The CFO's Dilemma of Finance Innovation

Some studies estimate that it can cost up to 9 months of an employees salary to replace them. The common reasons that staff leave include:

1. Low salary
2. Being under-appreciated
3. Limited growth opportunities
4. A lack of meaning or purpose in their work
5. A lack of autonomy

Issues 3-5 are particularly pervasive when finance is comfortable keeping the status quo. When CFOs are not able (or refuse) to innovate, their staff pay the price. Because the finance function does not grow and evolve, they can’t either.

Warning sign #1: You have an over-reliance on an ineffective IT department.

It goes without saying, technology fuels innovation within finance. Automation derived from IT investments allows CFOs to focus on analysis and strategy.

Most IT investments are jointly owned by IT and business leaders (Deloitte). That said, the decision of building vs acquiring technology is often heavily influenced by IT. This can prove to be problematic in organisations where IT is ineffective. Some warning signs:

1. IT says ‘yes’ to everything but actually deliver very little (on time and on budget).
2. They (IT) do very little to educate business leaders on technology initiatives, preferring to work in their silo.
3. Their “roadmap” is a list of technologies, void of any connection to business strategies. For example, be wary of roadmap items that are simply titled “Migrate to AWS” or “Move to SAP HANA”.

We often talk to finance staff who are told that their reporting needs will be handled by a planned upgrade to their ERP – year after year. Instead, they toil away, using spreadsheets, unable to make investments in other technologies. This lack of autonomy can further fuel stagnation of the finance department.

It goes without saying, technology fuels innovation within finance. Automation derived from IT investments allows CFOs to focus on analysis and strategy.

Most IT investments are jointly owned by IT and business leaders (Deloitte). That said, the decision of building vs acquiring technology is often heavily influenced by IT. This can prove to be problematic in organisations where IT is ineffective. Some warning signs:

1. IT says ‘yes’ to everything but actually deliver very little (on time and on budget).
2. They (IT) do very little to educate business leaders on technology initiatives, preferring to work in their silo.
3. Their “roadmap” is a list of technologies, void of any connection to business strategies. For example, be wary of roadmap items that are simply titled “Migrate to AWS” or “Move to SAP HANA”.

We often talk to finance staff who are told that their reporting needs will be handled by a planned upgrade to their ERP – year after year. Instead, they toil away, using spreadsheets, unable to make investments in other technologies. This lack of autonomy can further fuel stagnation of the finance department.

Warning sign #2: Staff are always busy with ‘business as usual’. No time allocated for innovation, failure and learning.

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Google allows their staff to spend 20% of their work week on side-projects of their choosing. This “time for innovation” helped foster products like Gmail and Google Maps. The logic behind the initiative was simple:

• Empower staff to make their own choices (remembering that 80% of their work week is still allocated to doing whatever their managers ask of them); and
• Assume that people will use this time to work within their area of expertise. For CFOs, this means having accountants focus their innovative energy on the finance department.

This approach to work can be challenging for finance departments. Traditionally, CFOs and finance leaders operate under a strict mindset of “what gets measured, gets done”. Innovation is sometimes hard to measure. That said, there are some key signs that your finance departments culture is stifling innovation:

1. Adherence to the status quo – almost by default.
2. Always relying on the HiPPO (Highest Paid Person’s Opinion).
3. Overloaded and overstressed staff.
4. Reinforcing that finance is not innovative, through decisions and communication.
5. Publicly attacking and punishing failure.

I’ve often heard managers utter things like “I wish my team came to me with new ideas”. Often, the number one roadblock to staff innovation are the policies and actions of the managers themselves.

How to foster an innovation culture within finance

Whether your finance department is stagnating or not, you may be wondering how to help staff become innovators. To help drive a culture of innovation within their finance department, CFOs must focus on three key areas:

Innovation tip #1: Invest in People, Process and Technology with equal weighting.

Ask anyone what the key ingredients of a finance department are and most will point (in some way or another) to:

• People: Accountants and other finance staff.
• Technology: Such as ERP, GL, EPM etc.
• Process: Binding the people and technology to get work done.

