years, in both the United States and Asia. Jim leads BCG's annual global Senior Executive Survey on Innovation (conducted with BusinessWeek) and works with leading companies around the world and across industries on their innovation strategies and related organizational issues. He regularly counsels senior executives on innovation culture, performance, and leadership.
Harold L. Sirkin
Hal Sirkin is a senior partner and managing director in the Chicago office of The Boston Consulting Group and leader of the firm's global Operations practice. He has been with BCG for 25 years. Under his leadership, the firm has emerged as the foremost driver of client results in two areas critical to profitable growth—innovation and globalization. Hal previously led BCG's highly successful E-commerce and IT practices. He advises senior executives on innovation, globalization, operational capabilities, change management, and leadership.
"Payback is filled with ideas and methods that can help any company create new products and services that deliver maximum profit, and also bring benefits to its brand, relationships, and organization. Samsung has used these approaches to innovation to achieve remarkable organic growth and become one of the world's leading brands."
—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
