Book Review: Build an Industry Hot Rod: The Nuts and Bolts of Leaving Competitors in the Dust
By: Marvin L. Patterson, Los Altos, CA : Dileab Group , 2008 . 379+xii pages . Review by: Ruediger Klein
Innovation for innovation's sake is long gone, it seems. Today, companies and decision makers everywhere are evaluating their innovation efforts by their investment return. But far too often the methods being proposed appear to be situational or to lack the comprehensiveness demanded by the complexity of the innovation process.
A system is needed that allows the manager to rebuild and fine-tune the innovation engine so that it delivers the best performance for shareholders and customers alike. Then, to develop and manage that system, a manual is needed, identifying the indicators for when things go wrong and the levers one has to pull to improve them. Build an Industry Hot Rod aims to be just such a shop manual.
The book is clearly targeted at executives responsible for innovation processes. Furthermore, because of the interdisciplinary nature of innovation and the gravity of decisions in the management of innovation, these executives are leading companies, or at least whole business units. While the metaphor of a combustion engine may make the book more appealing to a technical audience, the subject does not require knowledge in any particular engineering or research discipline. The use of equations is limited and mostly relegated to appendices.
Build an Industry Hot Rod is divided into three parts. The first part describes the proposed innovation system, its structure, and operation. The second part covers techniques for “souping up” system performance—defined as the firm's capacity to compete. In the third part, analysis and measurement of system performance is outlined.
Marvin Patterson defines the innovation engine as part of the Investment to Income system:
Innovation engine: Transforms dollars into information.
Operations along with marketing and sales: Transforms information into delivered value.
Customer world: Transforms received value back into dollars.
Build an Industry Hot Rod introduces a framework of thinking about the innovation process and its components, leaning heavily on the metaphor of a combustion engine. Operating principles are explained by first reviewing the Patterson-Hartmann model linking research and development (R&D) investments to revenue growth and then providing an overview over the combustion engine and its innovation engine equivalent.
The Patterson-Hartmann model review presents a modification of the model to emphasize innovation investments rather than R&D investments. The key idea behind the model is to link investments in a collection of products in a given year resulting in a wave of revenue over some time period. Revenues in any given time period are due to the sum of waves of revenues created by investments in new products in prior time periods. Revenue growth rates are tied to investment intensity and exhibit memory of prior years. Using these growth rates and expected cash flow, the author then connects the value of innovation activities to shareholder value.
The metaphor of a combustion engine is used to strengthen the framework. Knowing that a combustion engine works and how one goes about improving its performance lends strength to the framework of an innovation engine. However, just because a combustion engine requires oxygen does not automatically lead to the conclusion that the innovation engine requires new information about customers, markets, economic trends, technologies, and manufacturing methods. At times, then, the choice of equivalents may be surprising. For example, the business equivalent of the ignition process is “leadership assignment and endorsement of key objectives that must be accomplished” (p. 121). In the innovation management literature, one often finds assertions that the innovation spark rests with the technical or business folks having creative ideas rather than upper management.
The metaphor and the presentation of the innovation engine as a system being controlled by a skilled executive sponsor leads directly to a view of the innovation engine as a system controlled by closed-circuit control. Stability of the system, sampling rates for key performance measures, and size of adjustments are all considered. This view of innovation as a system has become quite widespread recently and is further explored in Reinertsen (2009). However, one has to wonder whether some of the elements in the engine could be performed differently. For example, Skarzynski and Gibson (2008) show examples of companies where the allocation of capital to innovation projects occurs at least partially through an internal market rather than solely by executive decisions. Perhaps this may lead one to consider a different engine type, the Wankel engine, which uses rotating motion instead of reciprocating pistons in place of the common piston engine described in Build an Industry Hot Rod. Fewer parts and a smoother transmission of power may lead to an ability to deliver a faster surge of power when the demand arises.
The reader might expect that a book based on a technical metaphor such as a combustion engine would short-change the human element in the innovation process. This is where the author surprises with a careful coverage of employee management, burnout, and performance measurements. The view of employees as interchangeable and replaceable parts in a system—where “some of the folks on the bus, who were exactly right for the last leg of the journey, may no longer be appropriate for the next stretch” (p. 132)—is perhaps a typical one in the American Venture Capital industry and based on Collins and Porras (1994). Patterson argues for making employees effective and keeping them motivated by providing them with the right level of information access, information tools, and an environment with the right set of values.
The book provides a few tools the reader will find useful, most of them originating in the practices of Hewlett-Packard. Examples are the Business Case Progress Indicator, a radar chart displaying progress against critical business case dimensions; the Brunnergram, a project progress chart combining schedule and financial performance; and the aforementioned Patterson-Hartmann model. These tools and the numerous checklists allowing the reader to get started with assessing innovation performance and information needs make the book eminently practical.
Similar to McGrath (2004) and Skarzynski and Gibson (2008), the author argues for an information technology infrastructure that easily, timely, and comprehensively allows the executive to monitor the performance of the innovation engine (p. 269). While the technology exists to create this information infrastructure, the challenge is the selection and presentation of a very diverse set of data in a timely manner.
Build an Industry Hot Rod is an immensely readable treatise of innovation management. Unlike other books on the subject, the metaphor keeps the discussion lively and objective. Readers are presented with a complete framework and places to check for improvement of their own innovation engine. Unlike a shop manual for a combustion engine, though, this is not a workbook to be followed step by step or an easily accessible reference book.
Released: October 4, 2013, 10:33 am