Innovation in the Finance Function
Compared to other organizational functions such as Sales, Marketing and Supply Chain, the Finance function is often lagging behind when it comes to embracing innovation.
In today’s era of disruption and rapid technological advancement, the only way CFOs and Finance teams can ensure sustained relevance and create value across the enterprise is through innovation and reinventing themselves regularly.
Although companies have been innovating for years, these days the word innovation has become a cliche used to describe new, shiny feature-rich products, services, markets or breakthrough ideas.
According to the late Harvard Business School Professor, Clayton Christensen:
While all those are certainly characteristics of innovations, they are less helpful when trying to understand how companies and nations can organize themselves in ways that can truly foster growth.
Innovation is a change in the process by which an organization transforms labor, capital, materials, or information into products and services of greater value.
Applied to the Finance function, innovation is the process by which CFOs transform the function’s operating model, processes, talent, culture, and systems to eliminate inefficiencies, generate better insights about the business, and improve enterprise value.
Unfortunately, this change does not come about at the mere flip of a switch. In other words, transforming Finance from the traditional scorekeeper role, into a more strategic value enabler is more than an ideas game. A solid foundation is critical to build upon, as this article, Innovation Can’t Thrive Without These Fundamentals in Place, explains.
It’s easy to envision the future Finance function, but ideas are only ideas unless they are communicated across the enterprise and effectively executed through a well-crafted plan of action.
Failing is just part of the journey and a step toward figuring things out
New tools, systems and operating models continue to alter the way CFOs and their teams perform their tasks. For instance, advanced data analytical tools are enabling finance teams to collect, aggregate, analyze and generate actionable business performance insights from large data sets.
The challenge: even though CFOs are acutely aware of the need to imbue their departments with digital and analytical capabilities, quite a number are too afraid of making mistakes so they are shelving investments to avoid errors.
In some cases, most of them have also started figuring out what they need to do, but because they lack clarity on how to do so, and have heard stories about failed experiences at other organization, the innovative ideas are shelved too.
A thoughtful strategy is, of course, critical to success in nearly any business endeavor, and data and analytics initiatives are no different. However, just because other companies or your company have tested the idea before and it didn’t work should not blind you to the possibilities of the future.
Failing while moving forward at the same time is better than playing it safe. Rather than embark on a sweeping digital transformation from top down, start with use case pilots that will ultimately build into a tidal wave of change.
Create the environment
The widely held belief that leaders need to be experts and have all the solutions is incorrect. Am I therefore advocating for dumb leaders? No, great leaders understand their strengths and weaknesses.
They understand the difference between knowing and learning, and most importantly, make it a point to surround themselves with individuals and teams whose strengths complement their weaknesses.
In order to drive innovation in the Finance function, CFOs should create an environment that champions ideas, leverages strengths, organizes desired behaviours, rewards intelligent and informed risk-taking and celebrate failures. This short article with lessons from Roger Martin’s The Design of Business: Why Design Thinking is the Next Competitive Advantage identifies ways to create an innovative environment, Applying Design Thinking to Finance.
Today, companies that are attracting and retaining the best employees are able to do so simply through empowering them to experiment with new ideas and focus more on engaging and meaningful work, in a lower stress environment, with a transparent reward system that makes sense.
Thus, it’s important as a Finance leader to get the message across to your team that failure is part of success in order to free the members from the innovation-limiting shackles of perfection.
Most successful initiatives follow the pattern that looks like this: try, fail, learn; try, fail, learn; try, succeed, repeat. You need to make this okay and let your team know that the real failure is fear of launching an idea until it is perfect.
You can’t read the label when you are sitting inside the jar
“But we have always done it this way” is one of the other obstacles to successful innovation in the Finance function. We get so used to doing our work in particular way that we become blinded to better ways of doing so.
In an era where collaboration between companies and business stakeholders is becoming a common practice, adopting both an inside-out and outside-in approach to innovation is essential.
This requires us to step back from our current standing position in order to connect the dots and gain context. We can achieve this through engaging non-finance teams across the organization, listening to their voice on the changes required and implementing the necessary changes. Here is a tool that has been designed specifically for this purpose, A Guide to Financial Process Redesign.
Also involves forging connections for knowledge and ideation with experts around the world from outside the organization to create game-changing products and services.
Building an innovative and successful Finance function requires not only a mindset shift, but also execution and continuous iteration of ideas. Never be satisfied with the status quo, always question why you do it that way and figure out ways of how you can do your job better.
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