As large enterprises press to accelerate progress on digital transformation and improve their ability to adapt to pandemic-fueled changes, innovators in these organizations are expected to do more and deliver more to keep pace. How effectively organizations adapt their approaches to quantifying innovation — from imagining the value of an unprecedented customer experience, product, or service, to setting investment budgets and designing business cases — will significantly impact their ability to move with the speed of the market, attract and retain the kind of talent required to enable these efforts, and ultimately to create impact.
In a world of relentless change where surprises have become the norm, maintaining the status quo instead of embracing the coming future — even faintly perceived — feels like the easier path. Disruptive innovations, as well as smaller-but-still-meaningful business model shifts, get downplayed or ignored as a result. Twenty years ago, the internet had its skeptics. Today the debates are regarding artificial intelligence, cryptocurrencies, space tourism, self-driving cars, not to mention the countless small, incremental technological changes that challenge traditional approaches.
The traditional measurement expectations, methodologies, and funding mechanisms used to assess, plan for, and monitor innovations do not account for the uncertainty associated with early-stage opportunities. By their very nature — fiscal year-focused, quantitatively precise, short-term results-oriented, and process-heavy — these approaches instead can unwittingly erode innovations during the phase when they require the most nurturing.
Innovators have leverage to influence finance colleagues to:
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Reframe how to gauge market performance and potential for innovations.
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Set aside traditional financial management approaches not suited to innovation.
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Encourage diversity of thought and a growth mindset to strengthen collaboration.
The reality is that enterprise finance teams are stakeholders to their businesses’ innovation efforts and need to be treated as such by innovation teams. The finance team sets the standards for how to evaluate investments, and then enforce those standards through processes and policies. 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.
How can the finance team become innovation advocates? Where are the opportunities for innovators to tap into 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 resource allocation, measurement, and progress monitoring.
5 Tips to Quantify Innovation Efforts for Corporate Finance Teams
- Don’t 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”
Connect the dots between innovation and what the finance function cares about — business results, execution discipline, control, and managing the downside. Be clear that you are not doing cool stuff for the sake of being cool. Make the effort to help your finance colleagues learn about the innovation disciplines you are using to solve real-world problems faced by your brand’s target users, the potential customers who are seeking to purchase products and services from your company. Show by example why the finance toolkit needs to be adapted for your work. Help to reduce their perceptions of risk by including them in work sessions where they can experience the rigor of the process. Keep them informed proactively about your work. Do not wait until you need their approval or input to reach out.
Focus on building understanding with these colleagues. Understanding contributes to 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 speed of business now and the complexity of customer preferences, there is no substitute for key decision makers and influencers to deepen their empathy for customers’ perspectives. That takes direct engagement.
When opportunities for engagement don’t naturally arise, get creative about how to make them happen. Invite colleagues to attend in-home interviews during ethnographic studies. Encourage attendance at focus groups or spending a day going on sales calls or a few hours in the call center listening to customers and agents. Capture customer sessions on video so they can be shared offline with colleagues. Look for any interactions that let colleagues hear directly from users, customers, and customer-facing employees, understand their perspectives, and gain deeper appreciation for their feelings and motivations.
All purchase 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 purchase decisions will increase alignment between your two worlds.
3. Assess the Company’s Innovation “Bets” as an Overall Portfolio
Look holistically at the organization’s innovation efforts, and array them according to factors such as degree of risk, time to prove scalability, potential magnitude of impact, market size, likelihood of success. Even in the early life of a new concept, a combination of judgment, qualitative and quantitative indicators, and intuition can be applied to assess the health of each initiative and whether the portfolio is well-diversified. Presenting findings and recommendations systematically can launch a strategic dialogue with finance colleagues. What-if scenarios can be debated, and a common understanding of overall direction can be developed.
4. Build Flexibility Into or Around the Annual Planning Process
Innovation doesn’t happen on fiscal year timetables. Establish an off-cycle seed-funding mechanism that enables prototyping and experimentation at the speed and frequency demanded by the market. 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 viable new concept is to apply the precision metrics of a mature business to determine its worth. Start measuring by identifying what you believe the likely drivers of the business model are: the revenue, expense, and capital requirement line items. Use judgment based on 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, minimally over weeks, months, or quarters, and will lead towards sensible quantitative assumptions.
Look holistically at the organization’s innovation efforts, and array them according to factors such as degree of risk, time to prove scalability, potential magnitude of impact, market size, likelihood of success.
For their part, enterprise finance professionals are being challenged to become more proactive strategic advisors helping to guide their businesses through an environment where innovation is significant to 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 shift to measurement standards and flexible processes aligned to the reality of how innovations are discovered, nurtured, and developed.
