Why The Chief Financial Officer Must Lead Organizational Innovation

Click on the image to download a .pdf of this article as published in the Strategic CFO Magazine July 2016

My research over the last decades shows organizations have spent substantial sums on building creativity and innovation capabilities, motivating employees to participate, only to see their innovation investment come to very little. Organizational anecdotes abound about exciting ideas with strong leadership support reaching the point of final decision making only to see them blocked for a whole series of reasons - personal and organizational risk aversion, political agendas, weak and indecisive leadership. IT departments called upon to facilitate innovation as a way of saving costs struggle with stultifying technological infrastructure along with the other 100 projects they are currently building and the rhetoric of the continual improvement acolytes ensuring organizations maintain their business as usual approach. The list for "why not" is endless.

My observations suggest there is another less obvious reason.  Innovation in many instances fails not because of any lack of intention rather there is a very vital and important element missing from the discussion - the financial leader. In other words, the elephant simply is not in the room.

Here are three practical examples that bought me to this conclusion.

The Creative Skills of the Chief Financial Officer.

4 years ago I was asked to run an introductory workshop for a small group of CFOs (12)  from major public companies on creative leadership and organizational creativity. "We are not creative and it is not our role to be"  were the opening comments, perfectly capturing the sentiment in the room - hardly an encouraging start. It was only after one of the CFO's began to talk about his recent role assisting the CEO in an acquisition, the door way to perception opened to reveal the level, power and importance of creativity a CFO brings to his role in an organization

The story told went something like this. Mr CEO would be travelling on the plane, playing golf with his peers, attending a discrete charity cocktail party when one of his mates would say. " I know you've been interested in the agribusiness for a while. Did you hear Food For Sale might be up for sale?" Mr CEO is indeed interested in this news and immediately texts his CFO asking him to have a look at the figures.

Now here is where it becomes interesting. Before due diligence on any sale can commence, the CFO has to engage with the business for sale to discover how it works. He has to use his imagination to visualise how it operates without actually working in it. The CFO talks to his counterpart bringing his financial experience and knowledge to his visualisation to make sense of the numbers. A crucial process that will have a powerful immediate, medium and long term effect on the success of the CEO's leadership.

When I stopped the CFO at this point and quizzed him on his use of the word "imagination", there was general agreement amongst the CFOs in the workshop they use their imagination in many  contexts like this almost on a daily basis.

From this workshop I began to see the importance of the CFO as a creative figure in the organization. Their skills and experience with numbers allows them to look at an organizational scenario from a very different perspective to almost anyone else in the organization. However, because of where the CFO sits in the organizational pecking order it is not often the CFO will engage in creative exercises yet of all the individuals in an organization his voice is one of the most important when it comes to envisaging the potential business and commercial outcomes.  

What could happen if the CFO was placed in charge of innovation?

One of the world's largest publicly listed multinational property and infrastructure companies decided to explore the concept of innovation. The company is highly regarded globally as an innovator. Its engineers have designed and built some of the world's most demanding 21st Century infrastructure. The challenge the senior leadership set itself was to transfer the innovation thinking and capability as exemplified in its design and construction into and across the entire operating entity - to make the operating entity itself innovative and the CFO, along with his direct report, the COO were appointed to lead this transformation.

The CFO chose to launch this initiative at the internal 3 day International Financial Leaders Conference. Attended by the organization's 100 global financial leaders, the conference programme began by introducing the concept of innovation, in the process challenging the leaders to increase revenue by $5million and to save $5million within the finance department operations globally - an overall contribution to the financial global budget of $10million.

The 100 global financial leaders divided into teams of ten for the $10million Challenge as it now became known. 10 of the senior financial leaders spent half a day being introduced to the processes and practices of creative leadership and management innovation with the understanding they would act as challenge team leaders facilitating the creative thinking around the challenge in their teams the next day.

The 3 hour long $10million Challenge workshop combined live and on-line idea facilitation using Ideascale, a software ideation platform, with the participants' ideas being projected on a screen at the head of the room in real time.  The participants formed ten teams of 10 and the session involved three 20 minute rounds of brainstorming. In the first round, each team had to submit 5 ideas for savings, in the second round 5 ideas for revenue generation. The 9 teams rated the ideas submitted 1 out of 5. The team submitting the ideas could not vote for itself. In the third round,  each team was asked to develop the idea that was voted best by the other teams. The workshop concluded with the voting and selection of the best overall revenue and savings generation ideas.  

