Reinventing the CFO
A new breed of CFOs are here – and they are here to stay. It seems that more and more CFOs are now looking beyond just reporting on quarterly results. Today’s CFOs take part in product innovation, come up with breakthrough business ideas, challenge corporate customs and are more involved in front end growth of the company. A recent report titled ‘Managing Innovation’ put together by the AICPA (American Institute of CPAs) and CIMA (Chartered Institute of Management Accountants), corroborates this new trend while providing tips from the CFOs themselves. Here are five areas –
Early stage ideas need to be treated differently
Several CFOs noted that companies, even innovative, make a big mistake by treating early stage concepts and ideas within their R&D departments with traditional financial metrics and guidelines. This saps the innovative spirit while miring the innovative process in more paperwork and justifications. Nurturing success at this stage means applying different rules – right from the beginning. The study notes that ‘Distrust is exacerbated when early-stage ideas are prematurely tested against traditional financial metric, before they can evolve’. Because of this many finance executives call for relaxed P&Ls, reasonable growth metrics and don’t demand too much of new ventures, at least initially.
Creative use of capital
Shell allocates $1.5B every year to R&D, plus sends a further $4B for incubating innovative ideas and solutions across all of its business lines. A good part of it goes to – what it refers to as – ‘the game-changer budget’, a fund used by employees to apply for innovative research projects outside of their daily work. ‘A finance function needs to understand the business well enough to know what is a worthwhile activity’ says Royal Dutch Shell CFO Simon Henry.
How do you define risk?
Risk is inevitable for every business. And no risk means no reward. Common knowledge, correct? Not as common as you think. ‘The perception that risk management is there to apply the brakes is a misconception’, says Anita Menon, Chief Risk Office at Prudential BSN Takaful, a joint venture between Prudential and Bank Simpanan Nasional. ‘The risk function is there to encourage the business to understand that they need balanced strategies or actions in order to grow the company’
CFO is now CIO, as in Controlled Innovation Officer
Simon Henry, CFO of Shell says that the finance department’s visibility and role in monitoring the performance of various business units makes it uniquely positioned to counter risk with planned opportunity. Having that twin outlook brings guidance to gung-ho projects and ideas that are sure to change the world but without a qualified financial base, which is needed to build sustainable businesses. ‘We want to encourage innovation and not stifle it, but not in a totally uncontrolled way’, says Henry.
Inside the belly of the beast
To manage innovation better, many CFOs are inclined to place top lieutenants where the action is – inside new ventures and projects. Giving a top finance exec. this level of visibility and access, where innovation is ripe and unbridled, helps to not only build the business case for funding such projects but also get a more in-the -trenches experience that is uncommon for finance folks. This helps finance understand the process, chaotic as it may be, and that not everything can be qualified in Microsoft Excel. ‘The role of [finance embeds] is decision support, from idea right through to launch’, says Stephen Bolton, group controller at Diageo.
So, as a CFO, do you see yourself employing one or more of these recommendations? Let us know in the comments below or by sending an email to firstname.lastname@example.org
As a CFO of a F1000 business, I can relate to these points. It is hard to overcome the traditional model within finance but it can be done. Getting educated, keeping an open mind and stepping out of your comfort zone are very important. Not very easy for risk-averse left brained CFOs. Speaking from experience here…
@Gregg – thanks for the comment!