Using the cash curve to discuss and discipline innovation investments

Abstract

Purpose

Introduces the cash curve, a tool for monitoring the payback on innovation that has proved helpful in decision‐making, planning, analysis, and communication. The cash curve graphically plots cumulative cash flow over time.

Design/methodology/approach

Describes the four “S” factors that have a direct impact on cash payback of innovation: start‐up costs or pre‐launch investment, also called start‐up or sunk costs; speed, or time to market; scale, or time to volume and support costs

Findings

The cash curve clarifies many of the managerial challenges, assumptions and trade‐offs that often get hidden when looking at spreadsheets of annual cash flows and projections.

Practical implications

Shows managers how to use the cash curve to monitor what the payback will be if the assumptions they have made are right. This allows them to make a plan based on those assumptions, understand the impact of each assumption, determine which ones are most critical, test the ones with the biggest impact. With this perspective, the process can be managed, not simply reacted to.

Originality/value

Demonstrates how to use the cash curve to address the fundamental challenge of innovation – to achieve the required cash payback by managing the overall process with the understanding that payback can come quite directly and quickly, but also that it may take longer, be much less certain, or come back to the company only indirectly, via other products and services.

Citation

Andrew, J.P. and Sirkin, H.L. (2007), "Using the cash curve to discuss and discipline innovation investments", Strategy & Leadership, Vol. 35 No. 4, pp. 11-17. https://doi.org/10.1108/10878570710761336