Innovation Killers: How Financial Tools Destroy Your Capacity to Do New Things

The article starts by outlining 3 financial instruments that limit innovation:

• Discounted Cash Flow and Net Present Value
• Fixed and sunk costs
• Earnings per share

They are not bad in and of themselves, just the way they are used limits innovation opportunities.

DCF and NPF fail from the Parmenides Fallacy - assuming if we did nothing the company would continue at its current pace (unhindered by competitors or market changes).

Good economists are taught to answer the question “How are you” with “Relative to what”

It always seems cheaper to use what you have, especially if there is slack there. But this does not take into account the cost benefits of future technologies, you need to compare like for like. Using a stage gated process for innovation just means that sustaining innovations always win over those whose value cannot be so easily quantified.

More often that not, failure in innovation is rooted in not having asked an important question, rather than in having arrived at an incorrect answer