When we talk about innovation, automation or transformation, we often gravitate to only one of the three elements above. Software vendors will lean on technology. Consultants will focus on process. Recruiters will tell you its all about the people!

The reality is all three elements are crucial to a functioning finance department. Any innovation – such as the use of automation or advanced analytics – needs to consider all three elements. Failure to do so will limit CFOs from delivering game-changing transformation. Good leadership and change management is the ‘glue’ that brings it all together.

CFOs need to encourage and inspire their staff to understand and identify opportunities for innovation and process improvements . They also need to equip them with the digital skills that will allow them to leverage emerging technologies (to solve problems).

Innovation tip #2: Encourage staff to innovate. Protect them while they do it.

To be able to innovate, staff need:

• Encouragement and inspiration: To find and implement new ideas within the finance function. Staff can attend conferences and meetups. They can engage with advisors and consultants. They can reach out to technology vendors.
• Freedom: To come up with ideas, run with them and make critical decisions. It is imperative that you do not revert to the HiPPO model of decision making (see above). Staff leading the innovation become “experts” in their area of focus. Let the experts have their say.
• Metrics (the right ones): Asking staff for an immediate ROI is a sure-fire way to kill off any innovative activity. Most finance staff will retreat to the comfortable and measured world of BAU and month-end. Finance leaders need to introduce new, contextually relevant ways of measuring. Did the initiative result in finance being able to do something that wasn’t possible before? A new type of analysis etc.?
• Protection: from status quo managers who will kill any ideas either directly or from neglect. There is a certain archetype of finance manager that you don’t want anywhere near your innovative endeavour. You know who they are. They are the ones that roll their eyes at new initiatives. They are the last (and most difficult) person to onboard onto some new software. They don’t like change. These people can be valuable in ensuring a steady ship – but they have no business being anywhere near your innovation projects.

The role of finance leaders is to identify the would-be innovators in their finance department. They must then support and provide air-cover for their staff to allow them to innovate.

Innovation tip #3: Think big, start small and embrace failure as the path to innovation.

75% of CFOs believe traditional methods of ROI are unsuitable measures of innovation success. This is because ROI’s do not capture the intangible benefits of digital innovation. CFOs must take a different approach to how projects are created, funded and delivered.

Avoid the “not in my job description” syndrome.

CFOs need people who display a keen awareness of the company, its ambitions and its customers. These “finance innovators” must be aware of the customers mindset. They must have (or acquire) knowledge about emerging technologies. Finally, they need to spend time identifying and brainstorming solutions for process improvement.

Start small. Resist the urge to have the ROI debate.

If your “kick-off” meeting for a new innovative project has 10+ people in the room, you’re doing it wrong. Having identified an opportunity for process improvement:

• Start with a small team of “finance innovators” (as described above); and
• Choose either a small problem or a small piece of a larger problem that can be used to create a proof-of-concept solution.

The next step is to get started. This is harder than it sounds for large companies. People often tell us that asking their CFO for $10k for a PoC is as hard as asking for $500k. Large companies must fight the tendency to expect financial projections from day one for a project. By definition, innovation deals with future scenarios that are hard to read and predict.

Stop attacking failure.

Success is 99% failure. Sochiro Honda, Founder of Honda

In the start-up world, they don’t call it failure. They call it “pivoting”. Instead of a hard stop, companies side-step and shift direction in a fluid motion, all in an attempt to reach an end goal. If finance departments are going to lead innovation for their companies, they too need to embrace this mindset.

Summary

CFOs are now expected to lead the innovation charge for their companies. Within finance departments, leaders and managers must be held to account for innovation. Some key warning signs that finance is stagnating include:

1. High staff turnover – particularly in losing high performers.
2. Over-reliance on an ineffective IT department
3. Staff are kept too-busy with business-as-usual to innovate.

To help foster a culture of innovation within their department, CFOs and finance leaders must:

1. Invest in people, processes and technology with equal weighting.
2. Encourage, support and protect staff who try to innovate.
3. Rethink how projects are identified and funded. Start small and embrace failure.