Tag Archives: economy

Bad Economies Spurring Innovation? Accounting is key

I came across this blog post, and it made a lot of sense….

Lowering the water level: Do bad economies spur innovation? – Venture Hacks .

But, the problem is getting there, and I think accounting procedures for many businesses are likely a key to successful innovation, or the potential to go under in a huge way.

In good economic times, its easy to play accounting games and shift expenses from a pet project to a mission critical area. Ie, the new whizbang has tons of overhead, so the solution is to shift the accounting for that overhead to existing cost centers where it likely will remain hidden. Then multiply this by tons of pet projects, and all of a sudden, rather than a pet project having real costs associated with it… it seems a no brainer. Thats fine, until the cost centers end up bloated, and prime targets for budget reductions. The end result is, many core functions end up taking a hit, all the while the pet project looks good, at least for a while.

As budgets continue to shrink, the core function cuts will go too far,
and that will hopefully force a restructuring of accounting games,
such that the costs for pet projects become much more accurate.

Slashing key infrastructure only goes so far, before an entity can no
longer support its existing customers, and ends up going under.
Hopefully the downturn will foster more accurate accounting in time to put real numbers behind ALL functions. Not numbers good enough to continue funding pet projects for the next quarter, all the while
letting core functionality go south as all too often happens in large organizations.

Yes, I know its odd for the tech guy to put accounting on a pedestal, but cash flow and its proper allocation becomes really critical in a downturn… and if it uncovers inefficiencies and bad allocations of resources, it gets every one on the road to recovery and innovation a ton faster, as contrasted with riding the fake numbers as the ship goes down.