June 12, 2007

News & Opinion: (5 of 7) Picking the Right Innovation Model

By: 800-CEO-READ @ 8:00 PM – Filed under: Management & Workplace Culture

(from James Andrew, author of Payback)

Speaking of top-level leadership responsibilities – companies that succeed at innovation are the ones that choose the right innovation business model. They can decide to be integrators, managing the entire process under their own roofs; orchestrators, working with partners to create innovations, or licensors, generating cash payback from great ideas without having to invest in the commercialization or realization parts of the process. There’s no right answer about what model to choose – even within an industry. BMW is a great example of an integrator – not only designing and building their own engines but even forging the metal for them. But that’s not necessarily the right answer for every auto manufacturer. The best approach requires understanding the realities of your business. The critical thing, for us, is knowing that the models exist and that applying the right criteria will lead to a better choice. Also, it’s important that you not choose an innovation model simply because it’s one you’re experienced at. The choice should be determined by the cash curve.

The choice of innovation business model is highly strategic. It is a tremendous driver of the overall likelihood of success of the effort in the first place. It involves decisions about how to allocate cash, risk and indirect payback to different participants, and about whether to share risk (and reward) with external partners. Choosing an innovation business model is a C-level responsibility, and presents one more argument for the direct participation of the C-suite in the innovation process.