Accounting for Innovation

In these recessional times we see how organisations globally are reining in on expenditure, slashing funding and making realistic choices about their futures. This seems all well and good for the organisation, they are reducing their expenditure but they also need to try to maintain their position in the marketplace.

Cutting expenditure may have an immediate effect on the organisation but what about the long-term effect?

For example, seemingly accessible savings are often achieved through slashing R&D budget. Nonetheless, companies can only maintain their market position through competitive advantage, which is in turn sustained through constant product & service development. R&D is at the root of this advancement. If innovation is chopped, is the organisation realistically cutting off their own life line??

The Boston Consulting Group undertook a survey in 2009 to highlight this decision-making process during recessional times.

Its findings showed how:-

• Innovation still remains a strategic priority for the majority of companies; however those considering innovation as a top priority are declining.

• Most companies expected to raise innovation spending in 2009 but were cautious about how this was to be done. Only 58% of companies planned to raise spending in the year ahead - a reduction from 63% in 2008.

Just how good is the scientists' relationships with finance and vice versa?

Researchers and innovators will most certainly place key roles in recovery and growth, However, their cooperation with finance and top management is essential. Together they must ensure that the right budgetary decisions are taken with respect to R&D so that the company can continue to have access to a leading edge product/service. There must be sustained collaborative efforts between both parties. Top management can activate and encourage this liaison, to bring the big picture into play, amongst the concentrated focus of innovation and accounting. Innovators need to know how to value and control operational spending. Finance managers need to appreciate strategic value and long-term nature of research approaches. It could be a match made in heaven.

Kingdon (Chairman of UK-based innovation Consultancy) states that a truly innovative company has to put culture before process so as to ensure that it communicates well, brings passion to the work table and works as a unit.

For creative survival, a culture of togetherness is vital and financial anxiety should have the opportunity to be bolstered by developmental optimism. Here we have an opportunity for two detailed and focused career paths to productively combine to deliver an active corporate vision.

Based on information from "Downturn not the time to deter innovators, Slashing R&D budgets might be suicidal" Strategic Direction Journal Vol. 26 No. 3, 2010 pp.6-9