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The Greatest Innovation Ever Made for Business
October | 2012


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Courageous Leadership

The Greatest Innovation Ever Made for Business

Can you imagine your chief financial officer trying to add up these numbers?

IV
VI
XII
LXII
XCIV

You can be sure that he or she would be hard pressed to provide much insight into ways that your company could compete in today's global market. But until the onset of the Renaissance in the 1500's, most numeric calculations were handled using this Roman system of numbers. It was not until Arabic numbers (1,2,3,4...) were adopted that a new perspective on mathematics and accounting could be developed.

In 1447, in a tiny town in the heart of Tuscany, Italy, Luca Pacioli was born. It was here he received an "abbaco education" meaning that he was educated in the local tongue rather than in the more formal Latin. This educational approach was geared toward the merchant class rather than the religious or scholarly classes and this change in the educational curriculum lead to Pacioli's innovative contribution to history.

He was a quick study in mathematics and by the time he was 16 he had written a study book for the children he was tutoring. In 1494, just two years after Columbus landed in the West Indies, Luca Pacioli's revolutionary contribution was published. Due to the recent invention of the Gutenberg Press his work titled, Summa de arithmetica, geometria, proportioni et proportionalita after being published in Venice was able to be distributed widely.

In his treatise, Pacioli included a small section on a method of bookkeeping that became the predominant form of financial record keeping in the merchant rich town of Venice. Double entry accounting that included ledgers for assets, liabilities, capital, income and expenses, all of which are familiar in today's "modern" financial reports, were first catalogued by Pacioli over 500 years ago. In this system, every transaction gets recorded twice. If you were a baker in Venice and sold a loaf of bread you would record in one column that you sold a loaf of bread (debit) and in the other column you would record that you received one gold ducat (asset). Everything was in neat columns and could be easily reviewed. His advice, often quoted to this day — "a person should not go to sleep at night until the debits equaled the credits."

And as if this were not enough, Pacioli, during this period, had developed a close and perhaps intimate relationship with none other than Leonardo De Vinci who was the illustrator for his famous treatise. De Vinci used Pacioli's mathematical formulations to confirm the appropriate proportioning of figures in his painting, confirming what De Vinci intuited through the work of his artist hand.

Together and separately, these two great masters made invaluable contributions to the conditions of people everywhere. Pacioli's double entry accounting system provided a methodology for businesses to grow beyond small enterprises since they now had an orderly systematized approach to the management of money. Today's companies grow and expand, or curtail and compress their operations, using this clear method of accounting for how their products and monies are conveyed.

And whether we're looking at the spreadsheets for our departments, balancing our personal and household checkbooks, or attempting to understand the national debt, we realize the numbers are not the only thing that matters, but it's valuable to have an understandable way to keep score. By the way, the above Roman numerals add up to 188 for whatever that's worth.

 

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TED Talks

Apple's recent iphone 5 release received significant criticism when the company's new mapping app did not live up to previous phone versions provided by Google. And while we all take good maps for granted, it is probably hard to believe that as of 2005 only 15% of the world was mapped. But through Google's map-making software and crowd sourcing technology, all that is changing with the result being that now food and supplies can be delivered more efficiently. Lalitesh Katragadda, a Google software engineer presented this brief TED talk in India.

 

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