«[The] The Internet “may be just a passing fad, as millions are abandoning it.”
So far this title appeared in a December 2000 issue of a British tabloid The Daily Mail, however, it is a reminder of how easily one can let go of a future that seems unthinkable. As a result, disruptive innovations and smaller but still significant shifts in the business model are downplayed or ignored. Twenty years ago the internet had its skeptics. Today the debate is about artificial intelligence, cryptocurrencies, space tourism and cars.
In addition to this challenge, traditional measurement expectations, methodologies, and funding mechanisms established by enterprise funding teams to evaluate, plan, and monitor innovation do not take into account the uncertainty associated with early-stage opportunities. By their nature – focused on the financial year, quantified, focused on short-term results, deliberately linear – these approaches can erode innovation if they require education instead.
The reality is that corporate finance groups are stakeholders in companies ’innovation efforts. Defeating them as attorneys can determine if the pilot is funded or if the partnership support agreement falls into the budget.
By adopting new practices and relevant targeted tools and techniques, as well as adopting a growth mentality, financial experts can become proponents of innovation, adding value to business model development, testing evaluation, and investment strategies.
Innovators have leverage over colleagues in finance to:
• Review how to evaluate market performance and potential for innovation.
• Reject traditional approaches to financial management that are not suitable for innovation.
• Encourage diversity of thought and thinking growth to strengthen collaboration.
Financial leaders recognize the importance of innovation for the future of business.
In an audience survey at the AICPA Annual Conference of Corporate and Financial Supervisors, 95% answered “extremely important or important” to the question: “How important do you think innovation is to your business strategy and plans?” However, many also acknowledged the role gap: 74% rated themselves as “very or slightly involved”, but only 26% considered themselves “involved at the right level” and 32% shared that they would like to be “more involved”. ».
How can a financial team become a proponent of innovation? Where are the opportunities for innovators to use their skills and credibility?
Start by using one of the innovators ’favorite tricks – restructuring – to challenge the usual characteristics of an enterprise’s financial team. Then apply the five tactics that follow to introduce methods of allocating, measuring, and managing resources that are appropriate to the goals.
1. Connect the points between innovation and what the CFO cares about: results, performance, discipline, control and management. Don’t think about a common understanding of what is meant by “innovation”. Be clear that you are not doing cool things for this. Share the innovative disciplines you use to find, prototype, and test viable solutions to real-world problems faced by your brand’s target users.
The point is to build understanding. Understanding the seeds of trust. A relationship of trust allows you to create a genuine collaboration that inspires advocacy.
2. Create opportunities for finance colleagues to gain direct access to users and clients. Meeting with users and customers should not be an exclusive area of marketing, product development or sales. Getting a copy of a research report or viewing a customer satisfaction dashboard may have been okay in the past, but given the current business speed and nuances of customer preference, there is no substitute for personal time to help key decision makers and influencers. deepen their empathy for customers ’perspectives. This requires direct involvement.
If these opportunities are not built into your routines, be creative in how you make them. Invite colleagues to home conversations during ethnographic research. Encourage visiting focus groups or spend the day on sales calls or listening in the call center. Look for engagement that allows colleagues to hear directly from users, customers, and employees who work with customers to better understand their perspectives and gain a deeper appreciation of their feelings and motivations.
3. Evaluate the innovative “rates” of the business using a portfolio diversification structure. Take a full look at the organization’s innovation efforts and rank them according to factors such as degree of risk, time to prove scalability, potential impact magnitude, market size, and probability of success. Even at an early age, concepts, opinions, qualitative and quantitative indicators and intuition can be applied to assess the health of each initiative. Presenting conclusions and recommendations can start a strategic dialogue with colleagues in finance. One can discuss “what if” scenarios and develop a common understanding of the general direction.
4. Find ways to strengthen flexibility in the annual planning process. Innovations do not take place according to the fiscal year schedule. Establish a cycle-free primary funding mechanism to fund prototyping and experimentation with the speed and frequency required by the market. Keep requests small. Take lessons from venture finance management models. Plan to include all C-suite members in the process.
5. Set expectations that measurement systems for early-stage innovation are different. A surefire way to kill a new concept is to apply accurate metrics to a mature business to determine its value. Instead, start by identifying what you think are likely factors in the business model: income, expenses, and capital needs. Use alpha and beta test results and user feedback to assign qualitative values to each position: “high”, “medium” or “low” ratings are appropriate to begin with. Make it clear that market experiments, constant user and buyer feedback, and deepening operational requirements will be acquired iteratively over weeks, months, or quarters and will lead to reasonable quantitative assumptions.
For their part, business finance professionals need to become more proactive, strategic advisors who help their businesses navigate the environment in which innovation is key to future success. Innovators may view this trend as an opportunity to reconsider their relationship with the finance team. They can help these colleagues deepen their understanding of customer needs and how they relate to innovation priorities. They can take the initiative to move to measurement standards and flexible processes to align with how innovations are detected, nurtured and developed.
Amy Radin is a board member, startup advisor, operations manager and award-winning author who helps leaders anticipate change and adapt to it.