Innovation's Payback

The cash curve helps leaders see when to kill an effort or when to invest more, when to delay or speed up the launch, when a project will break even -- and whether you'll have the resources to reach that point within an acceptable time frame.

Although standard financial measures such as net present value, internal rate of return and option values should be taken into account, they don't allow you to visualize the stages of a project, test your assumptions or show the impact that different choices will have on payback.

The innovation business model a company chooses also affects the cash curve and an innovation's payback profile. Payback explores three different models: integration, orchestration and licensing.

Companies tend to choose the one they're most comfortable with by default -- a mistake, since choice of business model is highly strategic.

It affects how payback and risk is allocated to various participants, and how profitable the outcome will be. For instance, a company that likes to do everything itself -- an "integrator" -- may want to orchestrate a network of partners to share the risks, or license outside technologies to speed an innovation to market.

A lot has been written about organizing for innovation, some of it quite good.

Payback goes even further, including topics that even the best management teams wrestle with, such as how to truly align innovation with business strategy, how to weave innovation into the fabric of the organization rather than isolating it and how to create metrics that support and drive forward innovation goals.

Payback also discusses the critical role of leadership. Without strong leadership, a company's innovation efforts rarely pay off. Only the leader can make strategic decisions about such things as which innovation model to choose, how to allocate resources and how to reshape dynasties so that newer, untried ventures can be nurtured.

In Payback, we discuss the seven actions that leaders must take to drive innovation -- actions that can't be delegated.

Payback includes more than 70 detailed case studies -- successes and failures -- that cover a variety of international companies, including Procter & Gamble(PG Quote), Samsung, BMW, Bosch, Seagate (STX Quote), Boston Beer (SAM Quote), Danaher (DHR Quote) and many others. Most are based on firsthand experience and interviews with the principals.