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May 31, 2013

Innovation and finance

As a veteran of office life (getting on for 30 years if you must know!), I often enjoy giving my younger colleagues regular history lessons.

The open plan office with no computer in sight, having to take my hand-written work to the typing pool (full of Wang word processors) and the excitement of encountering a fax machine for the first time are just a few highlights. Although I have not worked in particularly high-tech industries, innovation has been a steady and continuing aspect of my working life.

At various stages, all my employers have had to make major decisions as to when and how to embrace various new technologies. So a Personal Computer (PC) suddenly appearing on my desk and a request to attend a training course was the outcome of a decision to innovate – or to do things in a new way.

What I have often wondered is how well thought-through these decisions were. Was the objective simply to keep up with everybody else? Did my organisations resist implementing the new technology until they had no other option? Or did they pride themselves in being the first-adopters? I have no idea.

But the point is that, like it or not, organisations have to embrace innovation, simply to keep going, let alone grow and expand. My technology example shows only too clearly that if you hide from innovating, it will come and find you anyway – and by that time, it may be too late.

Innovation is no longer solely the preserve of men in white coats and R&D dedicated departments.

There is now a widespread acceptance that it applies to products, services, processes, business practices and business models. In other words, innovation permeates every aspect of the business, so it is essential that organisations take a proactive and strategic approach.

The essential groundwork of creating an innovative culture is essential – you have to foster an environment in which ideas are welcomed, be it through incentives, creative time or workshops. It’s also important to build in understanding that not all ideas will succeed. Management guru, Gary Hamel, says that innovation follows a power law. For every 1,000 ideas, only 100 will be worth experimenting with, no more than 10 will merit significant investment and only 2-3 will produce a bonanza. That’s a lot of ideas you need to fail!!

And once you’ve created the ideas, you need to have robust processes in place to move them through to implementation. This is where a lot of ideas get stuck.

But staged processes can give innovations room to breathe and grow while limiting the downside risks. Finance professionals can play a valuable enabling role to the innovation process, for example in shepherding new ideas from concept to commercialisation as well as evaluating the risks associated with different options.

The new CGMA report Managing Innovation – harnessing the power of finance explores these issues in more detail, showing how finance can support innovation without letting it run out of control.

But perhaps more importantly, it shows that organisations also need to factor in the risks of not innovating – or as my example implies above, of letting innovation happen to them by default. As for me, thirty years of living with office innovation has meant that I no longer have to run the gauntlet of the fearsome Head of Typing Pool…!

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