Not hearing much talk about corporate innovation these days, eh? Most of the talk is about retrenchment and fortifying and strengthening the core, given our economic malaise.

Interestingly, when times are good, corporations often assume that the good times will continue, so let’s keep doing what we’ve been doing that got us here — essentially, fortifying and strengthening the core. Innovation is a bit more talked about in the good times because there is money to spend on it, but it often is just talk.

This focus on fortifying and strengthening the core in the good AND bad times is the Innovation Paradox. Essentially, innovation is often caught in a weird Bermuda Triangle, perennially underappreciated (despite the talk) and under-invested in.

Without going into the appropriate way to structure an innovation effort (the subject of many other potential blog posts), let’s take a look at what finance can do to help.

Finance sits at the nexus of a great deal of information (operating and financial data) within the company. Depending on the nature of your industry, finance can and should provide an understanding of how much of the company’s revenues and profits are coming from products and services launched in the last 1, 3, 5, etc., years. Note that the duration will change based on your industry’s dynamics (product life cycles, time to launch, etc.), but essentially the idea is to see how much of your organization’s revenue and profit is coming from innovation. If a heavy majority of the company’s revenue is coming from products and services not launched in the last X years, this is direct evidence of underinvestment in innovation. Remember that what got you here will not get you there.

Please note that there is no ideal percentage for the amount of revenue/profit that is coming from new products and services in a particular year. There is no magic 20% or 40% or other number. It varies. If someone tells you there is, they’re substituting an expedient answer in lieu of the right one.

With this knowledge, finance can do what it needs to do, which is shine the light on the truth. But shining the light on the truth may not be enough, as there are often people too busy or too uninterested in seeing these facts. This means that finance should shine the light on the truth and then go and tell everyone about it in the venues they have at their disposal. Make sure people understand that only “2% of our revenue and profit comes from products and services launched in the last 3 years.” They should reinforce this message on a continuous, ongoing basis, because larger organizations are rarely epiphany-driven. They will require a steady stream of facts that hammer on the truth over time. Eventually, someone will say, “OK, I get it. This is a problem.”

In doing this, finance should also make clear what is a new product. Tweaking a product’s attributes is not innovation — it is good business. Finance should take a hard line on what is and what is not innovation in arriving at their data and conclusions.

Beyond internal data, finance should also look at what is going on in the external marketplace with start-ups and the venture capitalists that back them. An industry where large players are not innovating represents a great opportunity for entrepreneurs to step in and solve for inefficiencies and product offering gaps that they see. These start-ups do not have millions or billions of dollars in market cap to lose, so they’ll innovate at a more rapid pace and also be able to change directions more nimbly. Access to this information that previously could cost tens of thousands of dollars is available for free now via sources/platforms like ChubbyBrain, which is a free database that contains information on 13,000+ start-ups and over 1,000 investors (VCs, angel investors, etc). It will let you understand what is going on in your particular industry in the start-up world, which can often tangibly demonstrate activities that new entrants are undertaking to disrupt your business. (Note: ChubbyBrain is a spin-off from our advisory firm, Brilliont.)

This start-up activity is a good way to supplement your internal data with what is going on in the external marketplace. Keeping informed on these fronts is also helpful for other groups internally, e.g., business development or corporate development people who may be interested in partnering with or even acquiring these upstarts. This is a great way for finance to add value among these other groups as well and build relationships in other parts of the organization.

While innovation and the finance function don’t necessarily get associated with one another, the ability of finance to provide dispassionate views into internal and external information is very helpful in creating awareness about innovation (or the lack thereof) that is occurring. And with these efforts, finance can help to play a key role in minimizing the innovation paradox that we so often see organizations trapped in. ###