Economics Paper on Focusing on Financial Impact and Innovation


Most organizations, companies and businesses use financial data to distribute and allocate resources to their departments, these financial data is mostly based on the departmental expenditure collated with its output. Thus in this case financial impact can be described as a term used to refer to the cost or profit loss that usually occur due natural disasters, market conditions, product disasters and other events that are beyond management control hence leading to expenses that cannot be generated or covered after their occurrence and thus they have the capabilities of leading a company obsolete (Evans,Thygerson, 1997). On the other hand financial innovation can be defined as the act of fashioning and then popularizing new financial instruments as well as new financial technologies, institutions and markets in order to suit and boost an organization’s total output and increase their long-term profits. Such innovations including; hedge of funds, private equity, and retail structured products, exchange traded funds and family bonds are some of financial innovations that helps keep an organization relevant in the financial market. Financial innovation is a continuous process and calls for continuous development of products, services and technology to convey products. (Tufano, 1989). Thus financial innovation represents a systematic process of change in instruments, measures, institutions and operating policies that signify a financial system (Tufano, 1989)



  1. Financial Impacts

Financial implications, being the profit loss or extra cost incurred, over the usual recurring and predicable cost, which happens due to various unpredicted disasters that are beyond the management control can be grouped into; Natural disasters, changes in market conditions, product failure or product disaster and changes in the economic environment. Such factors are unforeseen and they have great implications on the business finances such as reduced revenue, reduced product output and general reduction of the institution operations hence causing great losses in the financial markets and in the long run the institution can go out of business if such disasters persist and the institution cannot cover the losses (Thygerson, Evans, 1997)

  • Natural disasters

Natural disasters have a significant and severe both short term and long run financial impacts on businesses, they also have adverse consequences for development, economic growth and they hinder poverty reduction and the capabilities of an institution to conduct business thus lowering revenue and increase profit loss due increased cost of doing business without a parallel increase in profit margins. Such natural disasters may include; floods, hurricane and unforeseen drought. A study conducted showed that in the Caribbean and Bangladesh there is affirmation of reducing sensitivity to tropical storms and floods due to increased awareness of public action and economic transformation. In general, natural disasters lead to significant budgetary pressure which narrows fiscal short term financial impact and cause wider long term progress implications. However, disasters have little impact on trends in aid flow as reallocation is the primary fiscal response to disaster (Tufano, 1989)

  • Changes in market conditions.

Unfavorable market and economic conditions adversely affect business, financial conditions, and results of operations, such conditions include;

1.2.1. Competitive environment

Competition is a dynamic process, competitors gradually and continually come up with new strategies with the soul aim of conquering and taking a potential market share. Studies show that the cost and profit analysis changes due to completion is below forecast.

1.2.2. Regulatory environment.

It is cumbersome for a business entity to accurately foresee and predict the changes and impact of new government regulations. The outcome of these regulations is mostly the increase of doing business thus resulting to profits fall.

1.2.3. Economic environment.

Weakness and general fracture of the economy can cause great falls in revenue. Changes in economic environment is largely caused by insecurities in the market thus making it hard for investors to invest in such harsh economic environment. Existing businesses may also fall due to reduced profit margins and increased cost of production (Thygerson, Evans, 1997)

  • Product disasters and products failure

This is mainly experienced in either of life cycle of a product which includes; product development, growth, maturity and decline or fall. The characteristic defining each stage differ in response to the specific requirements of the product as it moves about its life cycle. Through the life cycle, products may experience unforeseen and unbudgeted changes that have serious implication on the financial capabilities of the institution.

Product failure occurs when its presence in the market leads to withdraw from the market, inability of the product to realize the expected market share in order for it to remain relevant in the market and the ultimate failure of the product to achieve profits. However product failure is not correlated with substandard engineering but change with the consumer preference due to presence of substitutes in the market.

  1. Financial innovation

These can be grouped as new products (e.g. hedge funds and subprime mortgages) or services such as mobile banking and table banking which are introduced by organizations especially banks in order to respond better in the changing markets and improve their service delivery and efficiency to their customers. Financial innovations that have occurred in the last two decades are of different types which include new products, new production processes, new services and new organizational designs.

