Innovation Killers

In a recent Harvard Business Review article, Christensen, Kaufman, and Shih demonstrate how financial tools are stifling innovation in organizations. As a former Chief Financial Officer and CPA, I made these same arguments many years ago. Unfortunately, my arguments fell on deaf ears. I imagine these HBR authors will meet with similar frustration.

Financial tools have an intoxicating power. Once a number has been computed, all rational discussion ceases. In many cases a rational discussion never gets started. Calculating a number is often seen as the only “work” that needs to be done before making a decision.

Obviously, with my background, I see the value of financial tools in decision making, but these tools should not be used as a substitute for the hard work of developing and defending rational arguments.

While the use of these tools are being questioned by the HBR authors at the organizational level, it’s important to recognize how these tools are abused at the individual and societal levels as well.

A widely used financial tool, “Discounted Cash Flow and Net Present Value,” can stifle a new venture by assuming the present success of the organization can be sustained indefinitely. Comparing the value of a new venture to the presumed “indefinite sustainability” of the current strategy is a bad idea. We live in a competitive and changing world.

Innovation involves risk. Risk involves the unknown. Trying to eliminate the unknown with financial tools (no matter how sophisticated) is unrealistic.

Individuals and organizations should allocate a percentage of resources (time, energy, and money) to new ventures. Some of these investments will have to be written off when they don’t work out. But, that’s a cost of innovation. That’s a cost of success!

For more information on this and other organizational effectiveness issues use the Search function on my blog, and read my book, “Strategic Organizational Change” (available at Amazon.com, Barnes & Noble bookstores, or my website www.mikebeitler.com). There are also many free resources on the Free Stuff page on my website.