The exercise was an extraordinary success. Ideas emerged adding $250million to revenue and cost savings of $10million emerged. At the end of the workshop, the CFO shocked the leaders by announcing a bonus of $10,000 each to the teams whose revenue and savings ideas won, once their ideas had been implemented.

How is this different from any other ideation session I might have run in an organization?

I have not experienced a group of leading financial executives from one company in important strategic or tactical ideation sessions previously. Yet the CFO and his immediate senior reports are the ones with the total organizational financial budget at their fingertips. The CFO needs an understanding of how the business is operating daily, weekly, monthly, annually, what has made money, what has failed financially from a business perspective and is employed to prioritise and maintain fiscal probity and balance. When it comes to a new initiative, their responsibility is to question its importance, to value and validate it, to ensure proper commercial governance practices are adhered to and to make a conscious effort to reduce risk - all from a financial management perspective.  They are the ones in the organization where innovation and the ideas associated with it are often impeded - often for good reasons.

However, when the finance leaders group was flipped on its traditional decision making head, challenged to become innovators, the innate entrepreneurial skills CFO's keep submerged and guarded, were suddenly unleashed. This unleashing though came in a very disciplined manner. You could hear each team discuss the idea using their financial skills to apply the numbers first - to give the idea a value from its very conceptualisation. Suddenly the finance teams were owning ideas because the ideas had context - they had a value - and if the idea's conceptualisation was a winner, the financial leaders knew how to justify its implementation financially.

What if the CFO was sitting at the ideation table when the brainstorming was occurring,  would innovation in organizations suddenly take on a whole new dimension? The innovation purists might argue we need to develop the idea first. I would argue ideas need to have context and focus first and most importantly financial assumptions that can be tested as the ideas develop and emerge.

Globally, I am hearing from fellow innovation practitioners of the high level of innovation failure in many organizations. I suspect this would not be the case if the CFO was able to lead rather than be the gatekeeper of the idea innovation flow in organizations.

So how might a CFO lead innovatively?

An expensive operational black hole surfaced in a recent creative leadership workshop I conducted with 14 senior leaders in a multi-billion dollar South African headquartered retail chain. A Management Innovation Index benchmarking diagnostic revealed the main cause of this was the senior leadership team totally lacked any idea development skills capabilities. As  a result, the $750,000 consultant's report, recommending the re-engineering of the IT infrastructure to find the efficiencies, productivity and growth to make the organization profitable again, lay dormant.

A simple internal idea generation software platform internally designed to solicit ideas to assist in implementing the report's recommendations had not worked. Employees lacked any understanding of how to use the platform and what its real purpose was. There was no discernible focus and no real motivation to be involved. It was perceived as nothing more than an old fashioned suggestion box promoted by the IT department that already had a bad internal reputation culturally. In the CFO's view, idea generation had been a huge waste of resources and time - nothing more than expensive hot air.

Research to try and gain some value out of the consultant's report surfaced the Dupont Model, a business tool designed to analyse an organization's return on assets (ROA). The model requires an organization to break the firm's profitability down into component parts to see where it actually comes from.

The COO suddenly had an insight and recognized there was an opportunity to become the idea developer in the senior leadership team, to make the consultant's recommendations tangible!

Could the CFO be persuaded to re-engage in an ideation programme using this sophisticated financial modelling tool directly linked to the balance sheet as the framework for idea generation?

The CFO bought in. The company rapidly redesigned a more nuanced sophisticated idea generation programme focused on exploring the earning and cost capacities of each individual asset base within the organization. As a result, leaders in all parts of the business now had asset responsibility as well as operational responsibility. This approach gave purpose, motivation, context and focus for managers and team leaders at all levels to ideate meaningfully and began producing outstanding results almost immediately.  The creative flow of ideas within the group is now flourishing under the COO's mantra "Why ideate in a business if the ideas don't have some financial outcome that can be assessed?"

Many Chief Financial Officers see themselves as future CEOs. Could there be any more powerful way of convincing a Board a CFO is ready for the next step than by having been responsible for leading successful innovation programmes framed and managed for financial outcomes - the operational benchmark of a dynamic 21st century organisation.