Recently, it has become popular for all organizations, companies and business enterprises to espouse the statement that "Innovation is the Key to Future Success." Some have even established the goal to increase the ROI for products or services with strategies that embrace "payback" without recognizing what the term means or what their current Innovation position is. To some, increasing innovation, measuring innovation, and understanding the financial repercussions of risk-based product development; coupled with implementation and integration may seem like overwhelming challenges. Andrew and Sirkin have created is a step-by-step explanation of the "Cash Curve" to begin to quantify the measurement and mapping of ROI influences. As consultants for Boston Consulting Group (BCG) and participants in the 2006 surveys on innovation, they understand nuances which they are willing to share. If you're looking for specific guidance into HOW to follow the process of innovation, this is not the book for you...but, those are specific to your organizational strategies and marketplace, hence....only you know whether you need disruptive/radical innovation or sustaining product evolution.
What the authors have done is to create an excellent, well organized book which is structured and easy to read that quantifies innovation from a financial cash payback or a cash trap perspective. Anyone who is empowered to create, support or implement Innovation should read Payback to understand what makes business outcomes a measurable ROI success. These indirect benefits can be knowledge, brand, ecosystems or organizational. The book's models and framework can be used and implemented by small business owners or established mature enterprises. They break the innovation approach into three separate business models:
1) Integrator - the company wants to exert strict control over the S factors (Start-up, Speed, Scale & Support Costs)
2) Orchestrator - the company does not have to commit itself to personnel, capital equipment, organizational structures, or markets that might need to be changed during the life cycle of the product or service
3) Liscensor - the company is the primary owner of the spark of the new product and sometimes of its commercialization, but has no ownership of the realization.
Having just personally purchased my third generation of Ipod, the examples from Apple are quite enlightening and accurate. The Ipod is a success story of "Supurb Cash Curve Management" where start-up expenses were kept low over the course of the development by managing the composition and number of direct program resources to less than 50 people. This allowed the product development costs to be less than $10M. In less than 1 year, Apple was able to move the product into the marketplace by partnerships developed with companies such as PortalPlayer who had previously developed a successful MP3 player. Finally, Apple spent almost $70M between 2001 and 2003 on marketing and advertising campaigns featuring hip and colorful silhouettes gyrating and moving to the music played on Ipods.The authors suggest that by 2004 the company had achieved "payback" and were into secondary and follow on product deliveries of Nano, Ipod video and Iphone. As of February 2007, more than 90 million Ipods had been sold and the Imusic store was selling legally-downloadable podcasts, songs, books and videos without legal repercussions. This provides a perfect example of product development and payback. The story of Motorola's Iridium satellite communication network is shared as an innovation venture which did not succeed. Motorola established partnerships to help share the development pre-launch costs of $5B to launch 66 satellites into Low-Earth orbit. This satellite network was designed to revolutionize communication connectivity and gateways. The problem was that the system took 12 years to get off the ground while $120M was spent on marketing to customers who would subscribe to the service. Iridium was only able to sign up 15,000 potential customers rather than the 600,000 that Motorola's Marketing Department had projected. The Iridium project declared bankruptcy in 1999 and sold off assets to a final group of investors for $25M. What seemed like a great idea turned into a cash trap that if mapped on a Cash Curve framework could have quickly indicated that the target costs for the start-up were wrong and implementation time to see payback was potentially unachievable.The management of this Cash Curve is the key to Innovation because it finally provides a framework which encapsulates projected and anticipated risks into a simple measurement for innovation development. In the future I would expect the authors to mature the risk parameters and include "opportunity" parameters to balance the financial projections for cash flow scenarios which will allow predictable innovation payback. These types of tools are critical to the effective business decisions required to visualize and analytically understand the implications and alternatives available during innovation development. The authors never lose sight of the purpose of innovation, which is to generate cash - which they refer to as reaping the rewards of financial returns.
The bottom line identified by the book is that without leadership, little progress can be made to improve payback. Business leaders who read this book will come away with a new understanding of the need for rethinking the innovation models they have used in the past, an ability to revaluate the risk perspectives previously identified and the ability to hunt for cash traps. With this enlightened understanding they can complete an accurate view of the innovation portfolio and start to establish valuable cash curves to identify payback.