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?