In a 2000 interview with CFO, business guru Gary Hamel claimed that finance executives are the enemy of innovation. And that was when times were good. Today nearly all CFOs have a mandate to conserve cash, and that intensifies the pressure to put a cap on corporate creativity. Indeed, a new McKinsey study finds 40% of companies surveyed are actively seeking to reduce research-and-development costs and reducing the number of R&D projects they are funding.
Yet slashing R&D budgets for the near term will place companies in precarious competitive positions when the economy does turn around. The challenge for CFOs is to figure out how to fund the innovation that will drive future growth while ensuring that the company actually makes it to the future. Those who can strike this balance will not only help their companies but also themselves: far from being regarded as numbers people with myopic vision, they will earn reputations as strategic thinkers focused on growth.
Instead of acting as the enemies of innovation, CFOs can play a critical role in fostering the development of new products, ideas, and processes. And they can do it while staying true to their natures: by applying the finance department’s hallmark fiscal hawkishness to innovative initiatives. A recent study by Boston Consulting Group, in fact, finds that some companies’ biggest weaknesses in innovation center on the very processes where CFOs can add value — things like sticking to a timeline, earmarking funds, and balancing a portfolio of innovations. (See “Room for Improvement” at the end of this article.)
“People think that discipline and innovation are foes,” says Scott Anthony, president of Innosight, the strategy consulting firm founded by Clayton Christensen, author of The Innovator’s Dilemma. “But in fact they’re very good friends. By using discipline, helping people take the right risks, and applying what they know about managing portfolios, CFOs can be huge enablers of innovation.”
Jack Jenkins-Stark, finance chief at BrightSource Energy, a developer of large-scale solar-energy projects, recalls that at a former employer, a software company, the management team would meet to consider as many as 120 new projects competing for funding in a given year. “Almost inevitably, the first question asked was, ‘How much can we spend?’” says Jenkins-Stark. “One of the most important things the CFO can do is set that bar.” Once his fellow executives understood the rationale for the budget range he was suggesting, “the dialogues about what to fund and what not to fund were much more focused,” he says.
Instead of trying to weigh in on which is the most deserving or worthwhile technology to pursue, a role he cedes to the company’s technical experts, Jenkins-Stark brings his knowledge of the business’s financial resources to help shape the conversation. “I can provide an overall guideline around corporate demands for capital and indicate an acceptable range of spending,” he says. “I can provide information about how much each initiative will cost, and I can ask really hard questions about time-to-market or time-to-economic-results.” Such data helps the full management team make faster, more-informed decisions, he says.