I read a recent article which refers to a joint paper from CIMA and AICPA called Managing Innovation: Harnessing the Power of Finance and is based on interviews with senior finance leaders at companies like Coca-Cola, Royal Dutch Shell and BT.
To me this is all part of corporations viewing R&D less like a black art and more like a business process. Pretty important in this increasingly commoditized world that we live in, so it’s good to see that the professional bodies responsible for accounting have picked up on the value of bringing more sophisticated financial thinking to innovation. Ever since Bob Cooper came up with Stage-Gate®, financial discipline has been a cornerstone of product development methodology.
Note my reference to product development – it’s critical to know if you are talking about “R” or “D” when discussing R&D in this context. As the accounting paper points out, this results in the need for a multi-pronged approach. With R, the point is to foster creativity, encourage blue-sky thinking, and accept uncertainty. To use my earlier characterization, we can’t afford to lose the black art bit here, by putting in too much rigidity. Financial controls can focus on managing resources on the input side, and developing volume measurements on the output side, perhaps the number of new ideas, concepts and patents.
However, when talking about D, we can get a lot more detailed, qualitative and analytical about which ideas make it through the development pipeline and ultimately become new product launches (and what’s more, ones that are profitable). We can also get smarter with portfolio approaches and resource planning, to minimize risk, maximize efficiency and drive resources to the best opportunities. Relevant, standardized financial metrics and process should be core to each gate decision. As the article implies, seasoned finance professionals can help determine just what “relevant” means to your business. By the same token, it’s worth making sure your finance team has a good understanding of your R&D environment and priorities by involving them fully in your innovation improvement initiatives.
Want to learn more about managing innovation? Visit our Innovation Business Processes page.