For years we’ve been puzzling about why so many smart, hardworking managers in well-run companies find it impossible to innovate successfully. Our investigations have uncovered a number of culprits, which we’ve discussed in earlier books and articles. These include paying too much attention to the company’s most profitable customers (thereby leaving less-demanding customers at risk) and creating new products that don’t help customers do the jobs they want to do. Now we’d like to name the misguided application of three financial-analysis tools as an accomplice in the conspiracy against successful innovation. We allege crimes against these suspects:

•The use of discounted cash flow (DCF) and net present value (NPV) to evaluate investment opportunities ...

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