A company’s success — or indeed its very survival — increasingly depends on its ability to drive change and innovate at pace. Yet most organizations aren’t equipped to do this. At one extreme, organizations micro-manage innovation with rigid processes and metrics. At the other extreme, companies treat innovation as an art, operating with the philosophy that creativity shouldn’t be constrained.
Either approach ultimately yields the same result: diminished or non-existent returns on R&D – an intolerable result for any finance director. But CFOs and finance directors have among the most powerful roles in breaking this cycle of no return by applying and advocating for an approach I call “disciplined innovation.”
Disciplined innovation increases the likelihood of achieving breakthroughs because it creates the right conditions for innovation to flourish. It has three key components, starting with a determination to achieve a bold new capability — think engineering the lightbulb instead of designing a better candle. Many innovations are a 2.0, and while there are a time and place for incremental innovations, new breakthrough capabilities are today’s game-changers.
Second, innovation requires fixed timeframes and budgets. Smart financial constraints and deadlines don’t impede creativity, they impel creativity by creating a sense of urgency and focus. The third element is where the CFO plays a vital role: operating with independence. This means creating measured freedom from business-as-usual rules, especially when it comes to reporting, hiring, and contracting. This is key to making breakthroughs happen.
Before I sound too sacrilegious, I’m not saying all rules need to be relaxed. Standard operating procedures like procurement have well-intentioned safeguards against risk. But when you consider all the elements that must align to bring a new invention to life — from talent to market opportunity to capital — it’s imperative for businesses to move fast and be able to strike at the right time. Waiting several months for a competitive bidding process to award a contract just isn’t an option.
CFOs have an immense lever to empower and encourage innovation by understanding which rules to relax and how to relax them. Some of the best finance directors I’ve worked with have taken some of the following key steps that paved the way for big breakthroughs. And in the process went from people who said “no,” to saying “this is what we can do.”
Streamline financial control and reporting. Innovation isn’t a linear process and new discoveries often mean that money allocated for one workstream needs to shift to another. I’ve seen so much time wasted in multiple meetings justifying this shift to multiple stakeholders. As long as the project stays within scope, additional reporting or controls on expenditures detracts from the mission at hand. Relaxing some of those reporting constraints is a relatively simple step a CFO can take that can empower an organization to be far more agile while still guarding against risk.
CFOs have an immense lever to empower and encourage innovation by understanding which rules to relax and how to relax them.
Take a new approach to talent. Convention has us think about hiring people for the long-term. But innovators often want to come in to effect change on an exciting project and move on, either to another organization or another project. So, instead of thinking about a long-term salary and benefits, finance and HR can work together to attract top technical talent with a sign-on bonus and incentivize them via a performance or exit bonus when they achieve the project’s goal. It’s also critical to be open to subcontracting to be able to move at pace. Waiting several weeks for a search to hire a specific expertise in-house can kill innovation when a subcontractor can get a job done within a week.
Take a fresh look at contracts. Acting at speed requires a greater degree of outside partnering, bounded by shorter, simpler, and mutually fair contracts that can be executed quickly. For example, at Draper, lengthier contracts needed for defense work just aren’t practical for private-sector projects. So, we created a shorter development services agreement, which has a more flexible approach to intellectual property ownership and indemnification while still protecting against risk. This is vital because if a project has a two-year deadline, waiting nine months to lock in a contract is going to doom the project to failure.
Incubate and insulate. Freedom from business-as-usual rules sometimes requires creating specific innovation activities within a company. One way we do this at Draper is through our internal research and development program, which is where teams compete to get funding for game-changing innovation projects. Each project lasts for a discrete timeframe and has a fixed budget. They operate with independence. The finance team and I check in with the group every six months to review progress and offer guidance.
The most important thing leaders can do is give people the right resources and remove the obstacles that allow them to innovate. As you assess business-as-usual rules within your organization, perhaps one guiding question can help: Is this a governance issue, or simply the way we’ve always done things? If it’s the latter, you’re likely looking at an area you can unlock to increase the pace of innovation for your business and further differentiate your products, services, and company.
Ken Gabriel is President and CEO of Draper Labs, an MIT spin-off engineering solutions company, famed for developing the Apollo guidance computer and continuing its tradition of cutting-edge innovations in numerous fields, including precision medicine. Before joining Draper, Gabriel co-founded the Advanced Technology and Projects (ATAP) group at Google; prior to this, he was Deputy and Acting Director of the Defense Advanced Research Projects Agency (DARPA) in the U.S. Department of Defense.