  • Products

Different institutions have come with many new innovated products in order to keep them relevant in the market and give them a higher competitive niche in these turbulent economic times. Example, Banks have innovated savings accounts which are flexible and customer friendly and such accounts include mobile saving accounts and also children accounts (Tufano, 1989)

Mortgage is another product that has undergone years of innovation (Cascio, 2004). In the past mortgages were offered by thrift organization unlike in the modern days where commercial banks have also flocked in the business of offering various types of mortgages at customer friendly terms and conditions. Money market mutual funds is also another product established in the 1970s, and currently controls a high part of individual total investments , banks investments, industry players and insurance agencies (Evans, Thygerson,1997)

  • Services

Competition in the current markets have led to increased innovativeness in service delivery among various business institutions, organizations and companies as they try to maintain, improve and increase their market and business niche to meet their customers demand and expectations which are dynamic. Advancements in information technology processes have created enormous innovation in service delivery to customers by various business organizations. Examples includes Automated Teller Machines, debit cards, credit cards, mobile money and electronic money services (Cascio, 2004)

  • Processes

Many businesses have come with cost effective technologies in order to improve their operating processes while still maintaining the quality of their products. Such processes includes, operational processes and maintenance processes. Example, various organizations conducting business engage in automated teller services in order to deal with the large volumes customers enquiring in their help desk, such processes and services improves customer care while maintaining the standards of the organization products and services (Thygerson, 1995)

  • New organizational forms

Various new organizational forms have emerged over the past few decades due to changes in the type of technology used, such forms includes internet banking. This has been made possible by the high number of individuals using the internet per given time (Delgado, et al 2007). Still, over the last few decades, businesses have integrated their services and products in order to invest maximally with the benefits that come with diversification. This type of innovativeness is highly experienced in banks where they only not offer banking services but also they offer services such as money transfers, insurances services, and payment of utility bills and stocks brokerage services among others (Thompson, Strickland, Gamble, 2006)

  • Financial systems

These can also be referred to as financial institutions. Innovation of financial systems affects financial sector as whole and also relates to; changes in legal and supervisory frameworks. Examples of such innovations include group mechanism in retail financial services, formalized informal financial systems such as; table banking and completely setting up new service structures to accommodate formalized informal sectors.

  1. Importance of financial innovations.

The soul reason for a business to innovate is to increase and improve its output while maintains its products brand and quality of their products. Financial innovation has led to improved services delivery, increased revenue per unit of input, increased market share, high profits turnover ratios, reduced cost of input and increased quality services delivery to customers.

In the long run, financial innovations ease the capabilities of an institution doing business as it saves time and reduces on cost. Financial innovations such as table banking and group banking have increased access to credit and capital for individuals who on their own cannot meet the standard set aside to access loans. This in the long run have largely contribute to general economic growth, poverty eradication as well as contributing to personal development.

By financial institutions offering mortgages in different spectrum at different affordable packages for various individuals with varying income rates, it has enable people from different economic backgrounds to become homeowners than it was a few decades ago.

  1. Challenges of implementing financial innovations
    • Cost of compliance

With the short period required for implementation of new innovations, businesses are uncertain of cost to be incurred and thus the requirement of systemic technology solutions and integrated and costly consumer and customer outreach.

  • Uncertainty of legal measures.

Many organization have the uncertainty of the legal requirements that new innovations bring with them as legal measures are complex and need long time procedural following. It is certain that several jurisdiction lead to bleach of privacy rules.

  • Customer response rate

The initial cost of advertisement falls on financial institutions to overcome low customer response rate.



Evans, G. L., & Thygerson, K. J. (1997). The financial institutions Internet sourcebook. New York: McGraw-Hill. Retrieved from:

Cascio, W. F. (2004). Costing human resources: The financial impact of behavior in organizations. Cincinnati, Ohio: South-Western College Publ. Retrieved from:

Thygerson, K. J. (1995). Management of financial institutions. New York: HarperCollins Retrieved from:

Tufano, P. (1989). Financial innovation and first mover advantages: An empirical analysis. Boston, MA] (Soldiers Field, Boston MA 02163: Division of Research, Harvard Business School. Retrieved from:

Thompson, A. A., Strickland, A. J., & Gamble, J. (2006). Strategic management: Concepts and cases. Maidenhead: McGraw-Hill Education. Retrieved from:

Cascio, W. F. (2004). Costing human resources: The financial impact of behavior in organizations. Cincinnati, Ohio: South-Western College Publ. Retrieved from: