In business, start-ups are envied and feared in equal measure. Incumbents watch as these nimble disruptors tear up traditional business models and steal their customers with ruthless efficiency. The start-up mentality has become a by-word for innovation, agility, focus and intensity.
So how can CFOs tip the balance in favour of innovation?
1 Understanding the barriers to innovation
Understanding the barriers to innovation is the first step to overcoming them. FSN’s recent survey on Innovation in the Finance Function found that the key obstacles to innovation are an unresponsive and stifling culture afraid of change, a lack of time for innovative projects and the difficulty they face when measuring the success of innovation.
Each of these obstacles becomes more acute the larger an organisation becomes. As a company grows, departments expand, becoming isolated silos that don’t share ideas, and employees become bogged down with the business of running the business, leaving little time for new projects.
A lack of collaboration and the fear of failure is a powerful inhibitor of innovation. Start-ups are small, nimble and cohesive, and they can cultivate a culture from the very beginning that encourages innovation, which means not fearing failure because measured risks are the only way to adapt and grow.
Start-ups make mistakes all the time, but their size and attitude means most of those mistakes are never seen. Start-up investors recognise that mistakes are part of the process, not a failure of the process. Larger companies worry they may make larger mistakes, and operate under the pressured gaze of investors and stakeholders intolerant of any failure.
2 Adopting a start-up mindset
Even if new employees or enthusiastic and progressive staff members begin with a start-up mindset, it can easily be quashed under the weight of bureaucracy and resistance. The only way to fully embrace a start-up mentality is to nurture it from the very top of the organisation. When senior management recognise the advantages of measured risks and stop punishing failure, this will filter down through the ranks of the organisation and encourage the germination of new ideas.
When leaders back innovation, they can build the right culture around it. This means putting cross functional teams together on innovative projects, ensuring there is enough time to see a project through, and setting out a clear vision of what success looks like so the project can evolve and change to become truly innovative.
3 Leading from the front
Finance leaders are still struggling to take this lead though. FSN’s Innovation survey found that 45% of CFOs and senior finance executives believe their approach to innovation is too conservative and 34% are so afraid to make mistakes they don’t even attempt innovative projects.
This is conservatism and fear is limiting the transformational power of innovation, because senior finance teams have a pivotal role to play in driving forward new projects and ideas. From their vantage point at the centre of the organisation the finance function has a panoramic view of the effects of any new and innovative projects. Yet almost half struggle to articulate the value of innovation in the finance function. This means any investment is skewed towards front office innovation which the survey shows is to the detriment of overall company performance.
4 Not getting hung up on risk and returns
A start-up mentality is one that is agile enough to make decisions, which includes understanding the cost of failure, but also the cost of being too risk-averse. Here finance leaders need to step up to this challenge by supporting well thought out but speedy decisions without vacillating, and without punitive consequences of failure.
But the research also highlighted other ways that CFO can promote innovation. Most favoured approaches in decreasing order of priority were to;
- appoint a dedicated ‘innovation champion’
- set aside dedicated budgets for innovative ideas
- incorporate innovation objectives into personal appraisals
- to recruit individuals with a track record of innovation in the finance function
Like start-ups, CFOs need to fail fast and learn quickly.