Platt Perspective on Business and Technology

Innovation, disruptive innovation and market volatility 40: innovative business development and the tools that drive it 10

Posted in business and convergent technologies, macroeconomics by Timothy Platt on March 24, 2018

This is my 40th posting to a series on the economics of innovation, and on how change and innovation can be defined and analyzed in economic and related risk management terms (see Macroeconomics and Business, posting 173 and loosely following for Parts 1-5 and Macroeconomics and Business 2, posting 203 and loosely following for Parts 6-39.)

I have been discussing the issues of innovation and of realizing its potential in marketable products and services, and as actualized business systems improvements, in the course of developing this series. And I have focused in that, and certainly in recent series installments, on the crucial role that effective communications plays in making all of that possible.

I turn here to consider the funding and financing side of innovation. And I begin that by noting that I said at the end of Part 39 that I will approach this from a more accounting and bookkeeping perspective. I will in fact do that, but I will also approach this from a more strictly strategic perspective too where decisions made at that level, and assumptions that would shape that level, determine where and how more-accounting and bookkeeping level decisions and actions would be made. And I begin this line of discussion with the fundamentals, and with a more general line of discussion that I will then bring into focus around innovation and innovation funding.

Bookkeeping and accounting-level funds management decisions and actions are operational in nature. And they arise from and are grounded in what at least should be at least somewhat rigorously shaped strategic planning and the purchasing and payment prioritization that would come from it. This is, of course an idealized representation of an overall process and system of processes that can be a great deal messier and a lot less considered than I suggest here, and a lot more reactive than the top of this paragraph might suggest.

To take that last assertion out of the abstract, I cite an event process that I had to work my way through in my own direct professional experience, that holds relevance here. “Routine” ongoing expenses are often simply taken for granted and their bookkeeping and accounting level handling can come to take place essentially automatically and without any higher level strategic consideration or review. I took on an interim “in-house” position as the Chief Information Officer at a relatively large business, to find after I had started work there, that this business was paying individually expensive monthly licensing fees – automatically and without consideration, for a very large number of specialty software packages and their provider-based support, that they did not and could not use. Some of these software packages did not actually fit into their overall workflow system from failure to effective connect with the rest of what they had in place. And a lot of this was simply redundant, and for any sources of potential real value that it might offer that it could in principle have been used for. Collectively this routine ongoing expense source added up to a tremendous amount of money, every single month and on an open-ended basis.

This is in fact an extreme example, though it is a lot farther from being novel or unique than any leadership of any large organization can afford to presume, and certainly for its ongoing scale. My point here is that ALL ongoing expenses should at least periodically be reviewed, and not just through accounting and bookkeeping audits: for their current strategic relevance and for the actual value received. So I assume here, a good and actively maintained line of connection between strategic planning and prioritization, and spending and its bookkeeping and accounting level actualization.

With that in mind, I turn here to explicitly consider research and development and the innovation that drives that – and its funding.

• Research and development and the process of bringing innovative change from initial conception through to completed practical application, represents a succession of continue or not spending decision points.
• From a strategic perspective this is all about whether. From an accounting and bookkeeping perspective – as backed presumably by the strategic planners involved there, this is all about how, assuming a “whether” decision to proceed is approved.
• That of necessity includes decisions as to terms of payment, which would shape the pace that this work would proceed at. And this of necessity also includes decision making as to what budget lines this work and its associated expenses would be paid from, with any significant such effort probably being funded from several or even many such funding channels simultaneously. So personnel involved, would be paid from one line in the overall budget, or more depending on where everyone involved in this comes from in the organization, and how overall personnel expenses are structured and managed there. Business-wide shared resource use, such as time used on some specialized equipment needed for prototype building and testing might be paid for out of different budget lines. And third party, outside source-provided resources that might be called for might be paid for from still other sources. Or alternatively, all relevant expenses and their accounting and bookkeeping might be channeled together to make it easier to track the overall effort involved here, in ways that can make it easier to see how much is being spend, overall for the whole effort – an understanding easily lost when overall expenses involved are diffused out to, for example, limit the direct impact on the finances of any one area of the business with its overall budget limits.

The more routine and predictably evolutionary an innovative change project is, the more predicable its budget needs are likely to be, and the simpler it can be to plan out a green light, yes-decision path for it in advance, financially. And this make it easier to in effect routinize this type of work flow in the accounting and bookkeeping exercises carried out there. Consider routine, and routinely expected cosmetic change of established products, carried out in order to help keep them fresh in their markets, as a perhaps quintessential example there.

The more novel and different a proposed innovative change would be in a business and for it, and even disruptively so for what has be done step-by-step to realize it:

• The more significant the necessary funding support is likely to be for it,
• The greater the overall risk that attempting it will likely entail,
• And the more important it might be that the right budget line decisions be made there
• And with more of that decision making step likely to be coming from the strategic decision makers involved,
• And from more senior accounting services managers there, as they are the professionals who will most fully know exactly how and where this business’ assets and expenses: current and predictably arising, are going to have to go in their overall system.
• And particularly for this type of scenario, it is important to note that different budget lines, each associated for the most part with specific functional areas and work teams in a business, bring with them their own at least potentially gatekeeper-influencing stakeholders too, who would see any funds paid here from their budget lines, as coming from their crucial support resource bases. So this also brings up the issue of developing and tapping into senior manager and executive controlled special, discretionary budget lines too, and with all of the implications that that creates as they have to be accounted for in the business’ overall strategy and planning and in its overall budget.

I am going to continue this line of discussion in a next series installment where I will add in consideration of market and marketplace stability and consistency, and uncertainty and volatility. Meanwhile, you can find this and related postings at Macroeconomics and Business and its Page 2 continuation. And see also Ubiquitous Computing and Communications – everywhere all the time and its Page 2 continuation.

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