A TEAM of innovation experts has named the number one enemy of biotech innovation – accountants and their pesky love of costing and evaluating projects up-front.

UQ's Dr John Steen

Life is uncertain and traditional models for evaluating new business ideas no longer cut it, project leader and University of Queensland School of Business senior lecturer in strategy Dr John Steen told BTN.

"Our data was incredibly robust and no matter how we analysed it, we came up with the same results – accountants kill innovation," he said.

His team’s study, which is under review at Management Science, found Australia’s biotechnology start-ups were more successful at developing their product pipelines when they ignored their accountants and relied on market judgement.

Explaining the result, Steen said companies that improved their innovation output had invested in new products without calculating the value of the project up-front.

“What didn’t surprise us was that the ones who were prepared to try things out had better innovation, as measured by patents.”

A big surprise though was that traditionalists, which based initial investment decisions on predictions, were less innovative.

“The ones who tried to forecast and plan and get accurate figures on how much a project would be worth with traditional methods were actually less innovative than those who had no particular financial criteria,” Steen told BTN.

“All the investments these companies were making in being rigorous and planning properly was actually detracting from their innovation performance.”

Companies which improved their innovation output had invested in new products without calculating the value of the project up-front.

The UQ senior lecturer said business schools taught people to be overly confident in their ability to make predictions and to assume away the unknown.

“The more you plan and try and put a dollar value on what a new project could be worth, the less success you will have when you're trying to invest in fast-moving research and development,” Steen said.

UQ’s researchers surveyed 300 start-up Australian biotechs over several years and had 97 respondents from states across Australia.

They fell into two main groups – traditionalists which generally adopt the “net present value” analysis and those that base decisions on managerial judgement or “real options”, an evaluation method becoming more popular, particularly in the United States and Europe.

Companies that successfully developed new products were diligent with seed funding, accepted uncertainty and took a risk, Steen said.

“We’d like to see financial controllers and managers, when they’re faced with genuinely uncertain projects like innovation projects, start to look at these methods a lot more to help them make decisions.”

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