CFOs: It’s the Numerator, Stupid

/CFOs: It’s the Numerator, Stupid
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CFOs: It’s the Numerator, Stupid

All business processes can show improved productivity. Simplistically, productivity can be expressed as a fraction, outputs divided by inputs.

We tend to focus on the inputs, especially in these economic times. After all, we can measure and control them. If we can just keep chipping away at them, we’ll keep improving performance. Of course as an accountant myself, I have a lot of sympathy for this perspective. However, innovation is different from other business processes like manufacturing or supply chain in a couple of key respects.

  • Innovation can seem intangible. Innovation’s output, however, is fundamental to your business. It’s who you are, what you stand for. If I may be so bold, it’s strategically existential. Cutting innovation expenditure too deeply will endanger your long term survival.
  • Outputs from innovation are unpredictable. It’s not easy to say what the effect of changing inputs will be. What we can be reasonably sure of is that if inputs are tightened too far, new products will be late or low added-value; and the impact on corporate strategy will be vastly greater than the saved costs.

So I believe that we accountants need to take a deep breath, resist the temptation to roll our eyes at what looks like yet another IT-driven investment case, and understand the potential hiding in the numerator of the productivity fraction for innovation. As an example, is it better to shave the cost of your R&D team by another 5%, or is it better to implement methods to increase your percentage of successful product launches from 50% to 55%? I suspect the value from the latter would be a multiple of the former.

In The Business Case for More Effective Innovation, I discuss four interconnected value dimensions that link directly to improved financial performance. These are output measures.  Impact those dimensions by improving your innovation processes, and you’ll make a dramatic impact on the productivity ratio for innovation. There’s more good news though, to warm the cockles of a CFO’s heart. Improving innovation process should also improve your use of resources. Yes, the inputs should go down (or remain flat) as well as the outputs going up.

Have you had success driving improvement into your outputs while also decreasing inputs? Which measures were most vital to your efforts?

2016-12-14T21:01:20-05:00July 15th, 2013|

About the Author:

Arif Karimjee
Arif has been Sopheon’s CFO for over 10 years and was formerly an auditor and systems consultant with Ernst & Young. Prior to that he was a mechanical engineer. Involved in contract negotiations with all our customers and with investor relations, Arif has developed a deep understanding of the value Sopheon can bring to the innovation process.

2 Comments

  1. Arif Karimjee
    Arif Karimjee July 29, 2013 at 9:34 AM - Reply

    Thanks Michel for the comment and the question… sorry, it’s easy to forget the US and the UK are divided by a common language! To warm the cockles of someone’s heart basically means that you make that person feel good – but in a nice, warm, comfy way. I hope that helps!

  2. Avatar
    Michel Delifer July 27, 2013 at 9:37 AM - Reply

    Thanks Arif for this article, one of the more succinct expressions of the value for innovation. It’s also good to know that improving the use of resources warms the cockles of your heart. Now please explain that in American English.

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