5 Ways Accountants Can ContributeTo Innovation

5 Ways Accountants Can ContributeTo Innovation

Let’s add another skill to the expanding role of the CFO: Innovation catalyst. Research from CIMA (the Chartered Institute of Management Accountants) and the American Institute of CPAs (AICPA) has found that management accountants, led by CFOs, play a vital role in driving advancements at some of the world’s most innovative companies.

Based on interviews with global finance leaders at companies including Coca-Cola, Royal Dutch Shell and BT Group, the research, published in the new Chartered Global Management Accountant (CGMA) report “Managing Innovation: Harnessing the power of finance,” concludes that CFOs and finance teams are deeply embedded in the process of innovation and have a clear framework to let new ideas take shape.

“A finance function needs to be able to understand the business well enough to know what is a worthwhile activity but also, in this part of the business, to have a bit more of an open mind,” says Royal Dutch Shell CFO Simon Henry. “It is less mechanistic and has the ability to live with ambiguity, to identify risk and to manage it.”

Says Samantha Louis, regional director of CIMA Africa: “There’s an art to innovation but there needs to be some science that goes with that: understanding the forward-looking side of strategy, being able to scope the opportunity. In all these areas, the management accountant is really critical. Whether it’s a new product, process or business model, the management accountant can help assess the results, evaluate how things have gone and learn lessons.”

“Innovation is vital, but it isn’t easy. It is disruptive to an existing business, uncertain in its outcomes, and requires a strong appetite for risk. While CFOs are not expected to be originators of breakthrough innovation, they do need to create an environment that ensures great ideas are spotted, encouraged, financed and delivered; balancing the risk, while commercialising an innovation, is the real challenge for CFOs today.”

It is clear from the research that the most successful companies work to create an innovation-centric mindset, putting this at the heart of the business and fostering a culture where ideas can flourish. Here are five areas where finance professionals should take action:

1. Create an innovation-centric mindset

Finance needs to transform itself into a business partner that can help innovation teams succeed. Promoting an innovative culture throughout the organisation, where thinking goes beyond the status quo, can deliver tangible results and enhance competitive advantage. Do this by developing a framework in which innovation can thrive and accept that sometimes projects will fail.

2. Nurture creativity

There can be a clash of cultures between those responsible for coming up with ideas and the finance professionals, particularly when early-stage ideas are prematurely tested against traditional finance metrics. More sympathetic approaches can help, such as the creation of ring fenced budgets with more relaxed criteria for early-stage innovations. Finance must learn to work in an environment where uncertainty is part of the process.

3. Prepare the path to profits

Being able to find the path to profits when an innovation moves forward to implementation is a key capability of management accountants. Building cash flow models, advising on financing, understanding costs and allocating resources are ways in which management accountants can bring rigour to commercialisation of ideas.

4. Match metrics to the stage of development

Companies must be aware of the danger of trying to apply operational metrics to early-stage innovations. A staged approach to measurement allows an innovative idea room to breathe. Finance can contribute to this by creating stage-gates for innovation where the idea can be challenged and refined to prepare it for the next stage of investment.

5. Take a balanced view on innovation risk

Companies increasingly employ a portfolio of strategies to drive innovation. Management accountants should seek to create an opportunity framework that promotes clarity, transparency and discipline across the total innovation portfolio. Companies which excel in this portfolio management are often the most successful businesses in the world.

SOURCE: www.leader.co.za

 

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