Innovators, Use These 5 Tips to Win Business Finance
As large enterprises strive to accelerate digital transformation progress and improve their ability to adapt to pandemic-fueled changes, innovators in these organizations should do more and deliver more to keep pace. How effectively organizations adapt their approaches to quantifying innovation — from imagining the value of an unparalleled customer experience, product or service to establishing capital budgets and designing business cases — will have a significant impact on their ability to move with the speed of the market, attract and retain the kind of talent required to enable these efforts, and ultimately create impact.
In a world of constant change where surprises have become the norm, maintaining the status quo instead of embracing the future ahead — even weakly perceived — feels like the easiest path. Disruptive innovations, as well as smaller but still significant business model changes, are consequently minimized or ignored. Twenty years ago, the Internet had its skeptics. Today, the debates are about artificial intelligence, cryptocurrencies, space tourism, self-driving cars, not to mention the countless small incremental technological changes that challenge traditional approaches.
Traditional measurement expectations, methodologies, and funding mechanisms used to assess, plan, and monitor innovations fail to account for the uncertainty associated with early-stage opportunities. By their very nature — Fiscal Year Focused, Quantitatively Accurate, Short Term Results Focused and Process Driven — instead, these approaches can unintentionally erode innovations during the phase when they need the most attention.
Innovators have leverage to influence their colleagues in finance to:
Reframe how to assess market performance and innovation potential.
Put aside traditional financial management methods that are not adapted to innovation.
Encourage diversity of thought and a growth mindset to strengthen collaboration.
The reality is that corporate finance teams are stakeholders in their company’s innovation efforts and should be treated as such by innovation teams. The finance team sets the standards for evaluating investments and then enforces those standards through processes and policies. Winning them as advocates can determine whether a pilot project is funded or whether a deal to support a partnership deal is in the budget.
How can the finance team become an advocate for innovation? What are the opportunities for innovators to leverage their skills and authority to communicate the value they bring to the business in terms finance teams can appreciate?
Start by using a familiar innovator’s tool, reframing, to challenge your own beliefs about your finance colleagues. Then apply these five tactics for allocating resources, measuring and tracking progress.
5 tips for quantifying the innovation efforts of corporate finance teams
- Do not assume a common understanding of what is meant by ‘innovation’.
- Create opportunities for finance colleagues to engage more directly with users and customers.
- Assess the company’s innovation “bets” as an overall portfolio.
- Build flexibility into or around the annual planning process.
- Set expectations that measurement systems for early-stage innovations are different.
1. Don’t assume a common understanding of what is meant by “innovation”
Make the connection between innovation and what concerns the finance function: business results, execution discipline, control and downside management. Be clear that you’re not doing cool stuff to be cool. Make the effort to help your finance colleagues discover the innovation disciplines you use to solve real-world problems faced by your target brand users, potential customers looking to buy products and services from your business. Show for example why the financial toolkit should be adapted to your work. Help reduce their perception of risk by including them in work sessions where they can experience the rigor of the process. Proactively keep them informed of your work. Don’t wait until you need their approval or input to contact them.
Focus on building understanding with these colleagues. Understanding builds trust. Trust in relationships enables authentic collaborations that inspire advocacy.
2. Create opportunities for finance colleagues to engage more directly with users and customers
Facetime with users and customers should not be the exclusive domain of marketing, branding, product development or sales. Given the current speed of business and the complexity of customer preferences, there is no substitute for key decision makers and influencers to deepen their empathy for customer perspectives. It requires direct engagement.
When engagement opportunities don’t come naturally, get creative to make them happen. Invite colleagues to attend home interviews during ethnographic studies. Encourage participation in focus groups or spend a day making sales calls or a few hours in the call center listening to customers and agents. Capture client sessions on video so they can be shared offline with colleagues. Look for all interactions that allow colleagues to hear users, customers, and customer-facing employees directly, understand their perspectives, and better appreciate their feelings and motivations.
All purchasing decisions, B2B and B2C, are driven by a combination of emotional and rational needs. Creating opportunities for your finance colleagues to develop greater empathy for how people make purchasing decisions will increase the alignment between your two worlds.
3. Assess the company’s innovation “bets” as a whole portfolio
Look holistically at the organization’s innovation efforts and rank them based on factors such as degree of risk, time to prove scalability, potential scale of impact, market size , the probability of success. Even early in the life of a new concept, a combination of judgement, qualitative and quantitative indicators, and intuition can be applied to assess the health of each initiative and whether the portfolio is well diversified. Systematically presenting findings and recommendations can initiate a strategic dialogue with finance colleagues. What-if scenarios can be discussed and a common understanding of the general direction can be developed.
4. Build flexibility into or around the annual planning process
Innovation does not happen on fiscal year calendars. Establish an off-cycle seed funding mechanism that enables prototyping and experimentation at the speed and frequency demanded by the market. Learn from venture capital funding governance models. Plan to include all members of the C suite in the process.
5. Set expectations that measurement systems for early-stage innovations are different
A surefire way to kill a viable new concept is to apply the precision measures of a mature business to determine its value. Start measuring by identifying what you think are the likely drivers of the business model: revenue, expense, and capital requirements. Use your judgment based on alpha and beta test results and user feedback to assign qualitative values to each line item — “high”, “medium” or “low” estimates are suitable for beginners. Communicate clearly that market experimentation, ongoing user and buyer feedback, and deepening understanding of operational requirements will be gained iteratively, at a minimum over weeks, months, or quarters, and will lead to reasonable quantitative assumptions.
Look holistically at the organization’s innovation efforts and rank them based on factors such as degree of risk, time to prove scalability, potential scale of impact, market size , the probability of success.
For their part, corporate finance professionals are challenged to become more proactive strategic advisors helping to guide their businesses in an environment where innovation is important for future success. Innovators can seize this trend as an opportunity to reframe their relationship with the finance team. They can help these colleagues deepen their understanding of customer needs and how they connect to innovation priorities. They can take the initiative to move to measurement standards and flexible processes aligned with the reality of how innovations are discovered, nurtured and developed.
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