Payback: Reaping the Rewards of Innovation

Since successful business growth requires making a profit, a laser-beam focus on the immediate bottom line has become a fixture in most industries.

This reflects perhaps, society’s incessant quest for instant gratification. Too often that focus has gutted departments that do not impact immediate dollars, ensuring a scarcity of disciplined innovation programs. James Andrew and Harold Sirkin see that discipline, the science of innovation, as the only way for a company to stay alive for the long haul. 

Payback: Reaping the Rewards of Innovation (Harvard Business School Press, 2006, $29.95) seeks to define innovation, and all the other “softer” arts, only in terms of cash. 

The authors state that the only acceptable form of payback for any business activity is cash. Nonetheless, they describe how innovation impacts the long-term bottom line by facilitating other side benefits, that will, over time, enhance the accumulation of cash. They do not seem to have drawn directly from Aubrey Daniels’ work on organizational behavior, but they mirror many of his concepts.

The authors state that organizations that invest in innovation can anticipate four benefits:

1. Innovation produces knowledge, much of which can eventually be used in the pursuit of cash.
2. Innovation enhances the value of a brand, thereby increasing its cash value.
3. Innovation encourages healthy ecosystems, or associations of friends and allies that may prove helpful in generating cash.
4. Innovative organizations attract and retain the best talent.

A generation ago, the first computer spreadsheets made it possible to do endless “what-if” analyses, putting the power of data management into the hands of any interested person or group. In Payback, Andrew and Sirkin propose a graphic version of the traditional spreadsheet. It takes this kind of analysis to a higher level and illustrates the profitability of a given course of action. This may be what it takes to move away from the instant gratification approach.

The authors’ Cash Curve (reminiscent of the Sigmoid Curve analysis of organizational progress) is itself an innovative use of the power of spreadsheets. It plots a project’s cash flow (positive or negative) vs. key timelines and events. That permits a graphic display of the likely future by instantly displaying changes in timelines, costs and strategies.

This kind of graphic representation compels the discipline of careful analysis, according to the authors. They suggest that the format will help analyze factors such as speed, savings and risk. They further predict that it will identify “cash traps,” those activities that continue to cost money without any reasonable prospect of payback. Finally, they suggest that consistent use of their system enables the alignment of key actors with the goals of the organization, an essential to developing and maintaining a culture of innovation. 

While not without significant strengths, the book has some rough edges. It reads like a series of PowerPoint presentations melded into a book. This shows in the noticeable amount of repetition. We are told, for example, multiple versions of the story of the rise of Samsung and of the fall of Polaroid and Motorola. 

Also, the authors do not make a compelling case linking the use of the Cash Curve tool to the enhancement of innovation in an organization that uses it. 

On the other hand, the Cash Curve is an example of data display that is strongly supported in scientific literature. Those of us who learn visually (most people) glean a lot more information from a well-designed graph or other visual display than we do from a spreadsheet or data sheet with exactly the same information. Companies that practice Open Book Management, for example, use the power of real-time displays of the status of key factors to influence employee behavior. (Those who wish to explore this further will enjoy The Great Game of Business by Jack Stack, Doubleday, 1994.)

Organizational behavior research, roundly supports the science of innovation and its measurement in cash or equivalents. If we can measure it, we can probably manipulate it as well. Payback offers a tool to do just that.

Payback does not offer any breakthrough thinking but is rather an interesting combination of ideas from multiple sources. Those who are looking for ways to justify or enhance an investment in innovation may well find this a worthwhile investment.