Innovation forces us to re-assess traditional measures of ROI. Business models in the digital era do not always conform to historic expectations of internal rate of return, payback or discounted cash flow. If we simply relied on ROI many important initiatives wouldn’t get off the ground. That’s not to suggest that a business should ‘bet the farm’ on some wacky idea, but there should be room somewhere to explore seemingly outlandish proposals – especially if they come from young people within the organization. So how do you do it?
The first approach is to find low cost ways of testing concepts, for example, by allowing innovators within the business a month to develop the idea with a small amount of capital and resources in order to frame and refine ideas.
The second approach is a long-term initiative in which individuals are encouraged to use the resources of the business after-hours to develop their own ideas and given free access to tap into the minds of work colleagues at set times. Some may conclude that they want to take the ideas and give them a try on the outside for themselves, but organizations piloting this approach hold to the belief that ‘what you give back comes back’ in innovation that can be used within the business.
A third approach is to establish and fund incubators to nurture the best ideas until they are market-ready.
2.De-emphasise financial arguments
McKinsey research shows that new initiatives rarely fail for financial reasons. The real reason that new strategic initiatives fail is most often because of management’s inability to execute. So, after the initial financial hurdles are overcome what really matters is that CFOs focus on the organization’s resources, capacity and competency to succeed.
3.Learn to say “YES”
Our conservatism leads to an inbuilt management bias. It’s easier to say “NO” to a new proposition than to say “YES”. We can all find a hundred reasons why a project shouldn’t proceed and then convince ourselves that we discussed it at length and gave it a fair hearing. The “NO” decision is comfortable – it retains the status quo and apparently no harm is done. But the old adage – ‘nothing ventured nothing gained’ is even more pertinent in the digital era. A ‘yes it can be done’ disposition can make all the difference.
4.Budget for innovation
How many CFO’s actually budget for innovation? Establishing innovation as an account line helps to set the conditions for a creative environment that rewards enterprising ideas. The budget need not be vast but it sends out the message (especially to young workers) that they can contribute new ideas. Oh and take out the bureaucracy to speed ‘time to decision’. Nothing is more certain to deflate enthusiasm for innovation than endless form filling, committee meetings and multiple layers of committees to get a fledgling idea approved.
5.Look inwards as well as outwards for inspiration
Don’t ignore internal processes and systems. Innovation comes in many guises. It doesn’t have to be novel or glamorous – it could simply be re-engineering a ‘purchase-to-pay’ process or process standardisation aimed at eliminating 5 different ERP systems.
Opportunity is staring us in the face. CFOs just have to learn to grasp it.