Academic journal article Journal of Accountancy

Finance's Role in Fostering Innovation

Academic journal article Journal of Accountancy

Finance's Role in Fostering Innovation

Article excerpt

The finance function is rarely expected to be the originator of a breakthrough product or technology. But it has an important role in ensuring that great ideas are spotted, encouraged, financed, and delivered efficiently to the market.

"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," Royal Dutch Shell CFO Simon Henry, CGMA, explains in the CGMA report Managing Innovation: Harnessing the Power of Finance. "It is less mechanistic and has the ability to live with ambiguity, to identify risk, and to manage it."

Achieving balance between a company's creative desires and its needs for fiscal responsibility can be difficult, but it's not impossible. Here are a few ways finance teams can be successful innovation partners:

Create an innovation mindset. Successful companies put innovation at the heart of their business, fostering a culture in which ideas are allowed to flourish. The CEO must set the vision, and the CFO has a vital role in setting the framework through which innovation can thrive. The innovation culture must then permeate every layer of the organization. It can be promoted through employee incentive schemes, for example. Senior managers also need to accept that individual projects may fail if the overall strategy is to succeed something that can be anathema to finance professionals steeped in the art of risk mitigation.

Nurture creativity. There can be a clash of cultures between those responsible for coming up with ideas and those who are the guardians of financial integrity and rigor. After all, operational excellence is usually driven by predictability, reliability, and standardization. But promoting innovation requires a high tolerance for uncertainty, ambiguity, and change. Companies need to adapt their financial processes and metrics to the specific needs of the operational business and the innovation pipeline. Finance can help by protecting early-stage ideas from premature testing against traditional financial metrics or, for example, by creating ring-fenced budgets with more relaxed criteria for earlystage innovations. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.