Payback: Reaping the Rewards of Innovation

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Harvard Business Press, Jan 9, 2007 - Technology & Engineering - 228 pages
If you're like most people, you bet your career and company on innovation--because you must. Payback: Reaping the Rewards of Innovation offers you a new way to think about and manage innovation that will dramatically improve the odds of success.

Authors James Andrew and Harold Sirkin, senior partners in The Boston Consulting Group, describe an approach to managing innovation based on the concept of a cash curve--which tracks investment against time. They ask the questions you need to ask: How much should you invest in a new product or service? How fast should you push it to market? How quickly can you get to optimal value? How much additional investment should you pour into sustaining and building the product or service?

Payback offers you practical and economically sound advice on when to pursue cash flow indirectly by first pursuing other benefits, such as brand and knowledge. It also shows you how to reshape the cash curve by using different business models--integrator, orchestrator, and licenser--each of which balances risk and reward differently.

The authors then present a short list of decisions and activities that you must make--not delegate--to achieve a high return on innovation. You won't find facile answers in Payback--but you will find valuable insights and practical guidance for mastering one of the most challenging and critical business activities: innovation.

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I didn't read the book. Someone with knowledge of the events I discuss in this review just recently brought this excerpt of the book to my attention. Specifically about how (page 192) ADT "innovated" and got into the residential mass market for home security. I worked for ADT in 1986-1987. I was hired directly by then CEO Ray Carey. At the time, Les Brualdi worked for Ray Carey- as president or COO. Both were very nice people but the company wasn't the least bit innovative. Ray Carey learned about me from the "Father of the Security Industry," Mr. Norman Rubin. Ray was looking for someone with broad knowledge in the industry- and most importantly, a disruptive force to shake off the lethargy and combat the long standing bureaucracy at ADT, which was then an independent, publicly traded company with no market peers to compare metrics with. At the time, whatever Ray told the analysts following the company was what they could either take as gospel, or not.
One of the conditions of my hiring was that I reported directly to Ray. At the time, the only residential work that ADT performed was for very high-end systems - usually for senior executives of companies that used ADT for their corporate security. It was more of a favor than a significant source of revnue. About 7 years before Ray hired me, I consulted to a very small outfit by the name of Tri-State Alarm Co. Located just outside Philidephia. It was founded by brothers Ken and Larry Gross. At the time, Tri-State was focused on commercial and mid to low high- end residential. They operated their own, small central monitoring center. With my encouragement and guidance, Ken and Larry secured one of the very earliest issued "Sears Authorized Securty" dealer licenses. Ken was a terrific sales executive, and parlayed that first license into a number of others that covered a number of SMSA's. In the years that followed the original and subsequent dealer licenses, Tri-State recognized exponential growth in installations and monthly monitoring revenue-by introducing a low install price. They were among the pioneers in mass market, residential alarm sales, service and monitoring. They built a great company and reputation- and eventually became quite wealthy upon selling the company.
Soon after Ray brought me into ADT in 1986, it became clear to me that it was a company made up of virtually impenetrable operating silos: with each Vice President doing his or her own thing. They all had one thing in common-they were all highly resistant to change or any new ideas. Among the many balls I had up in the air, was my interest in getting ADT into the mass market residential business. I talked to Les and Ray about bringing Ken Gross in for a meeting- so they could listen to my radical (for ADT) idea about becoming the country's biggest mass market residential alarm installer and monitoring company. It was agreed that I should bring Ken in for a meeting. I had turned down Ken's offer for a piece of Tri-State to run the new business for Ken and Larry: "it was too small a deal," I remember telling them. But we stayed friends and they always were kind in crediting me for getting them into the mass market. So when I invited Ken to join us at ADT HQ at the World Trade Cwnter, he was delighted to do so.
At the meeting, Ken was treated warmly, and he explained how it all had gotten started- and how the justification for a lower- much lower, install price was easily justified by the scale of economy of lower cost per subscriber monitoring. Because Ken and Larry had been doing mass market systems for so many years - we also had a good idea of longevity, churn rates, etc. When Les, Ray and I thanked Ken for coming up-and we were alone in the office to discuss- I remember both Les and Ray not being overly excited about the idea. As I was juggling at least four or five major projects, and traveling 80-90% of my time, I don't really remember what happened next. What I do know, is Les




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About the author (2007)

James P. Andrew is a senior vice president and director of The Boston Consulting Group (BCG), leads BCG’s innovation practice, and helps companies worldwide to improve the return on their investments in innovation. Harold L. Sirkin is senior vice president and director at BCG and leader of the firm’s Global Operations practice. He consults with companies in many business sectors about their innovation activities.

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