Innovation, in many ways, is a resource allocation problem. Access to capital is limited and businesses have to choose where to put their money. Does the firm invest in new equipment? Should executives get a bonus? Will the firms pay out dividends to shareholders? Or will a firm put money into research and development or new product ideas?
These are the choices organizations have to make. None of them are inherently good or bad. They all have different advantages, different risks and they pay out at different times. These choices give the finance department the position of the gatekeeper for innovation. Regardless of how you frame an issue in your company, decisions will always come back to the bottom line.
It just so happens that the gatekeepers to innovation are some of the most conservative members of an organization. As other departments become more consumer facing, finance departments remain sheltered -- still using tools that have been around since '85 to record metrics invented to amortize manufacturing equipment.
It's along these decision-making lines that we organized our guide to innovation within the finance department.
Our first article in this series, “Think R&D Expenditure is a Barometer of Innovation Success? Here’s What the CEO Entrepreneur Needs to Know” outlines a new approach to the allocation of resources for innovation and the organization of innovation teams or departments. We deconstruct the decision of whether to finance and resource a separate innovation department or operate ongoing creative teams.
The second article in the series, “Digital Solutions Are the Future of Innovation Financing, But There’s One Relic of the Past They Just Can’t Shake,” delves deeper to explain how a new budgeting framework and finance practices can support a transformation for future innovation success.