Questions Are Useless This Season's Earnings Calls are the Right Time to Start Pressing CEOs with New Questions About Their Innovation Efforts, According to James P. Andrew
and Harold L. Sirkin, Co-Authors of Payback: Reaping the Rewards of
Innovation
BOSTON, Jan. 24 // -- Wall Street analysts and investors should use the current earnings season to start asking CEOs and other leaders better, tougher questions about their innovation efforts and approaches to organic growth, according to James P. Andrew and Harold L. Sirkin, Boston Consulting Group (BCG) senior vice presidents and co-authors of the just-released Payback: Reaping the Rewards of Innovation (Harvard Business School Press, January 2007), which explores why innovation is top priority at virtually all companies, and is also a source of mounting frustration.
Mr. Andrew and Mr. Sirkin also believe that analysts and the investment community often ask corporate leaders the wrong questions about their innovation efforts -- and fail to ask questions that could provide insight into why half of all leaders are disappointed by the returns on their innovation investments. Asking the right questions could prompt new thinking that leads to solutions and better innovation success, according to the authors.
Mr. Andrew and Mr. Sirkin are available to discuss which frequently asked questions are useless -- and point out the right questions that don't get asked enough. (To arrange a conversation, contact Alexandra Corriveau at Sommerfield Communications, Inc. at 212-255-8386 or alexandra@sommerfield.com.)
Following are some of their views on questions that are wrong, and ones that are right:
Wrong: Not the Right Questions for Analysts to ask Companies About their Innovation and Organic Growth Efforts -- if they Want a Clearer View of Innovation Effectiveness at Companies they Watch
-- Why aren't you spending more on R&D? (Innovation spending increases
each year, but frustration with the returns on the spending is a
constant, according to BCG research among more than 1,000 decision
makers. The real question should involve not how much they're
spending, but what they're getting for it.)
-- How good are you at moving your innovation efforts through your
pipeline? (Many companies would benefit from focusing on fewer -- but
better and more profitable -- ideas in their innovation portfolios.)
-- Why did you kill that project we've been hearing so much about? (Most
companies should be killing more, not fewer, projects. A better
question might be: Why didn't you kill it sooner? What would it have
taken to be able to do so?).
-- How do you maintain a steady flow of "big ideas? ("Idea worship" often
derails and dilutes companies' focus on getting payback from
innovation. Most companies have plenty of ideas; the issue is whether
they're being turned into profitable growth avenues.)
-- Why is Company X more innovative than you are? (While it is always good
to keep pressure on a company, the question doesn't get to the
all-important issue of whether innovation efforts are leading to
profit, and getting there within a timeframe that makes the profit
real. Also, innovation rarely occurs on a regularly scheduled and
consistent basis).
Right: The Right Innovation Questions for Analysts to ask Leaders -- but not the Questions they Usually Ask
-- Who wakes up every morning and worries whether your company is being
innovative enough, and empowered with the tools, funding and people to
take steps to make innovation really happen? (In many cases,
innovation is "homeless" within companies; people don't treat it as a
discrete business function that needs rigorous management and metrics.)
-- How good are you at killing innovation efforts before they've sucked
money and resources? How many did you kill last quarter? (At any given
company, up to a third of the initiatives in the innovation portfolio
are "walking dead" -- and thus an insidious drain. Companies need to
get better at killing these off, quickly.)
-- Who at your company is the innovation venture capitalist -- the one who
is willing to take risks backing ideas that might, but might not, "make
it"? (At many companies, senior executives bemoan the lack of "big,
risky" ideas. They want to have more opportunities to take big swings,
but too often good ideas are buried deep in the organization, and don't
come up for light because employees don't know whom to go to for ideas
that won't help this quarter's earnings.)
-- How, specifically, is your company aligned around innovation -- i.e.,
how are you organized, from the standpoint of compensation, hiring,
promotion, etc., to literally profit from new knowledge and ideas?
(Often, companies that claim to be focused on innovation aren't really
organized and aligned to make money from those efforts. These
companies may be aligned around other goals that may not complement
innovation.)
-- What new innovation partners have you recently developed relationships
with, and what benefit are they going to bring you? What have you had
to change to make this work? (Companies need to actively reach outside
their own boundaries to harness the talents, spending and results of
other organizations. But most companies don't do this enough, nor have
they made the necessary changes in their company to be able to
effectively bring outside ideas in and not have them rejected because
they were "not invented here.")
-- Do you have a tried-and-true innovation business model? (If the answer
is yes, watch out. Companies tend to default to the business model
they feel most comfortable with -- rather than selecting one of the
three innovation business models based on an assessment of variables,
such as cost and the need to get to market quickly.)
-- How much time do you personally spend on innovation? How much time in
your regular operating reviews is spent discussing innovation,
specifically? (One of the things that distinguishes the most innovative
companies from the rest is the direct and substantial involvement of
the very top of the organization in the business of innovation.)
-- Where does innovation rank on your agenda of top strategic priorities?
If it is important, how are you demonstrating to your employees that
you personally really think it is important? How do you know they
believe you?
Payback: Reaping the Rewards of Innovation (Harvard Business School Press, January 2007) is based on The Boston Consulting Group's innovation-focused work and research involving thousands of innovation decision makers and corporate leaders. It analyzes the innovation problem and uses scores of detailed examples to show that companies can get beyond "innovation intoxication" to gain a clearer picture from which to make smart decisions and align key players.
About the Authors
James P. Andrew is a Senior Vice President and Director of The Boston Consulting Group, and heads the firm's global innovation practice. He has been with BCG for 20 years, in both the US and Asia. Mr. Andrew leads BCG's annual global Senior Executive Survey on Innovation (conducted with BusinessWeek), and works with leading companies around the world and across industries on their innovation strategies and related organizational issues. He regularly counsels senior executives on innovation culture, performance, and leadership.
Harold L. Sirkin is a Senior Vice President and Director of The Boston Consulting Group, and leads the firm's global Operations Practice. He has been with BCG for 25 years. Under his leadership, the firm has emerged as the foremost driver of client results in two areas critical to profitable growth-innovation and globalization. Mr. Sirkin previously led BCG's E-commerce and IT practices. He regularly counsels senior executives on innovation, globalization, operational capabilities, change management and leadership.
About the Boston Consulting Group
Since its founding in 1963, The Boston Consulting Group has focused on helping clients achieve competitive advantage. Our firm believes that best practices or benchmarks are rarely enough to create lasting value and that positive change requires new insight into economics and markets and the organizational capabilities to chart and deliver on winning strategies. We consider every assignment to be a unique set of opportunities and constraints for which no standard solution will be adequate. BCG has 61 offices in 36 countries and serves companies in all industries and markets. For further information, please visit our Web site at http://www.bcg.com .
To receive a copy of Payback and supporting materials, or to schedule a conversation with one of the authors, please contact Alexandra Corriveau at Sommerfield Communications, Inc. (212) 255-8386 or alexandra@sommerfield.com.
