Financial Management for Innovation

Seldom spoken about, the capacity to capture, allocate, control and utilize financial resources is fundamental to innovation. Without strong financial management, innovation might come to a dead stop, might never happen or might just cost much more than it should. In this blog Caspar van Rijnbach asks the questions to take into consideration when managing finances for your innovation portfolio.

Innovation is not only about having the BIG IDEA, but also making sure the company has the capacity to implement it. Financial resources are crucial to this. A global study undertaken by Ernst & Young in 2010 indicates lack of financial resources as one of the big obstacles to innovation. Lack of time is another big concern, but having the right financial resources you might be able to diminish this problem, since people can be hired.

Innovation is a risky business and has specific characteristics that have implications for finances. More uncertainty about return on investment and about the level of investments required, especially in the early stages of innovation, makes it more difficult to convince management to invest in new ideas. Innovation almost always seems to be starving for innovation.

On the other hand, your company might have plenty of investments, but all the money comes from internal funding. Nowadays many more options are available. Almost all countries have fiscal benefits for innovation and public funding with low interest rates or special conditions (which might even mean not paying back the funding). Many companies already take advantage of this, but in very limited ways. Very few though, take advantage of the opportunities to use private investment funds or venture capital. And even fewer see partnerships as a way of funding. One should start looking at funding for innovation in a broader perspective.

Finding new financial resources is only part of the game; one needs to make sure to capture the right funding for the right projects and have the right financial mix for your innovation portfolio. Therefore, I would like to ask you the following questions:

  • Are you aware of all the financial opportunities for funding of innovation, including public funding, fiscal benefits, venture capital and private funds?
  • Is your financial innovation strategy aligned with your corporate financial strategy (debt exposure, restrictions to financial risk, etc.)?
  • Do you evaluate your innovation portfolio from a financial perspective, and allocate resources taking into consideration corporate objectives and financial risks?
  • Do you allocate your financial resources based on good practices for innovation investments, defining which type of funding to use for which stage of the innovation process and the level of risk, amongst others?
  • Do you have processes, controls and governance in place that manages innovation expenditures and help you declare your innovation investments to public or private authorities?
  • Do you take intellectual property questions in consideration when taking on funding?
  • Do you have any auditing process in place that makes sure that all of the above is done in coherence with company policies?

I am a great admirer of all the beautiful ideas that people come up with, however one needs resources to implement them. So why not increase innovation opportunities by finding the right and abundant resources, making sure you optimize the use of them.

So, what have you been doing lately to improve your financial capacities for innovation?

By Caspar van Rijnbach

About the author


Caspar van Rijnbach, Dutch from origin, lives and works in São Paulo where he is an Executive Director at Ernst & Young’s Advisory. Passionate about Innovation, he has been working as a consultant for over a decade with large Brazilian companies and multinationals to improve their capabilities in innovation and knowledge management.

Caspar is author and co-author of several books and articles about innovation, some of them published internationally and others in Brazil, in Portuguese. Also, he has given classes at renowned universities in Brazil, spoken at both national and international conferences and has lead many in-company courses.

  • Antonio Carlos de Freitas Espe

    I think that in Brazil there are many people in big corporations that still think that Innovation is only creativity and do not see Innovation as an investiment that if is continuous will pay back continuously better thant any financial market and will garatee long life to the company which is using it seriously.
    This article from Caspar is very good to show that there are many sources of incetives to be invested by a very low finantial interest.

    Thak you very much for your help and information to innovation, Caspar.

  • Thomas_gamp

    compensate impostos federais com precatorios federais….. ja tentou?

  • Daniel

    Financial management — a powerful function of innovation that is commonly overlooked. This element certainly deserves more attention.

    Another aspect that’s also overlooked is the–free–process of creating new ideas. This is the element that structures how we mentally view problems, come up with ideas, and select which ones are the best. Sometimes, we forget that there are, in fact, frameworks that positions you and your team in a way that greatly increases the chances of generating the next big idea. 

    CPSI
    2012: Ideas to Action, a conference on Creativity & Innovation. Hosted in
    Atlanta, GA from June 19-21. Visit http://www.CPSIConference.com

  • http://www.sage.ch/  asset management software

    Great post.Financial management required more attention than any other elements.This post show that there are many sources of investment by a very low financial interest..

Ad

STAY CONNECTED

 
Ad