Innovators, Use These 5 Tips to Win Over Corporate Finance

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Because innovation is difficult to quantify on a balance sheet, use these techniques to communicate its value to finance teams.

As enterprises strive to digitalize and adapt to changes brought about by the pandemic, innovators within these organizations will be under more pressure to perform. The ability of organizations to adapt their approaches to quantifying innovation will have a significant impact on their ability to keep up with the speed of the market, attract and retain talent, and ultimately create impact.

In a rapidly changing world, it can be difficult to keep up with the times. Business model shifts, no matter how small, get ignored as a result. It has been 20 years since the internet had its skeptics. The debates today are regarding artificial intelligence, cryptocurrencies, space tourism, self-driving cars, not to mention the countless small, incremental technological changes that challenge traditional approaches.

The current way of measuring expectations, methodologies, and funding mechanisms for innovations does not take into account the uncertainty associated with early-stage opportunities. Fiscal year-focused approaches can unwittingly erode innovations during the phase when they require the most nurturing.

Those who innovate can persuade finance colleagues to:

• Change your perspective on gauging market performance and potential for innovation.
• Traditional financial management approaches are not conducive to innovation.
• Encourage a diversity of thought and growth mindset to improve collaboration.

Enterprise finance teams must be treated as stakeholders by innovation teams in order for innovation to be successful. The finance team is responsible for setting the standards for investment evaluation and enforcement through processes and policies.

Where are the opportunities for innovators to communicate the value they bring to the business in terms finance teams can appreciate?

Use reframing to challenge your own beliefs about your finance colleagues. Apply the following five tactics for resource allocation, measurement and progress monitoring:

5 TIPS TO QUANTIFY INNOVATION EFFORTS FOR CORPORATE FINANCE TEAMS

• Don’t assume what is meant by “innovation.”
• Create opportunities for finance colleagues to work more directly with users and customers.
• Assess the company’s innovation “bets” as an overall portfolio.
• Build flexibility around the yearly planning process.
• Set expectations that measurement systems for early-stage innovations are different.

Don’t assume what is meant by “innovation.”

The finance function must be innovative to produce business results, execute with discipline, maintain control, and manage risks. Ensure that you are not simply doing things for the sake of being cool. Make an 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. The finance toolkit needs to be adapted for your work in order to reduce perceptions of risk.

If you focus on building understanding with these colleagues, it will contribute to trust. Trust in relationships enables authentic collaborations that inspire advocacy.

Create opportunities for finance colleagues to work more directly with users and customers.

The speed of business and customer preferences necessitate that key decision makers and influencers deepen their empathy for customers’ perspectives through direct engagement.

If opportunities to engage do not present themselves, get creative about how to create these opportunities. Inviting colleagues to attend in-home interviews during ethnographic studies is one way to do this. Encouraging attendance at focus groups, spending a day going on sales calls, or spending a few hours in the call center listening to customers and agents will help to improve customer engagement. It is important that we take the time to listen to users, customers, and customer-facing employees in order to gain empathy for their experiences and motivations.

Creating opportunities for your finance colleagues to develop greater empathy for how people make purchase decisions will increase alignment between your two worlds.

Assess the company’s innovation “bets” as an overall portfolio.

Take a comprehensive look at the organization's innovation efforts, and sort them according to factors such as degree of risk, time to prove scalability, potential magnitude of impact, market size, and likelihood of success. A combination of judgment, qualitative indicators, quantitative indicators, and intuition can be used to assess the health of initiatives early in their life. By presenting findings and recommendations systematically, you can launch a strategic dialogue with finance colleagues. What-if scenarios can then be debated, leading to the development of a common understanding of overall direction.

Build Flexibility Into or Around the Annual Planning Process

Instead of being restricted by fiscal year timetables, we should establish an off-cycle seed-funding mechanism to enable prototyping and experimentation at the speed that the market demands.

Set expectations that measurement systems for early-stage innovations are different.

Measuring the viability of a new concept by identifying the likely drivers of the business model, such as revenue, expense, and capital requirements. Assign qualitative values of "high," "medium," or "low" to each line item based on alpha and beta test results and user feedback. It is clear that acquiring in-market experimentation, ongoing user and buyer feedback, and deepening understanding of operational requirements will be done iteratively, minimally over weeks, months, or quarters, and this will lead towards sensible quantitative assumptions.

Consider the organization's innovation efforts from a comprehensive perspective, and group them according to factors such as degree of risk, time to prove scalability, potential magnitude of impact, market size, and likelihood of success.

To become more proactive strategic advisors, enterprise finance professionals are being challenged so they can help guide businesses through an environment where innovation is significant to the business' success. Innovators can use this trend to help finance team colleagues understand customer needs and how they connect to innovation priorities. It is beneficial for companies to take the initiative to shift to measurement standards and processes that are flexible and adaptable to how innovations are discovered, nurtured, and developed.