At first glance, accounting and innovation seem unlikely bedfellows. On one side, there are benchmarks, data, informed assumptions and careful modeling. On the other? Wild ideas, creativity, guesswork and uncertainty. But, since innovation is essential to the growth of a business, the two functions need to work well together. The good news is that the idea that number-crunchers and creative types can't get along is hogwash.

Without the discipline of management accounting, innovators would be doomed to potter around in their labs, having great ideas that never come to fruition, according to Paul Hinder, an FCMA who serves as a non-executive finance director for a number of technology start-ups. "Accountants have the skills that an innovation requires to go from being an idea to a business - they fill in the blanks in the process," he says.

Conversely, without innovative projects to work on, life would be a lot less interesting for accountants. "Innovation is an iterative process towards a rounded product or service. When you reach that point, you can really pour some fuel on the fire to create a viable business," says Nigel Grierson, head of technology ventures at private equity fir Doughty Hanson. "There's generally not much historical data for guidance, so you need to focus effort on the more fruitful avenues."

But this cosy overview covers many different methods of achieving innovation, some of which can force the participants into potentially uncomfortable territory.

"Revolutionary Innovation is the key for us," Grierson says. "It's all about creating market displacement. Look at how Yahoo! and Google have revolutionised the delivery of news: that's not about iterative improvements to print publishing; it's a total change to how people consume news."

While he acknowledges that evolutionary innovation - change by small increments has its place, Grierson points out that revolutionary innovation creates fundamental shifts in value away from one organisation and into another. "The low-risk, low-return model is perfectly valid," he says. "But we seek out riskier, higher returns. Revolutionary innovation destroys existing business models. A true innovator in a big company rarely gets the support of a management team that's striving to help the existing business survive."

That's why small firms often innovate more readily - they have little interest in preserving the status quo. Hinder understands this well: having worked at Motorola, ICL, Mercury Communications and Cable & Wireless, he has seen how big companies convert new ideas into business, but now he advises innovative young enterprises. Hinder recently became chairman at H20 Networks, a firm that's developed a way of using sewers to connect homes and offices with fibre-optic networks. He believes that H20's small scale aids its ability to innovate and also creates an opening for his own accountancy skills.

"It has all these people whizzing around creating ideas and exploring opportunities, so my role is about keeping the business properly aligned with its strategy and injecting some discipline," he says.

Diseconomies of scale

So why doesn't this process work so well the other way around? Can't process-driven, disciplined companies inject creativity? "Bureaucracy is a necessary evil for large corporations - it's essential if they're to avoid waste and disorganisation," Hinder says. "But this means that decision-makers get removed from customers and suppliers, so the feedback loop that helps to drive innovation starts to break. The more links in the chain between the front line and the leadership, the less entrepreneurial the company will be."

That's not to say big companies can't innovate, but they do find it much harder, according to Matt Kingdon, co-founder, chairman and "chief enthusiast" at ?What If!, an innovation consultancy with many bluechip clients see panel.

"Larger differences emerge between decision-makers and customers. Costs in and the company gets less agile," he says. "But there are spectacular exceptions to this. Look at Procter & Gamble, Teseo and Waitrose: they combine scale with an ability to reinvent themselves in different areas."

Unfortunately, it's often the finance function that dampens a large company's creative ardour. "It's hard to come up with a return-on-investment model for something truly innovative," Grierson says. "Some corporations have created internal venture capital groups to apply a different set of metrics, but it takes a lot of determination to make that work."

Compelling mythologies surround some companies, suggesting that they have embraced this model. 3M is said to allow its engineers ten per cent of their time to try out completely innovative projects outside their day jobs, while GE, IBM and Intel also have great records on funding innovation through meticulously planned programmes.

Microsoft is often maligned as an organisation that has little interest in allowing genuinely new ideas to flourish. But, by regularly exposing the rank-and-file's brain power to senior decision-makers, it hopes to generate new business.

"Any employee can write a paper for 'think week', a long-established tradition in the company," explains James Burns, chief technology officer for MS financial services in the UK. "Bill Gates started it: he would read about 100 of these papers during a week that he'd set aside for evaluating really innovative ideas. The new leadership team now runs two think weeks a year."

If an Idea has merit, the innovator can compile a business case to obtain finance from what amounts to an internal venture capital fund. That allows them to build a small team to conduct a trial. If that's successful, the concept gets taken up by the appropriate product group.

"Our leadership team recognises that we must constantly reinvent our business if we're to avoid hitting a growth plateau," Burns adds. "Think week says: there are no sacred cows at Microsoft."

Most experts agree that innovation relies on effective systems to enable feedback, In that sense, the innovation process should imitate the "infinity model" of value creation described in a recent CIMA research report by Robert Shaw, honorary professor of marketing metrics at Cass Business School (see Technical matters, June). Without a business case, the innovation goes nowhere; without innovation, the business eventually perishes.

The myth of the lone inventor

Research into innovation at Unilever by the Rotterdam School of Management has concluded that innovators need to collaborate and discuss their ideas widely, rather than work alone. This type of feedback is a key success factor.

