CFOs and finance teams play an increasing role in enterprise innovation, but the truth is that not all are set to take on the job. Why is innovation such a critical area for finance folks to be thinking about?
Most companies view innovation as essential to survival. But without the right leadership and direction from finance, enterprise innovation plans inevitably fall flat or divert precious resources away from worthy projects. Supporting innovation is one of the new challenges for finance, but one that is important for CFOs and their finance teams to get right.
A new survey of 236 U.S. senior finance executives conducted by CFO Research, in collaboration with HSBC, assessed how much progress enterprises have made in this area and where they still needed to improve.
The survey showed that many organizations have made significant strides in supporting innovation, while others are still in the nascent stages. This latter group will have to evolve finance’s skills for their organizations to get full value from finance’s participation in this mission. For example, without the function’s help, decision-makers outside finance won’t have the data they need to drive innovation that is profitable.
Progress has been made, though. For example, slightly more than half (55%) of the finance executives surveyed said their organization applied advanced analytics to enterprise innovation decisions. About the same proportion (57%) had a strategy for defining and creating a high-value finance team that could support innovation initiatives. On the other hand, though, 42% of finance executives said they either had no plan to formulate such a strategy or had plans to do so but had yet to execute them.
Fortunately, the survey found, finance executives have a solid platform from which to attack this problem: for one, they are confident that they possess the relationship and leadership skills to accomplish innovation-related objectives; second, they recognize finance’s shortcomings—that they must adjust their teams’ skill sets as well as their own to be supportive of innovation.
The survey revealed strong backing for these necessary changes in the finance function. Nearly nine out of 10 finance executives “agreed” or “strongly agreed” that their teams’ skill sets must evolve to drive an innovation agenda and support the related decision-making. More than three-quarters (78%), meanwhile, said they must update their own skillset over the next year to become a key player in innovation strategies.
What does evolving the finance department’s skillset require? Two-thirds (67%) of finance executives felt they needed to adapt hiring and training processes over the next year. Part of innovation, of course, is establishing a strong innovation-friendly culture. To create the right culture on the finance team, finance executives are seeking candidates with diverse backgrounds, intellectual curiosity, and the ability to work in a team environment. But they also want people who have data management and predictive modeling skills, performance management experience, and soft skills in business partnering and leadership.
Fortunately, many finance chiefs won’t have to fight for a say in their company’s innovation agenda, because they are increasingly becoming key stakeholders in the determination and development of enterprise innovation and growth strategies.
More than nine out of 10 (93%) senior finance executives surveyed said they had a seat at the table where growth and innovation strategies were discussed. And more than eight in 10 (83%) said they were prepared to play key roles in both determining and executing enterprise initiatives.
What kinds of roles are CFOs currently playing in innovation strategies? A large number (86%) said they played a strong role in managing the enterprise risk that accompanies growth and innovation. In addition, 80% said that a critical responsibility was choosing and managing funding mechanisms. Finance executives also indicated they were making progress supporting innovation by working directly with research and development departments and information technology functions.
Is there anything holding CFOs back from providing direction to innovation?
CFOs are generally comfortable with analyzing information about innovation and growth, as well as taking on many of the tasks that support the enterprise’s objectives in those areas.
The functions within finance that inform a CFO’s point of view on innovation and growth decisions are relatively traditional. Within finance, information and data on innovation efforts mostly come from the financial planning and analysis (FP&A) and budgeting and forecasting functions. (See Figure 1.) Outside of the finance team, CFOs rely most on the strategic planning function and members of the C-suite. (See Figure 2.)
Importantly, the survey confirmed that while more than three-quarters of CFOs were at least somewhat comfortable with a long list of innovation-related tasks and roles, they weren’t comfortable with all of them.
Not surprisingly, CFOs are most at ease basing innovation recommendations on advanced data analysis, and sharing data and analysis on innovation with business leaders enterprise-wide. They are also largely comfortable connecting with customers to inform strategic decisions.
They are least comfortable engaging C-suite peers on critical strategic and innovation decisions, taking an outside-in view of the enterprise, and questioning enterprise decisions that are made without an analytical assessment.
In general, though, CFOs and other senior finance executives seem sure in their abilities to overcome that first hurdle of engaging peers: 85% said they had the change management and communication skills needed to do the job. A similar proportion indicated they had expanded and strengthened relationships with business leaders across the enterprise over the last two years—a definite plus in the aim to be influencers in enterprise innovation initiatives.
With data analytics, finance’s contribution to innovation strategies and decisions is unique: it can ask what problems operations needs to solve. If the data is available, finance can take an analytical approach, without preconceived notions, and test 20 or 50 variables to find out what truly drives the problem before figuring out the solution.
Still, there is much work to be done. CFOs who have focused on enterprise innovation and been successful at it recommend that their peers take a hard look at their finance teams’ skills and experience, along with how team members are deployed. That will be essential as finance strives to support innovation initiatives with the resources and data-driven decision-making critical to any effort’s success.