The Hindu Business Line : Turn your ideas into cash

It is fashionable to seek growth through business acquisitions. Perhaps, the fad is a sign of companies giving up hopes of organic growth. A cause for their disenchantment may be the failure to see results through innovation initiatives. The malaise is widespread, say James P. Andrew and Harold L. Sirkin in Payback (www.tatamcgrawhill.com) . They grimly declare that the most important problem confronting businesspeople today is "how to get a better return on their investment in innovation."

Lack of ideas is not the issue, say the authors. "Thousands of good ideas exist within every organisation, even those that don't think of themselves as innovative." So what is the real problem? The `how' of turning the ideas into cash is eluding many companies. "They have not developed a process for collecting the ideas, screening them, nurturing them, and then commercialising and realising them in a way that achieves payback."

But isn't there a long lead-time for investment innovation to yield results? Yes, which is why leaders can become nervous. Unlike investments in `tangible assets such as factories, machines, or new trucks' where returns can be computed with much more certainty, ROI (return on investment) in innovation is tough to predict or measure. Also, not all returns from innovation are in cash. Indirect benefits can be in the form of knowledge, brand, ecosystem and organisation. To achieve payback, companies must manage the innovation process holistically and with discipline, the authors advise. "Creativity is not synonymous with innovation," they distinguish. "Good, even great, ideas are not enough to guarantee payback." Innovation is the entire process of developing ideas with the goal of achieving payback, and it comprises three phases — idea generation, commercialisation, realisation.

The first phase results in an idea, and the last phase yields cash payback. But the most important phase that is a challenge for managers is commercialisation, a phase that begins with `the green light from management to develop a proposed idea into an offering that can be produced and marketed ... and ends when the product is launched to the buying audience.'

Cash is truly the king in innovation, state Andrew and Sirkin. And this cash is impacted by four `S' factors — start-up costs (pre-launch investment), speed (time to market), scale (time to volume), and support costs (post-launch investment).

The first S is colloquially called `the size of the hole'. For Iridium, the consortium created by Motorola to develop the first globally operative mobile phone, this hole added to $5 billion; this might not have been excessive, "had the other parts of the cash curve played out differently." Alas, that was not to happen; "subscribers stayed away in droves, and the venture was eventually terminated and assets sold for $25 million."

Speed, the second S, has trade-offs. An overly aggressive time to market can disproportionately increase development costs, and reduce the quality of the innovation, cautions the book. "Being faster to market also may come with a higher cost in educating the customer about the new product - and if the efforts are not successful, the first-mover advantage may be lost." A success story is that of Apple, which spent around $10 million in 2001 developing the first iPod, and took the product to market `with incredible speed - less than one year'. How did it achieve such speed? "Rather than assign a team of its engineers to design the `brains' of the iPod, Apple turned to PortalPlayer, a small company that already had developed a design for just such a device. Apple persuaded PortalPlayer to drop its other customers and focus exclusively on the iPod... "

Imperative read.

http://BookPeek.blogspot.com

D. Murali