In these businesses, the CFO and finance team are deeply embedded in the process of innovation and have a clear framework to let new ideas take shape. They partner early with other departments to identify concepts with market potential, replace rigid financial metrics with staged measurements to avoid eliminating ideas too soon, and accept that failure is a tolerable outcome for projects along the path to commercialisation.
These conclusions are captured in a new Chartered Global Management Accountant (CGMA) report, "Managing Innovation: Harnessing the power of finance," and based on interviews with global finance leaders at companies including Coca-Cola, Royal Dutch Shell and BT Group.
The role of finance in all of this is multifaceted, Royal Dutch Shell's CFO, Simon Henry, explained in the report: "A finance function needs to be able to understand the business well enough to know what is a worthwhile activity, but also, in this part of the business, to have a bit more of an open mind. It is less mechanistic and has the ability to live with ambiguity, to identify risk and to manage it."
Samantha Louis, regional director of CIMA Africa, said: "There's an art to innovation, but there needs to be some science that goes with that: understanding the forward-looking side of strategy, being able to scope the opportunity. In all these areas, the management accountant is really critical. Whether it's a new product, process or business model, the management accountant can help assess the results, evaluate how things have gone and learn lessons.
"The definition of innovation is broadening. Once deemed the exclusive province of R&D departments, it is now widely accepted as a fundamental part of every aspect of business. It is not only about disruptive technologies that can change our lives; innovation can also be evolutionary as well as revolutionary, incremental as well as radical. It is also not just about new products and services and can as easily be new processes, models and methods.
"Innovation is vital, but it isn't easy. It is disruptive to an existing business, uncertain in its outcomes, and requires a strong appetite for risk. While CFOs are not expected to be originators of breakthrough innovation, they do need to create an environment that ensures great ideas are spotted, encouraged, financed and delivered; balancing the risk, while commercialising an innovation, is the real challenge for CFOs today."
It is clear from the research that the most successful companies work to create an innovation-centric mindset, putting this at the heart of the business and fostering a culture where ideas can flourish. Louis continued: "In fact it appears the most successful companies provide a range of incentives to encourage innovation from all employees, not just those in R&D. These could be encouraging employees to devote a proportion of work time to projects or research outside of core responsibilities, or employee ideas schemes that involve peer review.
"This requires finance to have a different mindset for early-stage projects, because the premature application of too many KPIs and metrics can kill off a good idea quickly."
The report recommends five areas in which finance professionals should take action:
Innovation requires finance professionals to develop strategic skills alongside functional competencies and this means proactively supporting the innovation strategy while managing the associated risks.
Said Louis: "Management accounting training helps finance professionals to develop these strategic skills; however learning how to apply these skills to the different stages of the innovation cycle can still be a challenge, even for experienced finance professionals."