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Can financial models support innovation?

Insights_Guest

By: Ritika Puri

 

When it comes to innovation, there's often a gap between theory and execution. Transformational leaders know how important it is to mobilize their workforces, support new initiatives, and encourage creativity—until the time comes for quarterly financial models, reports, and projections.

 

Learning supports innovationHow do you know if your teams have generated ROI and made progress—especially when a project isn't yet profitable?

 

Consider the experience of Facebook. If the social media leader had prioritized revenue in its initial stages, it may not have become the massive global presence it is today. By prioritizing scalability, ubiquity, and growth, Facebook became the world's dominant social network and today has boundless opportunities for monetization.

 

When you're thinking about innovation now, however, you don't have the power of hindsight—and a B2B, IT-focused organization faces many constraints from the world's biggest social network. At the end of the day, a financial model is a collection of variables that tell stories from quantitative signals. Here are three signals that innovation-centric models should prioritize.

 

The prevalence of flexible infrastructure

In IT and technology, innovation needs to be continuous at a global level. This process begins with resource allocation—particularly around scalable, cloud-based technologies.

 

When your storage costs are fixed, for example, your business will be limited in terms of its ability to grow. The cloud is known to fuel experimentation in business, but the process of implementing new technologies for flexible, scalable infrastructure takes time.

 

To support innovation and to truly create financial models for an innovative culture, you need to ensure you have the right infrastructure to support you.

 

Pace of experimentation

To what extent are employees coming up with and testing ideas? How soon are they generating results?

 

When it comes to innovation, you can't predict what will go right and what will go wrong. To some extent, you're relying on the target in front of you to make your next move. The speed at which you learn, however, directly influences the speed at which you arrive at a successful result.

 

That's why companies like Adobe run global innovation programs that prioritize the number of experiments run—successful and unsuccessful—as a key metric for ROI. Experimentation creates continuous opportunities to learn and evolve.

 

Learning-to-production ratio

At the end of the day, innovation needs to fit within the context of your larger, global business. While experimentation is an important part of growth, the status quo needs attention, too.

 

Financial models help organizations stay in check. Encourage experimentation—but not at the complete sacrifice of your organization's core business.

 

Your financial models should account for this balance and ensure that the status quo is continuing to grow sustainably. While some level of failure is necessary to support innovation, your aggregate performance should stay positive.

 

Final thoughts

Monitor variables that communicate a process of continuous learning, scalability, and growth. This perspective will help support cross-functional alignment as your organization continues to evolve on a global scale.

 

To learn more about evolving your infrastructure for the New Style of Business, watch the webinar Perspectives: How to capitalize on the wave of IT change.

 

 

About the author

Ritika PuriRitika Puri

 

Corporate entrepreneur turned startup founder and writer. Ritika enjoys helping companies build stronger customer relationships and bring products to market faster through her company, Storyhackers.

About the author

Connect with Ritika:

 Follow me on Twitter ritika_puri

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Comments
stalemate

Perhaps one of the imperatives of sustainable innovation is innovating the (financial) meta-model of innovation ;-)

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