"Employees usually discussed an idea with colleagues and, based on their responses, made changes before submitting it for further development," reports Jan van den Ende, professor of the management of technology and Innovation at the school. "People who tapped colleagues outside their departments were more successfully, discussing an idea with them improved its chances of adoption, whereas consulting colleagues from their own team didn't improve its chances.

Matthew Tweedie is group FD at Arup, a global firm of consulting engineers. He's seen this collaborative side of innovation work well in his own business. "We have a number of skills networks - groups that go beyond individual project teams," he says. "They work collectively on complex problems by sharing their ideas, often just because they have a fascination with a particular type of challenge. That's one of the advantages for bigger companies: you develop a pool of people, thoughts and experiences for each problem, which increases the likelihood that innovations will emerge."

This is not to say that individual inspiration isn't workable, but it does stand more chance of delivering tangible change when it's combined with other people's bright ideas and given some structure. Arup often hires exceptionally talented people with no engineering experience, for example, but whose intellect could spark real innovation among their colleagues.

"We have a lot of people in non-standard roles - such as Chris Luebkeman, director of foresight and innovation," Tweedie says. "It's about being able to bring in fresh perspectives, For example, his team has produced a series of cards featuring 'drivers of change' - reminders of the way the future might play out, so that we can design for that. Our buildings or bridges might last 100 years, so you need an open mind."

Innovation versus recession
One thing that companies both large and small can agree on is that innovation isn't optional: although the form of words varied, every interviewee for this article stressed that businesses must innovate or die. But they also acknowledged that it can't always come cheap, while returns on genuinely new ideas are impossible to evaluate.

Does that mean falling R&D and marketing budgets are suffocating new ideas at birth in the recession? Not necessarily, according to Kingdon. "In fact, we're seeing more businesses starting up," he says. "New needs emerge as the market adapts to straitened times. And there are lots of frustrated, angry, energetic, creative people out there who have suddenly lost their jobs - the ideal people to start a venture. Alongside their instinct to innovate, they will have lower costs and more efficient processes than their bigger rivals. "

Such entrepreneurs are fertile ground for Hinder, who thinks a shortage of capital could actually boost inventiveness. "It forces accountants to be innovative, too," he says. "How do you get those marginal, higher-risk projects off the ground with little or no money? How do you set out small steps to commercialise an innovation, ensuring that it generates cash as it develops? Accountants have exposure to the entire business - not only R&D, production and marketing - so they may be able to see connections and options that creative people wouldn't."

The downturn also puts pressure on companies to find more efficient ways of working. "Cutting Amp's investment in innovation for our clients is not an option," Tweedie says. "But we must also maintain innovation in the way we run the organisation, not least to secure its financial future."

Kingdon reports that process innovation has become a huge growth area for ?What If! "We're seeing legal teams, accounting teams, procurement departments - all sorts of Internal agencies - that want to become more innovative so as to transform their businesses. An innovative procurement team could deliver the best supplier relationship in the world. That could be a more important advantage than any new product idea," he argues.

But, while revolutionary process innovations could fundamentally improve a company's fortunes, too many businesses are focused on incremental changes, usually aimed at chiselling out costs. A recent survey by PA Consulting found that more than a quarter of firms had witnessed no innovation at all from their IT outsourcing partners.

Organisations are missing out on the tangible benefits, especially innovation, that could and should be achieved as a result of a strong business relationship," says Jonathan Cooper-Bagnall, partner at PA Consulting.

Finance's crucial role

So where do management accountants fit into all of this? "First, you can be a wet blanket - being negative about the prospects for an innovation," says Hinder, who stresses that this role isn't as unhelpful as it sounds. Every project needs a dose of realism. It's best made constructively, of course, but asking the difficult questions almost always helps an innovation to become a reality.

"Second, you can bring structure," he says. "That could be systems and processes, although they must be the right ones at the right time. There's no point in introducing corporate-style procedures at the early stages of a project that's being run by a small, tight-knit company."

That balancing act is crucial. According to a CIMA-funded study in the mid-nineties, General Motors calculated that as much as 80 per cent of the cost of manufacturing various products was determined at the design stage. If you get things wrong at this point, you could cripple future profitability.

But Kingdon also warns against erring the other way. "There's nothing more destructive than asking for a net present value assessment on an innovation," he says. "You'd simply distract creative people from the task in hand and encourage them to attach arbitrary numbers to a project."

Arup avoids this problem by making accountants an integral part of the process. "We wrap up the legal and financial support as part of the whole innovation framework," Tweedie says. "That means identifying how an idea can become commercial, but we've also stopped some ideas that looked highly likely to be wasted investments."

The ?What If! team also understands this well. It regularly runs role-play sessions with innovators, introducing the character of a hard-nosed FD who fires a barrage of tough questions about factors such as the size of the potential market. "Such questions help the innovation junkies to focus on whether they're working on a genuine opportunity or something quite small," Kingdon says.

Management accountants can also help a creative team to describe its innovation in numbers as the project develops. As an idea moves up the chain of command, it goes from being a vision, to a pitch to consumers, to something based on cost and profit.

"Management needs to hear it in those terms, but it's not a language that many creatives are comfortable with," Kingdon says. And that's where you come in.