The Uncommonly
Pragmatic Blog

“[The] Internet ‘may be just a passing fad as millions give up on it.”

While this headline appeared in a December 2000 issue of the UK-based tabloid The Daily Mail, it is nonetheless a reminder of how easy it is to discount a future that seems unimaginable. Disruptive innovations and smaller but still meaningful business model shifts are downplayed or ignored as a result. Twenty years ago, the internet had its skeptics. Today, the debates are regarding artificial intelligence, cryptocurrencies, space tourism, and self-driving cars.

Adding to this challenge, traditional measurement expectations, methodologies, and funding mechanisms set by enterprise finance teams to assess, plan for, and monitor innovations do not account for the uncertainty associated with early-stage opportunities. By their nature—fiscal-year focused, quantitatively precise, short-term results-oriented, deliberately linear—these approaches can erode innovations when they require nurturing instead.

The reality is that enterprise finance teams are stakeholders in businesses’ innovation efforts. Winning them over as advocates can determine whether a pilot is funded or an agreement to support a partnership deal makes it into the budget.

By adopting new practices and fit-for-purpose tools and methods, and by embracing a growth mindset, finance experts can become innovation advocates, adding value to business model development, test evaluations, and investment strategies.

Innovators have the leverage to influence finance colleagues to:

• Reframe how to gauge market performance and potential for innovations.

• Set aside traditional financial management approaches not suited to innovation.

• Encourage diversity of thought and a growth mindset to strengthen collaboration.

Finance leaders recognize how important innovation is to business’s future.

How can the finance team become innovation advocates? Where are the opportunities for innovators to tap into their skills and authority?

Start by using one of innovators’ favorite techniques—reframing—to challenge business-as-usual characterizations of the enterprise finance team. Then, apply the five tactics that follow to introduce fit-for-purpose methods for resource allocation, measurement, and management.

1. Connect the dots between innovation and what the CFO cares about: results, execution, discipline, control, and managing downside. Don’t assume a common understanding of what is meant by “innovation.”  Be clear that you are not doing cool stuff for the sake of it. Share the innovation disciplines you are using to find, prototype, and validate viable solutions to real-world problems faced by your brand’s target users.

The point is, build understanding. Understanding seeds trust. Trust relationships enable authentic collaborations that inspire advocacy.

2. Create opportunities for finance colleagues to get direct exposure to users and customers. Face time with users and customers should not be the exclusive domain of marketing, product development, or sales. Getting a copy of the research report or reviewing the customer satisfaction dashboard may have been ok in the past, but given the speed of business today and the nuances of customer preferences, there is no substitute for face time to help key decision-makers and influencers deepen their empathy for customers’ perspectives. That takes direct engagement.

When these opportunities are not built into your routines, be creative about how to make them happen. Invite colleagues to attend in-home interviews during ethnographic studies. Encourage attendance at focus groups or spend a day going on sales calls or listening in the call center. Look for interactions that let colleagues hear directly from users, customers, and customer-facing employees to better understand their perspectives and gain deeper appreciation for their feelings and motivations.

3. Assess the business’ innovation “bets” using a portfolio diversification framework. Look holistically at the organization’s innovation efforts and arrange them according to factors such as degree of risk, time to prove scalability, potential magnitude of impact, market size, and likelihood of success. Even in the early life of a concept,  judgment, qualitative and quantitative indicators, and intuition can be applied to assess the health of each initiative. Presenting findings and recommendations can launch a strategic dialog with finance colleagues. “What if” scenarios can be debated and a common understanding of overall direction can be developed.

4. Find ways to build flexibility into the annual planning process. Innovation doesn’t happen according to fiscal year timetables. Establish an off-cycle, seed-funding mechanism to fund prototyping and experimentation at the speed and frequency demanded by the market. Keep requests small. Take lessons from models for venture funding governance. 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 sure-fire way to kill a new concept is to apply the precision metrics of a mature business to determine its worth. Instead, start by identifying what you believe the likely drivers of the business model are: revenue, expense, and capital requirement line items. Apply alpha and beta test results and user feedback to assign qualitative values to each line item: “high,” “medium,” or “low” guesstimates are appropriate for starters. Clearly communicate that in-market experimentation, ongoing user and buyer feedback, and deepening understanding of operational requirements will be acquired iteratively over weeks, months, or quarters, and will lead toward sensible quantitative assumptions.

For their part, enterprise finance professionals are being challenged to become more proactive, strategic advisors who help their businesses navigate an environment in which innovation is key to future success. Innovators can treat 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 shift to measurement standards and flexible processes to align with the way innovations are discovered, nurtured, and developed.