CFOs are being urged to step outside their familiar finance training background and be more “innovative” if they want to be CEOs. Otherwise, they risk having their pathway to the chief role closed to them.
While the word “innovation” is not new, it seems in its current manifestation, we can’t get enough of it.
Businesses regularly use it to claim that they are at the cutting edge of their industry. But whatever avenue the innovative mind takes, the outcome sought is more efficient work processes and better productivity and performance.
In this environment, innovation is not just about finance, although it is a critical element. So what role can CFOs play to support a business that wants to implement new ideas, create dynamic products or improve existing services? First, it requires a different attitude to running the business on the part of the CFO.
In his checklist of how CFOs can be innovative, David Mackenzie, Managing Director of strategy delivery firm, Mackenzie and Noble, first advises them to try to be less conservative and more open to risk taking.
Moreover, if the goal is to take a leadership role in the innovation process, then understanding the whole business is essential.
“CFOs need to understand all the levers of an organisation’s business model and not just be excused to play as a specialist in finance,” Kimberley Reynolds, a consultant in organisational improvement says.
Understanding the big picture is critical, but so is knowing which questions to ask. For instance, if the “lever” is strategic human resources, the question might be whether or not a new organisational structure is essential to drive growth.
It can also be an advance in digital technology that can shatter the old way of creating value for the business; in which case, how does the business respond?
Consider other levers such as the underlying drivers of sales: Which products are successful and why? How does customer behaviour affect the business? What developments in the market present opportunities or threats to the innovation strategy? How does the business navigate potential ventures based on fit, rather than just finances?
For a CFO with broad business experience that goes beyond finance, such questions might come easily. For those totally finance focused, it can be a struggle. Hence, consultants like Reynolds advise accounting and finance graduates to work in different parts of an organisation, not just the finance area. Mackenzie observes that some accounting firms have successfully developed potential CFOs with a more strategic outlook by recruiting graduates and lateral hires from non-accounting backgrounds.
Where the experience can’t be acquired in a reasonable time frame, the option can be to access the latest thinking on innovation from sources outside the business.
For example, many organisations have introduced “design thinking” to their staff. Evolving from the notion of design as a way of thinking in the sciences, design thinking was adapted for business purposes when US-based design and consulting firm, IDEO (Innovation, Design Engineering Organization) was founded in 1991. IDEO uses the methodology to design products, services, environments and digital experiences.
Moreover, various publications such as Warren Berger’s A More Beautiful Question can help CFOs who want to broaden their outlook. As Berger writes in his book, “the real point is to begin to train the mind to think differently when confronted with a problem or a challenge.”
Among the tips for playing a role in innovation strategy, CFOs are advised to demand options and scenario-based thinking such as what-if scenario analysis. Business planning and modelling techniques like these create various projections for an outcome.
They selectively change inputs to produce more robust decisions that are not necessarily financial. By asking more questions, CFOs can delve deeper and pull together threads from across the organisation.
For example, in a CFOs’ mergers and acquisition role, such questioning enables them to be strategic rather than tactical.
“Are certain parts of the business moving fast enough in the current environment or do we need to acquire a new business? Or if parts of the business are stale, do we put them up for sale?” Reynolds says.
Understanding the inner workings of the whole organisation is a given for the would-be innovative CFOs, but their focus should not be only internal. Reynolds advises them to establish networks that include contacts who do not just work in the finance sector.
“If you want to be innovative, you develop networks so you can walk in another person’s shoes and create new solutions,” Reynolds continues.
No-one is suggesting that leading the innovative process is easy for a CFO. As an executive coach who has worked with many CFOs, Mackenzie has found that they often struggle to be innovative as the conservatism of their specialist training can tend to the protection of an organisation’s financial situation, rather than increase any risk.
Nevertheless, if they take a leadership role in building an innovation strategy, CFOs can push the boundaries of others within their organisation to drive innovation and not let the market overtake them. And by advising on all facets of the business, in effect, CFOs become understudies to the CEO.